The challenges facing the managed withdrawal approach to generating retirement income are well documented. Long-term inflation reduces purchasing power; portfolio losses just before or soon after retirement (sequence-of-returns risk) can do irreversible damage; and unpredictable lifespans (longevity risk) makes the retirement portfolio’s duration impossible to predict with certainty.
Overcoming those risks requires a trade-off. Most clients can’t generate the income they need by investing solely in guaranteed fixed-income because yields are too low, unless they have a very large amount of assets. Investing in equities can generate higher total returns, but stocks’ volatility can be problematic in the early retirement years.
Natixis Global Asset Management believes that its new product, the Natixis ASG Retirement Spending Account, addresses those challenges. The account, which became available in May, requires a minimum $100,000 investment.
Investors can choose a monthly payout of 4 percent or 5 percent (annualized) of their initial investment, depending on the model they select. For example, a $500,000 investment in the 4 percent payout model will provide a monthly income of $1,666.67; the 5 percent model will pay $2,083.33 per month. Subsequent years’ payouts will be adjusted for inflation. The account’s management fee is approximately 1 percent to cover the strategic and tactical asset allocation, the underlying asset managers and the overlay managers.
The product’s interesting twist is what Natixis calls the Adaptive Retirement Income Glidepath (SM). Essentially, it’s a rebalancing plan that calls for a lower initial allocation to the riskier growth and low-correlation assets during the early retirement years with the balance the funds in income assets. The allocation to the growth and low-correlation assets gradually increases as the investor ages. At a point about halfway through the projected retirement years, the process reverses and the investor’s portfolio begins shifting back to a higher weighting in income assets.