Every penny counts in this life, and that’s doubly true in retirement — so please don’t waste your hard-earned money on fees.
Interest rates are at historically depressed levels, making it harder than ever to generate a decent stream of income. That makes it all the more imperative to husband your resources and not overpay for performance.
Consider that the average actively managed mutual fund fee comes to 1.07%. That’s $107 for every $10,000 invested.
If you give $100,000 to an active manager, your expenses come to $1,070 a year just for the privilege of investing in the fund. That’s over $89 a month!
In a time when the average monthly Social Security benefit is only $1,230 a month and one-year CDs pay 0.75% … well … $89 a month is a material amount of money to a retiree.
At what do you get for your $89 a month? About an 80% chance that your mutual fund manager will fail even to keep up with the performance of the market.
When it comes to retirees choosing the best mutual funds, it’s a no-brainer to look for as much income as possible with the least amount of risk. Too often, however, investors forget about those fees.
That’s why we looked for first-rate mutual funds for retirees that also have rock-bottom expenses. Spoiler alert: They’re all from Vanguard, because it’s essentially impossible to beat them on pricing.
Here are some of the best mutual funds for stingy retirees that we found:
Vanguard Managed Payout Growth and Distribution Fund
Ticker: VPGDX
Morningstar Rating: 4 Stars
Minimum Investment: $25,000
Expenses: 0.43% ($43 for every $10,000 invested)
Load: None
Yield: 4.43%
Performance Summary: VPGDX’s three-year total return of 9.5% outperformed the retirement income mutual fund category by 3.5 percentage points, according to data from Morningstar.
Notes: Designed to generate retirement income, VPGDX invests in other Vanguard stock, bond and commodities funds. VPGDX automatically makes regular monthly payments, which adjust each January depending on the performance of the fund. In early January, VPGDX will be merged with two other Vanguard managed payout funds. This new fund, known simply as the Vanguard Managed Payout Fund, will have an annual distribution target rate of 4%.
Vanguard Target Retirement Income Fund
Ticker: VTINX
Morningstar Rating: 4 Stars
Minimum Investment: $1,000
Expenses: 0.16% ($16 for every $10,000 invested)
Load: None
Yield: 1.98%
Performance Summary: VTINX’s three-year total return of 6.4% outperformed the retirement income mutual fund category by 0.3 percentage point, according to data from Morningstar.
Notes: The most conservative of Vanguard’s target retirement funds, VTINX automatically rebalances to maintain a steady asset allocation of 65% bonds, 30% stocks and 5% short-term reserves by investing in five other Vanguard index funds. Unlike a managed payout fund, VTINX allows you to set an automatic withdrawal schedule to set your own payout amount.
Vanguard Target Retirement 2015 Fund
Ticker: VTXVX
Morningstar Rating: 4 Stars
Minimum Investment: $1,000
Expenses: 0.16% ($16 for every $10,000 invested)
Load: None
Yield: 2.05%
Performance Summary: VTXVX’s three-year total return of 9.1% outperformed the target date mutual fund category by 1.7 percentage points, according to data from Morningstar.
Notes: Don’t let then name fool you — this fund is designed for anyone retiring between 2013 and 2017. VTXVX currently invests in five Vanguard index funds that give it a mix of 55% stocks and 45% bonds. But, as a target-date retirement fund, it will become more conservative over time, automatically increasing its exposure to bonds and decreasing its exposure to stocks. After about seven years, VTXVX’s allocation will match that of VTINX.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
