Kiplinger's Looks Beyond Annuities to Provide Retirement Income

Annuity products can work well for those seeking to convert retirement savings to retirement income, but they’re not for everyone.

Kiplinger’s outlines strategies for retirement income in its August issue, noting that certain target date and mutual fund mixes can work well into retirement, offer more flexibility and cost far less than the 3% or 4% levied by various annuity products.

“The act of retirement is not a defining point to start getting out of stocks and into fixed income,” said Roger Gibson, a financial planner near Pittsburgh.

“The portfolio balance you have two or three years before retirement is probably the portfolio balance you should have two or three years after retirement,” he said.

Kiplinger’s recommends investors put at least half of their portfolios in stocks or stock funds to account for inflation, and half of that in foreign stocks. The balance should be in bond funds.

Also included should be some non-correlated funds. Kiplinger’s recommends Westchester Capital Management’s Merger fund, which invests in stocks of companies ripe for takeover, and the Fidelity Floating Rate High Income fund, which invests in loans from banks where the interest rates re-set several times per year.

Kiplinger’s also touts retirement products that also offer advice. T. Rowe Price, for example, offers an Individual Retirement Account product (IRA) that helps those rolling funds over with allocation and annual rebalancing for a one-time $250 fee on accounts less than $100,000.

If building a mix-and-match portfolio, Kiplinger’s stresses investors look at cost and diversification, recommending products from Vanguard, Dodge & Cox, Fidelity, Champlain and Loomis Sayles, with at least 20% in stocks for all ages.

For those who want the set-and-forget convenience of the lifecycle fund, Kiplinger’s advises investors to seek funds with total annual expenses under 1%.

“After fees, asset mix is the most important factor in determining which retirement-income fund is best,” the article notes.

Kiplinger’s cited the Vanguard Target Retirement Income fund, which has a 40% equity index allocation, and an expense ratio of  0.21%, as well as the Fidelity Freedom income find, which is more conservative, with only 20% in equity funds, and an expense ratio of 0.55%.

“Our favorite is the T.Rowe Price Retirement Income fund, which is 40% invested in stock funds, some of which are closed to new investors, and has an expense ratio of 0.56%.  The greater weight to in stocks boosts performance, but not volatility, and has returned 9%, on an annualized basis, in the past three years, beating both the Vanguard and Fidelity finds by 2% and 3% per year, respectively,” according to Kiplinger’s.  

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.