Head: Trying to Manage Retirement Risk with a Flexible Fixed Income Product

The pre-retiree client between ages 55 and 64 is spooked, a huge money manager said today.

That’s because he or she doesn’t know if there will be enough income from the typical defined contribution plan. Clients also wonder when and how to tie up most of their assets in an annuity. He or she will receive Social Security and defined contribution assets, but still guesses exactly how much income they will provide on an annual basis and if it will be enough to fund a comfortable retirement.

“Understanding what a lump sum savings provides in estimated retirement income is difficult,” said Chip Castille, head of BlackRock’s defined contribution and retirement group.

Clients need flexible, liquid retirement products with predictable income to reach their retirement goals. So money manager BlackRock, which has some $4.3 trillion in assets under management, is introducing a group of bond funds and indexes. The CoRI bond funds, it says, will answer the frequent questions of whether someone has enough for retirement now or in a year or two, allowing investors and advisors to quantify if retirement plans are on track.

The CoRI retirement index funds, which were discussed at a news conference today, invest primarily in corporate and U.S.government bonds. They are designed for those about to retire. The index funds will have target dates ranging from 2015 to 2023. They are designed to supplement, not replace, an annuity, BlackRock officials said.

At maturity, the investor can stay in the fund, which liquidates over a decade, or he or she can cash out, possibly moving the funds into an annuity. The indexes will track the expected changes over the years to the median costs of lifetime income for a person turning 65 at the target year. The funds track the indexes.

The funds, Castille adds, can be a substitute for bond funds for the retirement client worried about running out of money.

“What we need is diversification against equities. We want enhanced returns. They will provide reduced duration, improved yield through security selection and still provide the diversification that a retirement client needs,” Castille says.

“The CoRI indexes enable pre-retirees to quickly estimate the annual lifetime income their current savings may generate once they turn 65,” according to a BlackRock release. “Individuals can also invest in CoRI funds, which seek to deliver a total return that tracks the expected median cost of a lifetime income.”