Will These New Retirement Funds Catch On?

Ted

FYI: Target-date retirement funds, which are designed to automatically shift to more-conservative investments as an investor grows older, have become a popular way for working Americans to save for retirement.

But the same firms that created these all-in-one funds have struggled to provide a solution to the next dilemma many people face: how to prudently manage a nest egg while drawing it down in retirement. So far, the industry hasn’t managed to attract much interest for “managed payout funds,” which make steady cash payments to fundholders while continuing to invest the remaining assets.
Regards,
Ted
http://www.marketwatch.com/story/will-these-new-retirement-funds-catch-on-2017-10-20/print

bee

TRRBX which has been around since 2002 has a pretty stellar record (rank in category):

MikeM

@bee, I haven't read the article yet - plan to tonight, but you are showing the target date retirement fund, not the income fund. The income fund is TRLAX and it is very new. Not a lot of data. In fact M* doesn't even have a portfolio breakdown. I don't expect it to look like TRRBX.

bee

@MikeM, In the article the author mentioned that the "newness" of TRLAX will rely upon the rolling average of TRRBX to determine its 5% payout. At least that is how I read it.

Quote:

Since the fund is new, it initially will base payouts on the five-year NAV history of T. Rowe Price Retirement 2020 Fund, a 15-year-old target-date fund that uses the same underlying strategy.

MikeM

Thanks bee. I will read later. I actually might be interested, at least in the concept. I've thought about the possibility of an immediate fixed annuity when retiring. These income pay-out funds may be a better option though certainly they will be more variable, more risky and certainly no guarantee for stable payouts versus the fixed annuity.

bee

@MikeM,
Good read on creating a retirement "floor":
three-degrees-of-bad

And this,
Challenging the 4% Rule

MikeM

@bee, The '3 degrees of bad' illustrated and explained exactly my thoughts. Especially this paragraph:

Research by Wade Pfau[4] shows that purchasing fixed annuities can actually lead to larger final estates for this reason. "Though SPIAs [single-premium immediate annuities] do not offer liquidity, they provide mortality credits and generate bond-like income without any maturity date, and they support a higher stock allocation for remaining financial assets. Altogether, this allows a client to better meet both retirement financial objectives [spending and a legacy]".

My self-made Excel spreadsheet shows the same.

Thank you very much bee.

Derf

43% max draw down just a bit to high for my liking !
Derf

msf

This time, this is not even a follow up, but a duplicate. From the article:

The article “New Target-Date Funds Are Geared for Withdrawal Time” first appeared in The Wall Street Journal.

MFO: New Target-Date Funds Are Geared For Withdrawal Time
https://mutualfundobserver.com/discuss/discussion/35821/new-target-date-funds-are-geared-for-withdrawal-time

Having taken a closer look at the TRP fund, it appears to be simply another managed payout fund, like VPGDX. As such, it's not a new type of fund. The Vanguard fund targets a 4% payout based on the fund's value over the past three years, while TRLAX targets a 5% payout based on the fund's value over the past five years. I haven't compared glide paths.

The Fidelity funds, in contrast, claim that they're designed for RMD distributions, but don't manage the payouts. So ISTM that what's new with them is the marketing pitch, not the funds themselves.

Managed payout funds (including the TRP fund, but not the Fidelity funds) seem designed for people who want an annuity (cash stream) but are unwilling to cede control or ownership. As MikeM highlighted in his quote of Wade Pfau, if what you want is a cash stream and potential legacy, annuities are still the better way to go.

hank

Don’t know if it’s relevant to the other active thread about cash. But couldn’t help noticing that Price currently sees fit to invest just 2.2% of this fund in cash. What does that tell you? (Let’s assume for the sake of argument that they haven’t taken complete leave of their senses, nor is the allocation designed to favor funds with higher ERs.)

Domestic Stock 38.1%
Domestic Bond 30.1%
Foreign Stock 19.8%
Foreign Bond 9.8%
Cash 2.2%
Convertibles 0.3%
Preferreds 0.2%

Above taken from T. Rowe Price’s website: Composition of TRLAX.