Fidelity and Vanguard recently introduced retirement income funds, and while they both offer monthly payments that can vary from year to year, they are actually very different from one another, The Wall Street Journal reports.
Fidelity’s funds spend the assets down over a period of time that investors select, much like a target-date fund. Vanguard’s funds make payments that are calculated based on a rolling three-year average account balance. Investors can select target withdrawal rates of 3%, 5% or 7%, and select the lower rate if they want their balance to grow. The 7% withdrawal rate is still meant to keep the balance steady.
But critics say that if the market should drop, monthly payments could ostensibly go to zero. Also, people who underestimate how long they will live could end up with no money years before they pass away.