Fidelity Investments unveiled a group of retirement income products and online applications for advisors and clients, October 3, aimed at helping retirees generate more predictable monthly cash flow streams for certain time horizons, or for life.
The products revolve around ways to help solve the income- or cash-flow-in-retirement conundrum, and the balance retirees and their advisors strive for between spending retirement assets too fast, and “being too cautious,” says Boyce Greer, president of fixed-income and asset allocation at Boston-based Fidelity Investments, ” compelling them to “ forgo the dreams they’ve saved a lifetime for.” The firm is offering two ways of providing cash flow in retirement–a deferred variable annuity with a lifetime income floor guarantee, and lower fees than average, according to Fidelity; and separately, 11 new mutual funds that Fidelity says are unlike anything in the marketplace currently.
Fidelity Growth and Guaranteed Income, a deferred variable annuity, can provide a lifetime guaranteed income stream, which Fidelity says is low cost, “approximately 40% lower than the industry-average annuity.” The floor for the income stream is “locked in” and can rise “if on the anniversary of the contract’s purchase, the markets have performed well that year…and caused the contract value to rise…Fidelity will automatically raise the payment level…without the customer having to take any action,” explains Jon Skillman, president of Fidelity Investments Life Insurance Company. That rise in payments would establish “a new baseline minimum that is also guaranteed for life…even if the account value subsequently drops because of falling markets.” Single-life coverage will cost 1.10% annually, and joint-life coverage 1.25% annually. There is a surrender fee of 2% for withdrawals made within the initial five years of the contact, with some exceptions, including death.
Fidelity Income Replacement Funds is a group of fund-of-funds allocated to institutional shares of Fidelity equity and bond funds, and cash, and paying out–via the firm’s optional, and free, Smart Payment Program–a target rate of cash flow that consists of capital gain, income, and principal repayments tied to a specific horizon date at which time all of the investor’s earnings are to have been paid out, and principal will have been repaid. Investors can “mix and match funds with different horizon dates,” Greer adds. They can also go longer or shorter at will or sell shares of their fund. Like target-date funds, the assed allocation of these funds generally is more aggressive in early years and becomes less aggressive as it approaches the horizon date. Unlike a typical fund, however, principal is being returned along with investment gains and income. There are no loads or 12b-1 fees; operating expenses range from 65 basis points for the Income Replacement 2036 Fund, down to 54 basis points for the Income Replacement 2016 Fund.