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By Adam Zoll and Josh Charlson, CFA | 01-24-2014 11:00 AM

What You Need to Know About Retirement Income Funds

Many target-date series end in a static retirement income fund, but they don't always produce a lot of income and they may have a range of risk profiles, says Morningstar analyst Josh Charlson.

Adam Zoll: For Morningstar, I'm Adam Zoll. Investors using target-date funds to save for retirement may wonder what happens once that target date is reached.

Here to answer this and other questions is Josh Charlson, a Morningstar senior fund analyst.

Josh, thanks for being here.

Josh Charlson: Thanks for having me.

Zoll: This year is 2014; next year is 2015. People who have a 2015 target-date fund may be saying, what happens next year? Do I get all my money back? What happens to the allocation of my fund? Can you explain what happens at the end, once a target date is reached with target-date funds?

Charlson: Probably what's going to happen right away is not much of anything. Typically what happens in a target-date fund, once you get to that target date--2015 if you are in a 2015 fund--usually they are going to let those assets sit there for a while. Depending on the philosophy, they might set an allocation there and then not change it at that point, or they might continue to evolve it to get it more conservative.

At some point they will roll it into the retirement income fund, if there's a retirement income fund associated with [that target-date series]. Not every series has one, most do. That would generally have to be approved by the board. So the 2015 fund would liquidate, and you end up in the retirement income fund at that point.

Zoll: Let's talk about the retirement income fund. What exactly is that and what does it invest in?

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