Fidelity today announced two new retirement products-one combines professionally-managed asset allocation with a proprietary withdrawal program, the other is a deferred variable annuity.
The first product, Fidelity Income Replacement Funds, is a family of 11 lifecycle funds with horizon dates in two-year increments from 2016 to 2036. These low-cost funds of funds are designed to work in conjunction with Fidelity Smart Payment Program (a monthly withdrawal plan) to combine a target date mutual fund with a targeted withdrawal plan. This means that a 10-year fund is paired with a 10-year withdrawal plan; a 30-year fund will be paired with a 30-year withdrawal plan.
The withdrawal amount is recalculated annually to provide a steady income flow that will exhaust the principal at the end of the target period. This approach differs from the three recently-announced Vanguard payout funds that seek to provide monthly withdrawals while preserving principal. The Fidelity withdrawal design is based on their research that indicates consumers want to generate a targeted cash flow with a smaller investment than a capital preservation strategy can provide.
The second product, the Fidelity Growth & Guaranteed Income Annuity, is a new deferred variable annuity product that seeks to provide guaranteed lifetime income along with investment growth potential and access to the invested assets. Contract holders can start taking withdrawals at age 59½, although withdrawals can be postponed until later.
The annuity's guaranteed withdrawal amount is recalculated annually, so if the account balance grows the withdrawal amount is automatically adjusted upward if the balance can support increased payouts. Any withdrawal increases are locked in for the future, and withdrawal amounts won't decrease even in down markets. This product is available for single and joint-life annuitants. Prices and initial withdrawal rates are slightly higher for joint contracts, but Fidelity claims that overall costs are about 40% lower than they are for the average competing product. For more information, visit www.fidelity.com.
-Joel Bruckenstein