Managed payout mutual funds, which are designed to help retirees generate regular portfolio paychecks, are like the electric cars of the retirement industry: They seem so promising, and yet they've struggled to gain traction.
The funds had a rough start. They were first launched around the time of the financial crisis, which posed an immediate challenge to their payout strategies. A number of funds were liquidated or merged into other offerings.
Managed payout funds will never be a complete retirement-spending solution. But for retirees willing to look under the hood, they may prove useful as just one piece of the spending puzzle.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Each managed-payout fund family has its own quirks, so "it's important to read the fine print," says Jeff Holt, a director at investment-research firm Morningstar. In T. Rowe Prices's Retirement Income funds, for example, the date in the fund's name is meant to correspond to investors' retirement year. Fidelity's Simplicity RMD funds have a different twist: The year in the fund's name is meant to align with the year investors turn 70, as required minimum distributions kick in at 70½.
Funds that aim to generate a regular payout don't guarantee a steady income. The Vanguard Managed Payout fund, for example, targets an annual distribution rate of 4%. But the dollar amount of the fund's payout dropped 8% at the start of this year, says Matt Jiannino, head of quantitative equity product management at Vanguard.
Investors considering such funds should not be "super-dependent on those payouts," Holt says. The Vanguard Managed Payout fund makes sense for investors who have their essential expenses covered with other cash flows, Jiannino says. The Fidelity Simplicity RMD funds, meanwhile, are designed primarily for people who intend to take only their RMDs from their retirement accounts, says Keith Bernhardt, vice president of retirement income at Fidelity.
This article on managed payout funds is part of a broader story, How to Draw a Steady Portfolio Paycheck in Retirement, that first appeared in the April issue of Kiplinger's Retirement Report.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
What Does Medicare Not Cover? Seven Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
13 Smart Estate Planning Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
Six of the Worst Assets to Inheritinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
