Retirement Income Mutual Funds

There are 78 million “baby boomers” about to reach age 62 and wanting to covert assets to cash. Many people are investing in retirement income funds to help pay their monthly retirement liabilities. The question of the day; “should retirees invest in retirement income funds in retirement?” The short answer is…yes (for some people). Are they the best answer for all retirees? The short answer is…no.

These types of funds will give a specific target (monthly payout) for the year. Let’s say the payout for each month is $428 for 2008 (based on an investment of $100,000). These funds pay the target payout rates in excess of inflation…but there are no guarantees. The guarantee is the problem…and if that’s a problem with you, I would look elsewhere (such as fixed annuities).

The retirement income fund often has a choice between fund “A” for a 3% payout, fund “B” for a 5% payout, and fund “C” for a 7% payout. The fund manager computes each year a mathematical “back-testing” formula based on the last 3 years of performance to determine monthly payouts. The bottom line, a fund target payout of 7% is unlikely to meet its future monthly payouts…due to market volatility. Stick to conservative payout options, if you’re going to purchase a retirement income fund.

I ran a test on traditional fixed annuity equation (using a recovery planning solution) to find out a conservative payout average over 10 years…and it came out much higher than a retirement income fund (for $100,000). Everyone has there likes and dislikes for financial instruments, and only you, the purchaser should determine what’s best for you.

Sincerely,

John Bagwell

The Truth About Financial Products.com

www.thetruthaboutfinancialproducts.com