|
Considering an Annuity? Managed Payout
Funds Are One More Entry in the Retirement Spend-Down Picture
Insurers have long been part of the effort to help retirees
spend down their nest eggs through annuity products. Now, the
mutual fund industry is jumping in with a competing offering for
individuals who may or may not be so keen on annuities.
Called "target distribution" or "managed
payout" funds, individuals who are retired or about to
retire can invest in these fund products that contain stocks,
bonds or other asset classes. They are structured so investors
can designate regular withdrawals and the account balance can be
transferred easily at the time of the account holder's death to
any spousal or non-spousal beneficiary.
Managed payout funds have been compared to fixed immediate
annuities and are also known as retirement income funds. Any
distribution taken by the account holder is expected to keep
pace with inflation and come from dividends, fund appreciation
and a portion of principal. The rest of the assets stay
invested.
For retirees who want to continue building their nest egg
while generating a steady stream of monthly income, they're
worth examining. It's estimated that some $16 trillion in
retirement assets are up for grabs and looking for disciplined
distribution.
These funds issue checks regularly based on the account
holder's preferences, but the amounts are tied overall to fund
performance. Vanguard, Fidelity Investments and Charles Schwab
have all recently entered this business. Most of these funds
encourage account holders to pull out between 3-7 percent of
their total portfolio annually.
As the number of retiring Americans continues to increase,
there will continue to be new wrinkles in the spend-out game. It
makes good sense to get some personalized advice on how to best
spend down your assets in a way that fits your needs. One way
would be to consult a financial planning professional a few
years before you're ready to retire to check the following:
- See how your current assets
are working so you know if you have enough to retire —
know
what you have before you question how to spend it.
- Consider various scenarios
that describe the way you'll want to live after retirement
and whether your invested assets support that plan.
- Are your long-term care needs
covered? Before you start talking about locking up assets in
specialized fund products, make sure you have money in
reserve or long-term care insurance in place should you need
to pay for temporary disability or end-of-life care.
- What are the fees on the
various managed payout funds you're looking at? Most
specialized funds have some fee structure that you should
compare against other alternatives. Compare the expense
ratio of your chosen fund against other possibilities.
- How will your assets in these
funds be invested? Do those choices match your risk
tolerance and your investment goals post-retirement? You'll
still need to be making smart investing choices with what
hasn't been spent down.
August 2008 — This column is produced by the Financial
Planning Association, the membership organization for the
financial planning community, and is provided by Don McCarty of
Financial Decision Partners, a local member of the FPA.
|
