Some investors looking for stable income in retirement are turning to managed payout funds. Only a handful of these niche mutual funds pay monthly income to investors, said Amy Arnott, portfolio strategist at Morningstar. She noted that it may be appealing to people who want to earn income without having to manage distributions from retirement accounts themselves. Schwab offers three of his funds: Schwab Monthly Income Fund-Income Payout (SWLRX), Schwab Monthly Income Fund-Flexible Payout (SWKRX), and Schwab Monthly Income Fund-Target Payout (SWJRX). “It’s designed to take the confusion out of income investing,” said Inga Luckwald, senior investment portfolio strategist at Schwab Asset Management. “Clients get paid each month based on the income their portfolios generate, so it feels like a monthly paycheck.” With about 70% of assets in bonds and 30% in stocks, the Monthly Income Fund’s Payments vary depending on the interest rate environment. In a normal interest rate environment, investors can expect dividends of 3% to 5% per year. In a low interest rate environment she can be between 0% and 3%, while in a high interest rate environment investors can earn dividends of 5% or more per year. The net expense ratio is 0.21%. Her two other options are split 50/50 between stocks and bonds. Schwab Monthly Income Fund – Flexible Payout (SWKRX) is structured as the name suggests, with annual payouts that are flexible between her 4% and 6%. Schwab Monthly Income Fund – Target Payout (SWJRX), on the other hand, targets a 5% annual dividend. Both have a net expense ratio of 0.25%. Managed payout funds are not offered by many defined contribution plans, such as 401(k)s. In fact, a 2022 Cerulli survey of defined contribution plan consultants found that only 17% of plans offer managed payment funds. However, compared to the 2021 survey results, utilization of these funds showed the largest increase of 10%, the company revealed. “Typically, the clients who are interested in these funds are often self-directed investors,” Schwab’s Rachwald said. “They may have a 401(k) elsewhere. They may be receiving required minimum distributions, but maybe they want an additional source of income.” Many People may also be wary of annuities, which are insurance products that provide monthly payments as well. Unlike pensions, managed payment funds are liquid. “With a pension, you may have a higher source of income each month, but you essentially also lose access to that money,” says Morningstar’s Arnott. “If you suddenly need liquidity, or if you pass away, your family often won’t be able to inherit your pension income, so you won’t have the flexibility to withdraw it.” Still, investors need to plan first. . Evaluate when you will need the income, what assets you will need to generate that income, and how long the funds will last, Lahawald says. Next, decide how to invest. When deciding on a managed payout fund, consider it just one part of your overall portfolio, Arnott says. Brett Lozowski, a certified financial planner with Life Planning Partners, doesn’t recommend monthly payment plans to his clients. Instead, he creates individual portfolios focused on total return. “We’re really adjusting the portfolio to meet the cash flow needs of our customers,” he said. “When they need cash, we can control where they can get it from.”
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Niche funds give investors steady monthly payments in retirement
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