As financial services companies look for new ways to help retiring boomers manage their savings, one rising trend is a class of investments called retirement income funds, designed to help older people avoid using up their nest eggs too quickly.
Also known as managed payout funds, they basically are conservative mutual funds that automatically distribute income to older investors at rates that are gradual enough to be sustainable for decades, CNBC reports.
A variation of target-date funds, which automatically shift assets to less volatile investments as an investor approaches retirement, they started appearing in the wake of the 2007-08 financial crisis, but they’ve gained momentum in the past few years. Major mutual fund companies such as T. Rowe Price and Vanguard are among those that offer retirement income funds.
Personal-finance website Kiplinger notes that retirement income funds generate income as well as capital appreciation. And while they have a conservative approach to investing and aim to protect retirement savings for long periods, the funds are still vulnerable to the usual risks of noninsured investments in stocks, bonds or mutual funds. According to Morningstar analyst Josh Charlson, retirement income funds typically allocate 30 percent to stocks.
That makes retirement income funds a less expensive, though somewhat riskier, an alternative to buying an annuity.
Retirement income funds vary in the amount of money that retirees have to invest at the start. Some big fund managers require a minimum of $25,000.