Even as stock losses may have some baby boomers thinking of delaying retirement, new products are emerging for those entering this stage...
Even as stock losses may have some baby boomers thinking of delaying retirement, new products are emerging for those entering this stage.
In the past year, Fidelity, Vanguard, Schwab, Russell Investments, John Hancock and DWS have launched products with names such as “managed payout” or “monthly income” funds.
They’re designed to make distributions that mimic a paycheck, but payments are not guaranteed. Asset-allocation options may vary according to an investor’s risk tolerance. A younger retiree, for example, might choose a fund with more in stocks, in hopes of seeing gains in principal.
Jonathan Shelon, who manages Fidelity’s income-replacement funds, says they work best alongside Social Security or employer funds and a guaranteed income source like an annuity.
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“I don’t think they are ever going to usurp responsibly managed and sold annuities,” agrees Morningstar senior fund analyst Dan Culloton.
All the funds pay out income from stock dividends and bond yields. They differ as to how principal is paid out.
Schwab’s funds aim to protect principal by distributing less than the funds are expected to yield, providing a cushion, says Jeff Mortimer, chief investment officer of Charles Schwab Investment Management.
But Culloton notes the success at safeguarding principal depends on the ability to execute well in tough markets. Fidelity’s funds are designed to draw down principal until a target year, which currently ranges from 2016 to 2046, says Shelon. He says the funds can reset distributions once a year to address market conditions.