Retirement Income: A New Way to Unlock the Nest Egg By Timothy Noonan, Russell Investments New retirement income products now entering the market could help determine whether your retirement nest egg ends up scrambled — or sunny-side up. This year, the first wave of baby boomers reaches 62, the age when they are first eligible for Social Security retirement benefits. As some perhaps look to retire early, one issue is whether retirees can successfully transition from "accumulation" — amassing wealth — to "decumulation" — ensuring their assets provide sufficient income to last them the rest of their lives. In response, mutual fund companies are introducing new fund products intended to help retirees draw a steady stream of distributions from their investments. Generically known as "retirement income products," the funds have slightly different objectives. Some provide income while seeking to preserve capital; others dip into capital in order to deliver larger payouts. Some seek stable payouts in dollar terms; others offer variable payouts based on a percentage of the value. Understanding retirement income products Retirement income products are mutual funds — open-ended pools of investments with specific objectives outlined in the prospectus. Payouts are dependent on the investment model employed by the fund manager, there is a risk of loss and the income is not guaranteed. Depending on whether the fund is within a qualified or non-qualified account, and depending on the fund's performance, distributions may be taxed as either ordinary income or capital gains. With a retirement income mutual fund, you retain ownership and control. If plans change, you can redeem all or a portion of the fund at current net asset value, which may be lower or higher than the amount of the initial investment. That flexibility can be a plus if the fund's growth exceeds projections, or if you intend to transfer ownership to heirs or a charity, or need to draw on the fund in an emergency. Some firms sell the new products directly to investors. Others sell them through third-party financial representatives, investment advisors, and stock brokers. I believe you can generally benefit from one-on-one advice and getting some help matching a spending strategy with an investment strategy. Investing and spending strategies After creating an expense budget and determining income sources (pension, savings, Social Security, etc.), you decide how much income you need from your retirement portfolio and for how long. The amount invested depends on the desired target distribution amount, which can range from about three percent to 10 percent of the capital. While such funds may seek to preserve capital, the target annual distribution may include a return of capital, especially at the higher payouts. Up-front sales charges vary according to the size of the initial investment, plus there are annual expenses. You should consult with your financial advisor and read the prospectus before making any investment. Be advised that many of these funds are new, without a track record, which may result in additional risk. Currently, most retirement income products are "fund of funds," which means the money is invested in other mutual funds. When considering these funds, you should study the underlying funds. My view is they should include a diversified mix of domestic, global and international equities; various fixed-income securities; real estate; emerging markets; and money market funds. Some of these products don't do anything you couldn't do yourself — provided you have the interest, time and expertise. Others are quite sophisticated and offer you access to powerful portfolio management strategies. If you are looking for a simpler way to unlock your retirement nest egg, retirement income products offer a turnkey solution that could work well. Tim Noonan is managing director, individual investors product and advice group, for Russell Investments, headquartered in Tacoma, Wash. This article is part of a series of monthly columns by Russell associates. Russell Investments provides strategic advice, world-class implementation, state-of-the-art performance benchmarks and a range of institutional-quality investment products. Russell has more than $228 billion in assets under management as of Dec. 31, 2007, and serves individual, institutional and advisor clients in more than 40 countries. Russell's industry-leading indexes have $4.4 trillion in assets benchmarked to them. Founded in 1936 Russell is a subsidiary of The Northwestern Mutual Life Insurance Company. Headquartered in Tacoma, Wash., Russell has additional offices in Amsterdam, Auckland, Johannesburg, London, Melbourne, New York, Paris, San Francisco, Singapore, Sydney, Tokyo and Toronto. Copyright © Russell Investments 2008. All rights reserved. Fund objectives, risks, charges and expenses should be carefully considered before investing. A prospectus containing this and other important information can be obtained by calling (800) 787-7354. Please read the prospectus carefully before investing. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns. Investments that are allocated across multiple types of securities may be exposed to a variety of risks based on the asset classes, investment styles, market sectors, and size of companies preferred by the investment managers. Investors should consider how the combined risks impact their total investment portfolio and understand that different risks can lead to varying financial consequences, including loss of principal. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Russell Investment Group is a Washington, USA corporation, which operates through subsidiaries worldwide, including Russell Investments, and is a subsidiary of The Northwestern Mutual Life Insurance Company. Securities products and services offered through Russell Financial Services, Inc. (formerly Russell Fund Distributors, Inc.), member FINRA, part of Russell Investments. For information on the Financial Industry Regulatory Authority, go to www.finra.org. RFD 08-7497 First Used: March 2008			RELATED Articles Saving for Retirement The High Cost of Borrowing from Your Retirement   Printer friendly version of this page Send feedback or comments Site Search

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