Investing

RBC Managed Payout Solution Fund For Retired Elderly Couple

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  • Jan 17th, 2022 12:19 pm
[OP]
Member
Dec 7, 2002
367 posts
319 upvotes
Kemptville

RBC Managed Payout Solution Fund For Retired Elderly Couple

My in-laws are 78 and 82 years of age (living in a retirement home) and are looking at putting roughly $400,000 into a RBC Managed Payout Solution fund for some monthly income.

The fees are quite high, roughly works out to $6,000 a year.

They would receive approximately $1,800 a month.

What is your opinion/advice on a fund like this?

Thank you.
31 replies
Jr. Member
Nov 15, 2011
117 posts
90 upvotes
SW Ontario
Take a look at Vanguard's VRIF.
Sr. Member
Sep 28, 2011
797 posts
1435 upvotes
Winnipeg
figi28 wrote: My in-laws are 78 and 82 years of age (living in a retirement home) and are looking at putting roughly $400,000 into a RBC Managed Payout Solution fund for some monthly income.

The fees are quite high, roughly works out to $6,000 a year.

They would receive approximately $1,800 a month.
So appox $6,000 a year, is a 1.5% fee and approx. $1800 a month works out to a distribution yield of 5.4%. This seems in line with the RBC fund information document. It shows a 1.63% MER and a 5.02% 12-month yield.

Whereas the Vanguard VRIF mentioned by @oriley above offers a 0.32% MER and a 3.87% 12-month yield.

Going into this I expected VRIF to smoke the RBC fund, but that doesn't seem to be the case, despite the higher MER. A 5% yield over the past year is pretty good for a "low risk" 70% income / 30% equities fund as it is classified as.
Deal Guru
Feb 9, 2009
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bigblue1ca wrote: So appox $6,000 a year, is a 1.5% fee and approx. $1800 a month works out to a distribution yield of 5.4%. This seems in line with the RBC fund information document. It shows a 1.63% MER and a 5.02% 12-month yield.

Whereas the Vanguard VRIF mentioned by @oriley above offers a 0.32% MER and a 3.87% 12-month yield.

Going into this I expected VRIF to smoke the RBC fund, but that doesn't seem to be the case, despite the higher MER. A 5% yield over the past year is pretty good for a "low risk" 70% income / 30% equities fund as it is classified as.
Yeah doesnt look bad. 60% cap appreciation in 10 years + 5% yield.

Having said that does the distribution grow?

If not best to buy a basket of dividend stocks.

Enbridge - 6% yield
Bell- 5.3% yield
Royal Bank- 3.5 yield
Telus- 4.4% yield
AQN- 4.9%
Fortis- 3.6%

Could get you near the 5% mark with dividend growth and same cap appreciation.
Deal Addict
Dec 8, 2020
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S.E corner of Toront…
without taking into account any tax considerations, MER's for the ones already mentioned above for the RBC funds, or funds such as a VRIF ETF, the old folks at their age should check out alternatives such as an annuity, there may be others that RFD'ers can suggest.

a few questions from me a 74-year-old...

* do the old folks need any volatility or risk, will any fund/ETF guarantee or be volatile factoring in MER.

* do the old folks plan on leaving a legacy or get as much as they can from the $400,000 in monthly income so that at the end of their day's whats left should be minimal or ideally zero.

* what about an annuity maxing income till the last person is left standing, is a possible alternative.

a $400,000 annuity may get them better than $1800/mth, check it out.

speak to an annuity specialist to compare to the already mentioned products in this thread.
Deal Addict
Dec 8, 2020
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an after thought ^^^

$400,000 in a 1.25% HISA drawing (interest + capital) $24,000/yr from the pot, the pot would be empty in ~17 years.

and you never know HISA rates may go back up to 2% soon rather than later, if so the empty pot could be 20 years or the old folks could draw out more.

take the youngest person at age 78 + 17 years, that's age 95
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Feb 1, 2012
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Thunder Bay, ON
Here are some links that discuss this fund.

https://www.highviewfin.com/blog/monthl ... he-sequel/

https://www.highviewfin.com/blog/expect ... ome-funds/

https://www.financialwisdomforum.org/fo ... p?t=115746

Note that the fund's distribution yield is often higher than the yield of its holdings. To make up the difference they pay return of capital, i.e. giving the investor back some of their own money. You did not say which managed payout solution they are looking at, but here is one where in 2020, almost 2/3 of the distributions came from return of capital. Don't make the mistake of thinking that the fund's high distributions are supported by its holdings.
https://www.rbcgam.com/en/ca/products/m ... 581/detail

Retirees often like these funds because they pay consistent high income, but there is some risk of the investor's capital being eroded. VRIF has a lower payout but due to it's lower fee is likely to have higher returns.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
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Feb 1, 2012
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Thunder Bay, ON
bigblue1ca wrote: So appox $6,000 a year, is a 1.5% fee and approx. $1800 a month works out to a distribution yield of 5.4%. This seems in line with the RBC fund information document. It shows a 1.63% MER and a 5.02% 12-month yield.

Whereas the Vanguard VRIF mentioned by @oriley above offers a 0.32% MER and a 3.87% 12-month yield.

Going into this I expected VRIF to smoke the RBC fund, but that doesn't seem to be the case, despite the higher MER. A 5% yield over the past year is pretty good for a "low risk" 70% income / 30% equities fund as it is classified as.
Don't mistake distribution yield for return. OP did not say which RBC Managed Payout Solution they are looking at but this one had a 7.07% return in 2021, compared to VRIF's 7.56%. The RBC fund's distributions consisted of 65% return of capital, compared to only 2.5% for VRIF.

Return of capital is like having a savings account that pays 2% interest, withdrawing another 2% every year, and thinking it has a 4% yield.
I solemnly swear, to never assume I have an inkling at which direction the market will head, and to never make any investments based on a timing strategy.
[OP]
Member
Dec 7, 2002
367 posts
319 upvotes
Kemptville
Thank you for your replies. They are looking at either the RBC Managed Payout Solution or the RBC Managed Payout Solution Enhanced Fund.

We don't really want them to lose much of their initial investment if possible and would prefer if it would grow a bit over time.

I was feeling a bit concerned with these funds that they will eat into their initial deposit of $400,000 to fast. The yearly returns don't seem high enough to cover the fees and a monthly payout.
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Jan 23, 2011
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What about buying RY shares outright? You can buy 2700 shares with $400,000. At $4.80/share in dividends this year, you'll receive $12,900. To cover the $8700 shortfall, sell 60 shares along the way each year. Below I am assuming a $0.10 dividend increase per year and the share price hovering around $145 over four years.

2700 shares $4.8Div = $12960 Plus sell 60X$145=$8700 Year one Total receipts $21660
2640 shares $4.9Div = $12936 Plus sell 60X$145=$8700 Year two Total receipts $21636
2580 shares $5.0Div = $12900 Plus sell 60X$145=$8700 Year three Total receipts $21600
2520 shares $5.1Div = $12852 Plus sell 60X$145=$8700 Year four Total receipts $21552
Member
Mar 17, 2008
269 posts
120 upvotes
Ontario
figi28 wrote: My in-laws are 78 and 82 years of age (living in a retirement home) and are looking at putting roughly $400,000 into a RBC Managed Payout Solution fund for some monthly income.

The fees are quite high, roughly works out to $6,000 a year.

They would receive approximately $1,800 a month.

What is your opinion/advice on a fund like this?
The payout after fees is 5.4%. Is that a Safe Withdrawal Rate? Often touted SWR was 4%, but these days some are saying 3.5%. So RBC may in time have to return some capital or reduce the payment. This is not necessarily a bad thing for those (like me) late in retirement. Even if your in-laws just put the $400K in a high interest account and drew $1800/month + inflation, their $400K would last about 19 years. The RBC fund should do at least 50% better than a high interest account, so their savings should last for their lifetime.

RBC have another option called Investease. Not much data at present on performance. It invests in a basket of ETFs chosen based on risk tolerance. It should do better than a high interest account, and also perhaps better than the managed payout solution. The same withdrawal could be made. The management fee is 0.5% plus MERs of ETFs chosen. So say about 0.7% - 1/2 of the proposed fund.

With your in-laws being in a home, perhaps they don't want to be involved in even deciding on how much to withdraw? The managed withdrawal offers that.

My wife & I are almost same age as your in-laws. As a result, I have been looking at such funds. We have a lot more than $400k, which provides more options. For past 18+ years I have managed our investments myself. Our portfolio has doubled after drawing approx 4% per year. Roughly 7.8% Total Return. If we had drawn 5.4% like the managed fund proposes, our portfolio would still have grown. Yields on fixed income are poor these days, but inching upwards. I would be more comfortable if the payout was lower - say $1400/yr. I would choose that if going with Investease. Perhaps you should talk to RBC Wealth Management. They are there to help choose one of their many programs, based on in-laws needs.

Annuities are another option. A joint life with 10 year guaranty appears to pay about $2400/month on $400k. They could put the extra $600 aside and later use it to cover inflation in their living costs or provide a legacy. This like the managed payout fund requires minimal management by the holder. Downside - nothing at end to leave to family ;)https://lifeannuities.com/articles/2022 ... nt_annuity .
Last edited by freeagent on Jan 15th, 2022 10:44 pm, edited 2 times in total.
Sr. Member
Sep 28, 2011
797 posts
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Winnipeg
Deepwater wrote: Don't mistake distribution yield for return.
Gotcha, thanks. Totally missed that. That explains a lot, as I was kind of surprised how today they were pumping out 5% with 70% fixed income and 30% equities.
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Dec 8, 2020
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Gingercookie wrote: What about buying RY shares outright? You can buy 2700 shares with $400,000. At $4.80/share in dividends this year, you'll receive $12,900. To cover the $8700 shortfall, sell 60 shares along the way each year. Below I am assuming a $0.10 dividend increase per year and the share price hovering around $145 over four years.

2700 shares $4.8Div = $12960 Plus sell 60X$145=$8700 Year one Total receipts $21660
2640 shares $4.9Div = $12936 Plus sell 60X$145=$8700 Year two Total receipts $21636
2580 shares $5.0Div = $12900 Plus sell 60X$145=$8700 Year three Total receipts $21600
2520 shares $5.1Div = $12852 Plus sell 60X$145=$8700 Year four Total receipts $21552
^^^ doing this is a good suggestion because dividends will be tax-effective qualifying dividend tax credit

include that (the forever boring that no-talks about) RY has a growth of average better than 10%/yr for past 25 years.

* hint: smart money in RY.TO could get them better than 7%/yr+ with what you suggested when including bolting on OTM cc options, leaving less decumulation of capital....I did say *smart money*

2011 -2021 performance, plug your own dates.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

options on RY

https://www.m-x.ca/en/trading/data/quot ... RY*#quotes
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Jan 23, 2011
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Janus2faced wrote: ^^^ doing this is a good suggestion because dividends will be tax-effective qualifying dividend tax credit

include that (the forever boring that no-talks about) RY has a growth of average better than 10%/yr for past 25 years.

* hint: smart money in RY.TO could get them better than 7%/yr+ with what you suggested when including bolting on OTM cc options, leaving less decumulation of capital....I did say *smart money*

2011 -2021 performance, plug your own dates.

https://www.portfoliovisualizer.com/bac ... ion1_1=100

options on RY

https://www.m-x.ca/en/trading/data/quot ... RY*#quotes
It does prove that often times the path to a successful retirement is keeping things simple. RY's share price basically doubled from ten years ago, so has the dividend rate. Just buying RY over this period is not only simple, but effective at generating good returns over time. No signatures or long term contracts required, from a company that has paid uninterrupted dividends for 150 years.
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Gingercookie wrote: It does prove that often times the path to a successful retirement is keeping things simple. RY's share price basically doubled from ten years ago, so has the dividend rate. Just buying RY over this period is not only simple, but effective at generating good returns over time. No signatures or long term contracts required, from a company that has paid uninterrupted dividends for 150 years.
^^^ agree, thanks for posting that, yet it can be more interesting even for RY... simplified below based on RY continuing as it has done in the past.

disclaimer: in the following for information, reference purposes only - not a go-do.

*smart money* of $400,000 might take half that money $200,000 to buy approx 1300 shares (1300* $145 = $188,500) * $4.80 dividend = $6480in annual dividends/4 quarterly $1620 or approx $540/mth.

cash left over $11500

sell 13 contracts (1300 shares) ATM $150 strike cc Jan 2023 for $6/share = $7800

with the other 50% of the $400,000 cash or $200,000 sell ATM cash covered put at $150 strike 13 contracts (1300 shares worth) at $12/share = $15,600.

$195,000 which is money at risk

cash left over in the pot ~$5000

$6480+$7800+$15600 = $29,880/12 = $2490/mth

the $24,400 option money is upfront, the $6480/4 qtrly dividend is approx $540/mth

return on capital employed: $400,000 minus $16,500 cash in the pot = $383,500

$29,880/$383,500 = 7.79%

on expiry if the stock is above $150 & gets called away the pot is now worth ...$416,500+ $29,880 collect during the previous 12 mths.

rinse & repeat

^^^ a financial advisor either doesn't know or would *not do* this, IMO they are mainly interested in what's best for themselves, even the fee paying ones.
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Jan 23, 2011
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Janus2faced wrote: ^^^ agree, thanks for posting that, yet it can be more interesting even for RY... simplified below based on RY continuing as it has done in the past.

disclaimer: in the following for information, reference purposes only - not a go-do.

*smart money* of $400,000 might take half that money $200,000 to buy approx 1300 shares (1300* $145 = $188,500) * $4.80 dividend = $6480in annual dividends/4 quarterly $1620 or approx $540/mth.

cash left over $11500

sell 13 contracts (1300 shares) ATM $150 strike cc Jan 2023 for $6/share = $7800

with the other 50% of the $400,000 cash or $200,000 sell ATM cash covered put at $150 strike 13 contracts (1300 shares worth) at $12/share = $15,600.

$195,000 which is money at risk

cash left over in the pot ~$5000

$6480+$7800+$15600 = $29,880/12 = $2490/mth

the $24,400 option money is upfront, the $6480/4 qtrly dividend is approx $540/mth

return on capital employed: $400,000 minus $16,500 cash in the pot = $383,500

$29,880/$383,500 = 7.79%

on expiry if the stock is above $150 & gets called away the pot is now worth ...$416,500+ $29,880 collect during the previous 12 mths.

rinse & repeat

^^^ a financial advisor either doesn't know or would *not do* this, IMO they are mainly interested in what's best for themselves, even the fee paying ones.
Your strategy of call and put writing will work best if RY stays relatively calm.

However, over the years I've had numerous instances of good quality stocks getting called away, in many cases right before the ex-dividend date so I lose the dividend too, and then to painfully watch the prices rip up further and further. From memory, Couche Tard, Northfolk Southern, Applied Materials, United Health, Home Depot, probably many more... The funds I received from the call getting exercised were not enough to get my original position back, because what usually happens is the price would subsequently continue to run up another 20%...

Plus, I find that options make me become obsessed with the everyday gyrations of the stock price, forcing me to think like a short term trader instead of a long term investor. I don't know about you, but when I had these positions, I would always check to see if the stock price would approach the strike price, and when it does, then it is like, should I close the position and open another one, or leave it and wait five minutes... or let it expire, and keep clicking to reload the page, and I take my calculator and see the effects of various outcomes LOL... At one point every Friday of the month at 3:15PM is insanity... Getting too old for this...
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Dec 8, 2020
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@Gingercookie post #16 thanks for your analysis & feedback.

this trade is based on decumulation not accumulation as it relates to the thread OP as well as your earlier post on the dividend + drawdown of capital.

what I was trying to do with the strategy was

a) less decumulation to net ~8% on the $400k
b) see if a net growth 4% on the $400k the $16,500 net after RY is called away
c) the dividend on half the investment in RY + CSP/cash covered put.

I also looked at it from a retired standpoint as it was a 12 mth GIC

*keep in mind its $400,000 of capital* if the stock got called away above $150, I would have (before commissions) $416,500 to go back in to by RY again even if less shares.

on the crazy hour on expiry day before close, yes I agree as well as the last 10 minutes before close on the US markets the option trades around ATM goes nuts, that I'm seeing is day traders closing out their positions.

as for long options on the right underlying security, it can play out - especially with time decay or for a retired person income generating.

on straight trading options, I agree 6-8 weeks before expiry max I would consider the norm, play time decay.
Member
Mar 17, 2008
269 posts
120 upvotes
Ontario
Couple late in retirement who have had to move into retirement or long term care home just want to know how best to invest $400K to get through their final years. And now some suggest trading options??? Or play the market??

The couple need a safe way to generate income that won't deplete their capital much during their expected life span of say 15 years. We don't know whether the $400k is in RRIfs, TFSAs or unregistered accounts. This will affect after tax income. We also don't know if they NEED $1800/month. A plan with lower draw would reduce risk.

GIC ladder + managed payout or annuity perhaps. Keep it simple!
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Dec 8, 2020
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freeagent wrote: Couple late in retirement who have had to move into retirement or long term care home just want to know how best to invest $400K to get through their final years. And now some suggest trading options??? Or play the market??

The couple need a safe way to generate income that won't deplete their capital much during their expected life span of say 15 years. We don't know whether the $400k is in RRIfs, TFSAs or unregistered accounts. This will affect after tax income. We also don't know if they NEED $1800/month. A plan with lower draw would reduce risk.

GIC ladder + managed payout or annuity perhaps. Keep it simple!
^^^ its a discussion, throw at it all that we have, don't criticize, be objective, come up with one or two solid possible solutions on the $400k the OP couple need $3k/mth average/flat for the next 15 years when the capital can either go to zero or as you said
The couple need a safe way to generate income that won't deplete their capital
... ignoring the tax, can you come up with a proposal to give the couple $3k/mth inflation index for 15 years on the $400k capital that won't deplete the capital?

please don't say this or that ETF because 'who knows' what the market future will be & that past performance is not indicative of future results.
GIC ladder + managed payout or annuity perhaps. Keep it simple!
^^^ based on a 15 yr time frame, what is the max per mth/yr they can get with this?

lay it out?
[OP]
Member
Dec 7, 2002
367 posts
319 upvotes
Kemptville
freeagent wrote: Couple late in retirement who have had to move into retirement or long term care home just want to know how best to invest $400K to get through their final years. And now some suggest trading options??? Or play the market??

The couple need a safe way to generate income that won't deplete their capital much during their expected life span of say 15 years. We don't know whether the $400k is in RRIfs, TFSAs or unregistered accounts. This will affect after tax income. We also don't know if they NEED $1800/month. A plan with lower draw would reduce risk.

GIC ladder + managed payout or annuity perhaps. Keep it simple!
My in-laws have $400,000 in a High Interest Savings account and they each have about $81,000 in TFSA accounts. Nothing has been done with the money in the TFSA accounts.

They would like to generate income without depleting their capital if possible. The retirement home costs them $5,800 a month.

Together they get about $2,670 total a month from OAS, CPP and a small pension.

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