They’re having another go at it: turning your retirement savings into an income stream that will last for the rest of your life.
The problem is simple. You don’t know how long you’ll live, so it’s hard to know how fast you can afford to spend your nest egg.
When you retire, you can give your money to an insurance company, which will send you a monthly check for the rest of your life. But annuities’ fees can be high and their terms complex, and many retirees don’t want to tie up their money. The price of a dependable income into your 90s and beyond is the chance that you’ll die younger and never get to enjoy it. Last year, $229.4 billion in annuities were sold, the Insured Retirement Institute estimates. That’s up 4% from 2013 but less than sales in 2009 and earlier, even though the number of retirees keeps rising each year.
A generation of “managed payout funds,” launched in 2007 and 2008, was supposed to be the solution. But hardly any investors use them.
Now, Natixis Global Asset Management is launching a “retirement spending account” designed to deliver a predictable monthly check to retirees for life, and as millions of baby boomers get ready to retire, there are signs that other fund companies and retirement plan providers are also working on new retirement income products.
An investment account is more flexible than an annuity: If there’s an emergency, you can sell it. If you die young, your heirs get the proceeds. But there’s no guarantee it will last if you live longer than you expect.
Natixis addresses that uncertainty by adjusting its product’s risk as investors get older. Because a market downturn early in retirement can really screw up your plans, the product’s investments are conservative for the first years of retirement. By 15 years in, almost half the investments are in stocks, which are riskier than bonds but provide bigger returns. That should help the money last longer, said Edward Farrington, executive vice president of retirement at Natixis. Then, as investors move through their 80s and 90s, the product gets more conservative again, to preserve money for heirs. Natixis investors can choose to get either 4% or 5% of their accounts’ assets each year, in monthly checks adjusted annually for inflation. To get the 5% payout, though, investors need to take more risk, raising the odds that the money will run out in their later years.