Retirement income funds are a one-stop shop for monthly cash flow. To be able to provide a steady stream of retirement income, retirement income funds are actively managed. They're a great all-in-one investment management solution that's more flexible than annuities but with fewer guarantees. Vanguard, Schwab, Fidelity, and John Hancock have all released their own version of a retirement income fund. More information on each of them can be found below. Each fund is in charge of a portfolio of other funds, with the allocation changing to meet the funds' stated goals. There are no guarantees with any of the funds, so you should expect your investment income and asset prices to fluctuate.
Vanguard's Managed Payout Funds
Vanguard used to have three funds that provided monthly income while also preserving or growing your original investment. Still, in January 2014, these funds were merged into one fund with a 4% annual distribution rate. VPGDX is the ticker symbol for this fund. If you're familiar with the 4 percent rule, which states that retirees should be able to withdraw 4% of their invested assets each year in retirement and expect their money to last at least 30 years, you'll understand why the payout rate is likely to be set at 4%. The fund invests in a "fund of funds" strategy, in which your money is spread across a number of different Vanguard stock and bond funds, with the allocation changing as the fund manager sees fit. The fund may have to dip into its principal if necessary to meet its target payout amount. This strategy works best when you're willing to give the fund a long time to reach its goal. If you take money out of the fund when it is experiencing a period of low returns, you are unlikely to get the long-term results that the fund is designed to provide. The principal and income are not guaranteed. The fund has a target payout rate, but a payout is not the same as a yield because some of the money paid out may be returned to the investor as principal.The Vanguard Managed Payout Fund's Basics
- $25,000 is the minimum investment.
- .38 percent expense ratio
- There are no upfront sales or surrender fees.
- Targeted payout rate: 4% per year, paid out monthly, equating to about $315-$330 per month per $100,000 invested.
- The Vanguard website has a calculator that will show you your expected income based on how much you invest.
Income Replacement Funds from Fidelity
Income Replacement FundsSM from Fidelity is designed to provide monthly income by paying out principal and earnings over a set period of time, similar to an annuity. One appealing feature is that the monthly income is intended to keep pace with inflation, and unlike an annuity, you can withdraw your money at any time. The funds achieve their goal by gradually liquidating your investment, paying out the entirety of your balance by the target date for the fund. You can choose a fund that will have paid out 100 percent of your balance by a specific year, such as 2020, 2030, or 2042, depending on how long you want your money to last. The lengthier the period of time you select, the less money you'll get each month. Each fund's investment mix will automatically change over time, becoming more conservative as the fund's end date approaches. The principal and income are not guaranteed.The Fundamentals of Income Replacement FundsSM
- $25,000 is the minimum investment.
- Expense ratios range from 50 to 70 percent.
- There are no upfront sales or surrender fees.
Monthly Income Funds from Schwab
Charles Schwab's Monthly Income Fund series includes three funds, each with a $100 minimum investment (although $100 will not provide much monthly income). The funds' expense ratios are reasonable, ranging from.47 to.66 percent, and there are no sales charges or 12b1 fees. Based on the fund and the current state of interest rates, the funds' targeted payout amounts range from 1 to 8%. "Moderate Payout," "Enhanced Payout," and "Maximum Payout" are the names of the funds. The Maximum Payout fund can have up to 25% of its assets in equities, while the Moderate Payout fund can have up to 60% of its assets in equities. When interest rates are low, these funds will choose to reduce payouts rather than dipping into principal. As a result, monthly earnings can and will fluctuate.The Fundamentals of Monthly Income Funds
- $100 is the minimum investment.
- Expense ratios range from.47 to.66 percent.
- There are no upfront sales or surrender fees.
The Retirement Living Funds of John Hancock
John Hancock offers a number of Retirement Living funds, each of which is designed to manage investments in preparation for retirement in a specific year. Up until the target retirement year, the funds' goal is to maximize returns; after that, the funds' goal is to generate more current income. The funds do this by employing a "fund of funds" strategy, in which your money is spread across a number of other stock and bond funds, with the allocation changing as the fund manager sees fit. The principal and distribution amounts are not guaranteed. The strategy employed by these funds has the best chance of long-term success. Suppose you withdraw your money when the fund experiences a period of negative returns (which almost all funds will experience at some point). In that case, you're not likely to succeed results the fund was designed to achieve for you.The Foundations of Retirement Living Funds
John Hancock's retirement living funds have more than 1% annual expenses, which is higher than similar options. The target dates for each of the funds in their Retirement Living Series range from 2010 to 2060. The majority of the funds require a $1,000 minimum initial investment for Class A, B, and C shares. Certain share classes offered through a group retirement plan may not have a minimum investment requirement. On John Hancock's website, you can find more information about the funds under the asset allocation category of funds.