Vanguard announced a collaboration with TIAA to offer retirees access to an annuity option in employer-sponsored plans.
The fund giant said on Wednesday it's developing a target-date collective investment trust, or CIT, series — Target Retirement Lifetime Income Trusts — that incorporates the TIAA Secure Income Account as a lifetime income annuity option.
"Retirement isn’t one-size-fits-all, and for those who want more predictability, guaranteed income can provide added peace of mind alongside their savings,” said Lauren Valente, managing director and Vanguard Workplace Solutions head. “In working with TIAA, another mission-driven organization, we’re giving participants an option to turn a portion of their savings into income they can count on for life."
Updates on product design and availability will be announced throughout next year.
This will be Vanguard’s first new target-date series since it introduced the original, popular Vanguard Target Retirement series in 2003, according to Jason Kephart, senior principal, multi-asset strategy ratings for Morningstar.
The new series follows the same glide path as the flagship funds until age 55, when it begins allocating to the TIAA Secure Income Account, a savings annuity that lets investors build funds over time, later converting it to a lifetime income stream, Kephart explained in a post.
"By age 65, the annuity portion will reach 25% of the portfolio, and investors can decide whether to convert that portion into lifetime income payments," he wrote, noting the lifetime income series will be available only through defined contribution plans. Total costs should be the same or lower than Vanguard’s standard Target Retirement Funds, Kephart wrote.
The new product will allow investors to purchase a built-in annuity inside their target-date fund, The Independent Vanguard Advisor editor Jeff DeMaso wrote Wednesday.
Retirees decide whether, when and how much of their assets to place in a TIAA fixed annuity before age 90, and those who decline will treat their account like a regular target-date fund, according to DeMaso, who noted that BlackRock, State Street and JPMorgan also offer products combining target-date funds with annuities. He called it "another sign that (CEO) Salim Ramji’s Vanguard is willing to push into new areas."
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