ny times article on funds for withdrawal phase

[rockyj]

I thought this was interesting; thought others might too (from today's 11/25 NY Times). First I've heard of these funds specifically targeting withdrawal phase/strategy. Has anyone heard more about or looked into these yet?

http://www.nytimes.com/2007/11/25/business/yourmoney/25income.html?pagewanted=print

 

[Achiever51]

Thanks for the link to a very interesting article. Good explanation of these new products!

 

[RetireeRobert]

Thanks for the link. Good info on product type likely to be of much interest to many here at ER forum.

 

[Poundkey]

Very interesting. First I've heard of this. It will be nice to see what the general feelings are from folks on this forum.

 

[Moemg]

Interesting article .

 

[donheff]

It will be interesting to see what the research oriented folks here find out about these vehicles. I couldn't tell enough from the article to understand how they are constructed, what the "guarantees" are or how costly those guarantees are.

 

[saluki9]

It will be interesting to see what the research oriented folks here find out about these vehicles. I couldn't tell enough from the article to understand how they are constructed, what the "guarantees" are or how costly those guarantees are.

It's not all that complex. There are already plenty of these structured products available. Basically, you are giving up the upside (over 8.25% in the example) in return for downside security (much like using options) So whether the cost is 75bps - 1.5% like in an annuity or less doesn't matter, you should buy based on whether you are comfortable with the 8.25%

The guarantee is only as good as the firm backing it, which in the example given is Merrill. These types of guarantees are common in variable annuities. I think you will be seeing a lot more of these type of products as the boomers start drawing income.

 

[yakers]

There was an extensive discussion of these on the Vanguard diehards board and the conculsion was not very favorable. Costs were too high and there is really no performance guarantee if the market tanks.
And there were always 'income' funds like Wellesley which addressed the need for a reasonably secure retirement payout.

 

[unclemick]

Caught the Fidelity tv ad last night - being neither Black nor married nor a Fidelity fan - I was properly ticked off/got huffy.

Being a Boglehead/having participated in endless SWR debates/discussions/pontifications/ yadda yadda - how dare dare they attempt a simplified retirement interface for dummies! Make retirement easy - with an interface program - how dare they!

Pla eeese! Don't someone point out that my chickenheartedness theory led me to the then modern Target Retirement on auto deduct with VG monitoring my RMD.

Give them time to season and duke it out in the marketplace.

heh heh heh - without a user friendly interface - I never would have gone near a computer - being a goo and stick chemical type in ancient days.

 

[cashflo2u2]

It's about time

Somebody will have to translate the previous post for me, but most of the financial advisers I have talked to are under age 50 and have no idea that the portfolio of us retired folk is an IRREPLACEABLE asset. They make these various projections about how the portfolio will end up 30+ years from now in the multi million dollar range... and oh, yes there is a 10-15% risk of "failure". Failure This means total financial ruin? Even a 10-15% change of that is not acceptable to me. I am concerned about lifetime consumption not terminal values of the portfolio! To me, if the portfolio falls below the price to buy an immediate annuity that would fund ones shortfall for the remaining lifespan- that is what should not happen. I am going with these professionally managed payout funds with an amount that I need to fund my short fall at 4% and leave the remainder as a reserve.

 

[Dawg52]

Somebody will have to translate the previous post for me

LOL. Unclemick is a former speech writer for Alan Greenspan.

Hey UM, your beloved Vanguard will offer a similar product next year. Get ready to be huffy.

 

[yakers]

S To me, if the portfolio falls below the price to buy an immediate annuity that would fund ones shortfall for the remaining lifespan- that is what should not happen. I am going with these professionally managed payout funds with an amount that I need to fund my short fall at 4% and leave the remainder as a reserve.

Well, its good to know your risk tolerance. It can be that wanting such a high level of assurance is expensive; either working longer or living at a lower level than may be 'possible' with a bit more risk. Of course, if your portfolio is large enough and you only need a 2% withdrawal then all this doesn't matter. But in buying an annuity someone is betting they can get better returns than they are going to pay you. And you are beting the company will stay in business. It would also be true of these funds. If you hold the assets that an annuity or one of these funds hold and a a lower level of expense you should get a better return. But if you can't live with any risk (easy for me to say, I'm expecting a COLAd pension) then there are CDs, annuities and funds like these. There is a cost and risk in any decision.

 

[unclemick]

Yep - and the Bogleheads forum nit picked it to no end.

'Patience grasshopper.' At least wait till they get out in the market and get some 'seasoning'.

heh heh heh -

 

[TexasGal]

M* article about New Retirement Income Funds

I thought this was interesting; thought others might too (from today's 11/25 NY Times). First I've heard of these funds specifically targeting withdrawal phase/strategy. Has anyone heard more about or looked into these yet?

http://www.nytimes.com/2007/11/25/business/yourmoney/25income.html?pagewanted=print

Morningstar has an article today that explains a bit more about the differences between Fidelity and Vanguard Retirement Income Funds for those of us who are approaching the withdrawal phase.

What You Can Learn from the New Retirement Income Funds - Morningstar The Short Answer

 

[Independent]

Based on the article, these funds sound like ordinary mutual funds with a broad mix of (maybe) more "conservative" asset classes.

Then they add a scheduled withdrawal, but no guarantee that it will last any specific time, much less until you die.

Maybe I'm missing something, but I don't see anything here. Maybe the big difference is that pictures on the advertising material show healthy people with gray hair.

 

[Dawg52]

Based on the article, these funds sound like ordinary mutual funds with a broad mix of (maybe) more "conservative" asset classes.

Then they add a scheduled withdrawal, but no guarantee that it will last any specific time, much less until you die.

Maybe I'm missing something, but I don't see anything here. Maybe the big difference is that pictures on the advertising material show healthy people with gray hair.

It's for the one's that want to put it on auto-pilot. Much like the target funds. Not a bad thing if that's your personality.

 

[cashflo2u2]

But in buying an annuity someone is betting they can get better returns than they are going to pay you. And you are beting the company will stay in business.

 

[cashflo2u2]

Yakers, I think the ins. cos. get a better return because some people die early and forfeit their stash. Also, you can mitigate credit risk by using more than one ins. co. and keep the amount to around the state guaranty fund amount.

 

[cashflo2u2]

Since I retired I stopped mowing my lawn, doing house repairs, going to the dump, etc. - I hire it all out. The guy down the road does EVERYTHING himself even grows his own food, recycles, plows, etc. He busts his hump while I fish and golf. His overhead is probably lower though.

 

[mickeyd]

If I recall the Bogleheads discussion on this new fund(s) a few months ago, the new fund had an ER of about .34%. My current cumulative portfolio ER is in the .17% neighborhood. There are few benefits that I could be induced to accept so that my ER would be doubled!

These are new fund-of-funds that are set up to catch the boomer cash that will be flowing to VG and other fund companies over the next 20 years or so. Most of my fellow boomers have not a clue what to do with their stash and they are quite susceptible to gimmicks such as this. I say let them pay .34% ER and we will all sleep well at night!