BlackRock Inc., the world’s largest asset manager, announced Wednesday that it is launching a series of indexes that let advisors and their older clients calculate how much annual income they will need in retirement as well as the level of savings they will need to reach their retirement income goals.
At the same time, BlackRock also is filing prospectuses for bond funds linked to the index, with the intention of offering the funds for use within its existing target date funds.
The BlackRock CoRI Retirement Index series was developed to help investors age 55 and older plan for retirement by tracking the estimated cost of $1 of future, annual inflation-adjusted lifetime income beginning at age 65. The value of each CoRI index in the series reflects the performance of a portfolio of corporate U.S. dollar-denominated bonds, U.S. government bonds and U.S. Treasury STRIPS that deliver a return approximating the cost of a person’s lifetime income as it fluctuates over time.
The key to CoRI is that the indexes are investable, with an underlying bond portfolio, said Chip Castile, head of BlackRock’s U.S. and Canada Defined Contribution Group at a New York press briefing on Wednesday. He added that the indexes, which resemble target date funds in that they have a date attached to them, have been running in a beta version behind BlackRock’s firewall for the last month.
“This is the emerging issue of our time. Everybody is worried about income,” Castile said. “The cost of retirement funds has tremendous volatility, like stocks and bonds. Now we’re putting price information out there that you can see run across a ticker feed.”
“The bond portfolio that underlies each index is the most significant innovation, representing a dynamic, market-based approach for tracking income pricing that gives investors unique insight into their progress toward their income goals,” said Matthew O’Hara, managing director and head of Research and Product Development for BlackRock’s Defined Contribution group, who co-designed the indexes with Castille.
(Echoing the theme of retirement income, State Street Global Advisors released on Wednesday the results of a survey of retirement plan participants, where 80% said they believe a guaranteed monthly payout benefit is a “must have,” even if it means compromising some access to their retirement savings. The survey found 55% see generating a stable income as a top priority versus generating returns (27%) or preservation of capital (25%), and 69% believe that some sort of guaranteed monthly income stream will be necessary in addition to Social Security.)
BlackRock designed the CoRI Index levels to converge with the median price of an annuity at age 65. The series is designed primarily for individuals from 55 to 64 years old, and each index within the series is constructed with a view to the year in which those individuals will retire, assumed to be at the age of 65. A new index will be added every year.
One advisor on hand at the press briefing, Chuck Williams, managing director with Sheridan Road, a Chicago area retirement plan consulting business, said he plans to use the CoRI indexes using a BlackRock-designed income calculator when having conversations with his 55-and-over clients.
“This gives certainty,” Williams said. “That’s what clients want when they come into my office.”
A CoRI Index’s quantitative inputs include the individual’s age and years to retirement at 65, current interest rates, the average price of immediate annuities (as a proxy for the price of lifetime income) and average life expectancy rates. The calculation of each Index includes a cost of living adjustment.
Read Milevsky Warns: Beware of Annuity Ignorance at ThinkAdvisor.