Fidelity RMD Funds

[eytonxav]

This seems to be similar to a target date fund. Its interesting at the creativity that goes into developing such products as these offerings seem boundless, with more and more being offered each year. Certainly fees are not in the same ballpark as an index portfolio, but does not seem totally unreasonable. Is anyone using one of these?

https://www.fidelity.com/mutual-funds/mutual-fund-spotlights/rmd-funds

 

[VanWinkle]

Expenses run from .47 to 1.14 depending on which of the allocations you choose based on age on their website. These are managed target date funds that can be purchased from lower cost providers for .13 to .15 expense ratio. I am not a fan of a target date fund for RMDs since you have to sell both stocks and bonds to get your RMD completed. I would rather have the choice of selling stocks(if they are up) or selling bonds(if stocks are down) to complete my RMD.

If you feel more secure with a one fund choice, I would look for an indexed target date fund as a lower expense ratio. Also there are managed funds from Vanguard for .15 (Wellesley and Wellington) if you want a less expensive one fund choice. I am not sure if fidelity has a comparable fund, but I would look for a lower cost fund to fit the need at Fidelity.

 

[braumeister]

Only appropriate for the utterly clueless.

A relatively high ER fund that invests in "over 25" other funds with their own ERs, all with no apparent objective other than assigning an appropriate AA to your account.

Garbage!

 

[eytonxav]

Only appropriate for the utterly clueless.

A relatively high ER fund that invests in "over 25" other funds with their own ERs, all with no apparent objective other than assigning an appropriate AA to your account.

Garbage!

Surely no one would admit to using such a fund after the above

 

[Souschef]

. I am not a fan of a target date fund for RMDs since you have to sell both stocks and bonds to get your RMD completed. I would rather have the choice of selling stocks(if they are up) or selling bonds(if stocks are down) to complete my RMD.

+1
Right now, I am taking my RMD from the lower performing funds I have. I am doing a lot of QCD's to reduce my tax liability.

 

[pb4uski]

Only appropriate for the utterly clueless.

A relatively high ER fund that invests in "over 25" other funds with their own ERs, all with no apparent objective other than assigning an appropriate AA to your account.

Garbage!

But... but... but,

Managing your annual RMDs can be a complex process, with significant tax implications and potential penalties at stake.

Why would Fidelity mislead us?

 

[braumeister]

But... but... but,



Why would Fidelity mislead us?

Not misleading. Just leading, in a particular sense.

(Sorry, I'm just feeling curmudgeonly this morning.)

 

[Al18]

5 of the 6 funds have a 9 year track record, Morningstar ratings of 4 or 5 stars and expense ratios of .47% to .62%. Thanks for letting me know about these funds - considering adding them to my portfolio.

 

[eytonxav]

Actually what piqued my interest is I am looking for a simple way for DW to deal with RMDs and managing a portfolio in the event of my demise. My port is fairly complex with active/passive and individual stock/bond holdings. I know DW would be overwhelmed in dealing with such complexity. Sure I could tell her to dump everything in Wellington or Wellesley (which I already hold) or some other balanced mutual fund, but that does not necessarily achieve a more conservative balance as one ages.

That said, I assume this fidelity fund would make your equity and bond selling decisions for you within the fund, including selling equity when its up and bonds when equity is down so as to maintain an allocation that becomes more conservative with age. I might be wrong, but aren't target date funds more suited to those that want a simple solution, but have a retirement date well in the future, and therefore may not be the best choice if you are already in retirement and taking RMDs.

 

[OldShooter]

... Morningstar ratings of 4 or 5 stars ...

Just a caution: Morningstar ratings are not very predictive. Morningstar will tell you that. WSJ will, too: https://www.wsj.com/articles/the-morningstar-mirage-1508946687

 

[friar1610]

Yikes! Too many component funds! If I were to do something like this to simplify things for my surviving spouse I'd pick a VG Life Cycle Fund with only 4 component fund. And lower expenses.

 

[meierlde]

Actually what piqued my interest is I am looking for a simple way for DW to deal with RMDs and managing a portfolio in the event of my demise. My port is fairly complex with active/passive and individual stock/bond holdings. I know DW would be overwhelmed in dealing with such complexity. Sure I could tell her to dump everything in Wellington or Wellesley (which I already hold) or some other balanced mutual fund, but that does not necessarily achieve a more conservative balance as one ages.

That said, I assume this fidelity fund would make your equity and bond selling decisions for you within the fund, including selling equity when its up and bonds when equity is down so as to maintain an allocation that becomes more conservative with age. I might be wrong, but aren't target date funds more suited to those that want a simple solution, but have a retirement date well in the future, and therefore may not be the best choice if you are already in retirement and taking RMDs.

Although it may not be optimal, selling the same percentage of everything i.e if your rmd is 5% of the Jan 1 value sell 5 % of everything, might be the simple case for her to consider and understand. It would be interesting to back test this model to see how much worse it is.

 

[audreyh1]

Although it may not be optimal, selling the same percentage of everything i.e if your rmd is 5% of the Jan 1 value sell 5 % of everything, might be the simple case for her to consider and understand. It would be interesting to back test this model to see how much worse it is.

Yeah, that’s probably fine.

Or take all distributions in cash and sell whatever is highest if more is needed. Don’t bother with rebalancing. That what I plan to do at some point.

I guess there is the problem of not calculating the RMD correctly?

 

[Bamaman]

Some of us are facing the RMD age, and don't now need the rollover IRA money. Oh well, taking the money out is the plan.

We could always pass some of it to the kids. Nah, we're in Ireland on vacation spending a little of their inheritance.

 

[njhowie]

Yikes! Too many component funds! If I were to do something like this to simplify things for my surviving spouse I'd pick a VG Life Cycle Fund with only 4 component fund. And lower expenses.

I personally wouldn't write it off so quickly with that view, though I understand and can appreciate other's views who do see it that way.

The fund of funds concept is nothing new. Fidelity and other fund managers do the same with their Target Date funds. There are even hedge funds that utilize a fund of funds approach. It's simply an amalgamation of (their) other funds with varying allocations to attain a desired risk/return profile. The expenses will be somewhat higher and they do earn it (in my view) - they do the analysis and automatically maintain the proper allocations across the component funds to generate the risk/return profile which the fund is targeting. They are "actively managed" funds in this sense.

Folks who critically focus on fees/expenses will immediately brush them off as a result of the fact that they are somewhat higher, though still low in general when compared to historical actively managed mutual fund fees. However, looking at the component funds, it may be difficult for an individual to get an equivalent profile using only a few component funds. If you choose a VG 4 component fund with lower expenses, that may meet your criteria, and work for your risk/return needs. For others, it may not.

I'm not weighing in on how the funds have performed or will perform in the future. I'm simply pointing out that there is a place for them and other folks who have labelled them as garbage outright may not be considering all the aspects of them.

If you check the Fidelity funds details, you'll notice that they all had prior Target Date fund names (was previously their Income Replacement series of funds) - so these are not new, they simply renamed them and refocused their marketing of them.

In June 2017, Fidelity repositioned the 11 Income Replacement Funds as two separate product lines – Fidelity Managed Retirement Funds and Fidelity Simplicity RMD Funds.

 

[foxfirev5]

I like them. If you need them use them. As long as Fido can make money on others and provide good service and web tools for the rest of us I'm happy. I use Vanguard as the cost benchmark and as long as Fidelity can keep up I'll keep both.

 

[friar1610]

I personally wouldn't write it off so quickly with that view, though I understand and can appreciate other's views who do see it that way.

The fund of funds concept is nothing new. Fidelity and other fund managers do the same with their Target Date funds. There are even hedge funds that utilize a fund of funds approach. It's simply an amalgamation of (their) other funds with varying allocations to attain a desired risk/return profile. The expenses will be somewhat higher and they do earn it (in my view) - they do the analysis and automatically maintain the proper allocations across the component funds to generate the risk/return profile which the fund is targeting. They are "actively managed" funds in this sense.

Folks who critically focus on fees/expenses will immediately brush them off as a result of the fact that they are somewhat higher, though still low in general when compared to historical actively managed mutual fund fees. However, looking at the component funds, it may be difficult for an individual to get an equivalent profile using only a few component funds. If you choose a VG 4 component fund with lower expenses, that may meet your criteria, and work for your risk/return needs. For others, it may not.

I'm not weighing in on how the funds have performed or will perform in the future. I'm simply pointing out that there is a place for them and other folks who have labelled them as garbage outright may not be considering all the aspects of them.

If you check the Fidelity funds details, you'll notice that they all had prior Target Date fund names (was previously their Income Replacement series of funds) - so these are not new, they simply renamed them and refocused their marketing of them.

I hear you. But I really don't see how slices as small as, say, 2% make any sense and are any more than an attempt to make the fund look really well constructed and sophisticated when, IMO, it just adds unnecessary complication.

And, yes, I recognized that these were just a repackaging of other Target Date funds paired with an automatic RMD service. In fact, Fidelity is one of the main providers of 403B funds in my daughter's retirement plan. When she took the job she asked for my opinion on her choices. I looked them over and my conclusion was, as stated above that they were not the way to go. I suggested that she go with a simpler 4 fund portfolio and rebalance annually. As you note, these funds may be attractive to others but I just don't get it.

 

[marko]

I wonder how real an issue RMD's really are for most people. Enough to invest in a particular fund?

A lot of the worry I've read on this forum is just plain confusion about it; so if some from this savvy group can get confused I can only imagine what others might envision. (Seems many confuse paying taxes on the money with needing to spend it...as if somehow the money is 'taken away')

Personally, my (projected) RMD is quite a bit under my annual taxable withdrawal amount already; I wonder how many might be in the same boat and invest in this fund needlessly.

 

[eytonxav]

I wonder how real an issue RMD's really are for most people. Enough to invest in a particular fund?

For many on here, myself included, its not an issue at all, even with multiple IRAs at different brokerages' and with more complex portfolios. But as I said above, I am looking for something simple that my DW could dump everything into and handle herself if she survives me, with everything essentially being on auto-pilot. I am going to continue investigating options for her and this is something that at least warrants consideration on that list in my opinion.

 

[samclem]

I guess there is the problem of not calculating the RMD correctly?

Calculating the RMD isn't even required, right? At the end of the year just log on to where the IRAs are and they tell you how much you have to take out in the following calendar year. Or, a customer could call and speak to a rep, I guess.
One challenge for someone who is disinterested in this stuff would be if the funds were split up at many places (CDs, Fido, etc). Each company can only quote the RMD for the assets they hold. This, plus the problem with possibly lost/misplaced assets and resulting tax issues, etc, are a reason that getting everything under one roof could be useful.

 

[Cobra9777]

I wonder how real an issue RMD's really are for most people. Enough to invest in a particular fund?...

I don't know about "most people," but my in-laws are 84 and 85 and well down the path of mental incapacitation (of varying forms and degrees). They wouldn't have a clue how to manage RMDs. Last 5 or 6 years, I've handled everything investment-related for them. Prior to that, they had a high-cost ML "adviser" picking stocks to sell and making the RMD. I moved them to an all-ETF portfolio at Fidelity, similar to mine. They're set up on the automatic RMD process, but because the portfolio is all ETF, I have to go in each December and sell a few shares so there's sufficient cash available for the system to distribute. I've thought about putting a chunk of their IRAs in a low-cost MF of some sort so the system automatically sells exactly what's necessary. But they rarely need the cash, so I'd still have to go in and buy something. Sounds to me like these funds are just an age-appropriate, auto-pilot MF portfolio paired with the auto-RMD process. Seems harmless enough except for the ER.

 

[audreyh1]

Calculating the RMD isn't even required, right? At the end of the year just log on to where the IRAs are and they tell you how much you have to take out in the following calendar year. Or, a customer could call and speak to a rep, I guess.
One challenge for someone who is disinterested in this stuff would be if the funds were split up at many places (CDs, Fido, etc). Each company can only quote the RMD for the assets they hold. This, plus the problem with possibly lost/misplaced assets and resulting tax issues, etc, are a reason that getting everything under one roof could be useful.

I can see how for a lot of very elderly folks that might be too much to deal with. Taxes too.

 

[meierlde]

I can see how for a lot of very elderly folks that might be too much to deal with. Taxes too.

All the better to rollover all the IRAs to one IRA at your favorite brokerage etc. Then the RMD calculation is done for you. Over the last several years I got all my IRAs to Vanguard, and then when megacorp decided to move the 401k to Fidelity from Vanguard, rolled the 401k to the Vanguard IRA. Note that only on and IRA can one do the QCD not on a 401k.

 

[OldShooter]

I don't know about "most people," but my in-laws are 84 and 85 and well down the path of mental incapacitation (of varying forms and degrees). They wouldn't have a clue how to manage RMDs. ...

Not arguing with your points at all, but it would seem that elders not being able to manage RMDs is only a tiny part of the problem. What about the rest of their financial lives? Financial abuse of elders goes on all the time. It would seem that whatever financial life preserver (relative, trust officer, guardian, etc.) that they have should also be able to handle the RMDs. No?

 

[audreyh1]

All the better to rollover all the IRAs to one IRA at your favorite brokerage etc. Then the RMD calculation is done for you. Over the last several years I got all my IRAs to Vanguard, and then when megacorp decided to move the 401k to Fidelity from Vanguard, rolled the 401k to the Vanguard IRA. Note that only on and IRA can one do the QCD not on a 401k.

Good point.

Do they also take care of selling assets within the IRA to cover the RMD?