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These Funds Help Retirees Spend Down the Nest Egg

Madeline Hume

Madeline Hume: Funds in the multi-asset retirement-income institutional category are trying to crack the essential question of how to fund an individual's retirement, but the industry's tackling this problem in several different ways.

First, there's the question of asset allocation: What is the appropriate level of risk for a retiree to take? Spending in retirement is far from uniform, and so are the risk levels of funds in the category. American Funds Retirement Income Portfolio-Enhanced offers more than 60% of its portfolio allocated to stocks, whereas Fidelity Advisor Simplicity RMD Income allocates less than 20% to stocks.

Then there's the question of how to spend. Retirees can either take the income distributed from the fund annually to make their purchases, or sell a certain amount of their investment every year to take as spending. Vanguard Managed Payout takes the former approach by setting an income target based on the fund's yield in previous years and averaging it out. JPMorgan SmartSpending has gone for the latter approach by constructing a portfolio that's meant to be sold out of incrementally as a retiree ages, down to zero. This is designated by the fund's maturity date of 2050.

There are many ways to spend the retirement nest egg. Retirees should be aware that just as their spending needs are very different from other retirees, multi-asset retirement-income funds are not all alike.