What Do Retirees Need to Know About Income Funds?

How Do Retirement Income Funds Work?

Retirement income funds are actively managed to deliver regular monthly payouts that help people manage a portion of their retirement expenses, and are intended to supplement additional sources of retirement income. Keep in mind, these types of funds aren’t the best bet for younger people because they are created to pay out cash rather than grow reserves.

To meet their fund’s target annual distribution rate, the managers continually work to adjust the fund’s overall asset allocation to sustain its monthly payouts, keep up with inflation, and preserve capital over the long term. This is accomplished by investing in a broad range of asset classes and other instruments to balance risk and returns.

Just remember, these types of funds can dip into the principal to meet their targeted payout amount, returning some of the money to the investor, meaning there will be less in the fund to make future gains from.

Target Date vs Target Retirement Income Funds

How can you be sure you won’t outlive your nest egg? Many choose to convert their lifetime savings into an income stream by leveraging a group of investment products called target retirement funds. This investment category includes both target-date funds and target-retirement income funds. While these funds are grouped in the same family, they do have slightly different structures and goals.

For example, target-date funds are designed for investors who are still 20 or even 40 years away from retirement. Conversely, target-retirement income funds are built for people who are already in retirement, and they don’t have a specific target date. 

Most often target-date funds are structured to provide investors with a progressive asset allocation plan, called a glide path, to slowly transition their assets from more risk exposure to a more conservative portfolio with more allocation given to bonds than stocks as the target date approaches.

How Retirement Income Funds Pay Back Retirees

The most significant difference between these two types of funds is that while target-date funds are designed for asset accumulation, target-retirement income funds focus on supplying a stream of income to retirees. 

To accomplish this, retirement income funds periodically make distributions in the form of dividends and capital gains. To give you an idea of what kind of payouts you can expect from these funds, the average 12-month yield for the category is around 2.7 percent, according to Morningstar.

Although retirement income funds are generally considered to be safer investments, the performance of these bond-heavy funds depends on market performance and on the fluctuation of interest rates for bonds. You can lose money with these investments and payments aren’t guaranteed. If the stock market goes sour, investors should still be prepared for fluctuations in principal and lower distributions.

Choosing The Right Retirement Income Fund For You

A large part of the decision of whether a retirement income fund is right for you hinges upon how much of a guarantee you want on the payments you’ll receive. Many retirees look to income annuities when they want the most security. Income annuities are sort of like having a personal pension plan. Essentially, you’re investing in a stream of income. You’ll get paid every year for the rest of your life. The benefit is you never need to worry about being unable to pay for the basics like housing and food.

Another type of retirement income fund to consider when you want the most security for your income stream are those based on real estate.

Retirement Income Funds Secured By Real Properties

Many investors seeking the most stability from their retirement income fund will find real estate-backed funds one of the most attractive options for a secure stream of income heading into retirement. Real estate funds provide higher levels of security than those holding stocks that fluctuate in value from minute to minute while still delivering attractive yields for more income each month. What types of real estate do these types of retirement income funds own?

Multifamily Apartment Complexes

Multifamily apartment complexes have multiple buildings, often with hundreds of tenants. These properties provide the retirement income fund with consistent returns and stability by balancing risk across many different tenants.

Retail Commercial Real Estate

Retail commercial real estate tenants often pay premium and consistent returns for retirement income fund portfolios. The best funds carefully select properties that have tenants in high-growth, stable industries such as healthcare, grocery, and specialty stores that offer delivery. 

Warehouse Commercial Properties

E-commerce order volumes have skyrocketed since 2020, making commercial real estate investments in this sector leading performers for retirement income fund portfolios.

Office Buildings

Office buildings are another strong performer for retirement income fund managers. When carefully vetted by experts in the segment, office buildings often deliver consistently high returns for those seeking steady income streams.

Residential Real Estate Communities

Some retirement income funds based on real estate focus on buying entire communities of single-family residential homes for rentals in high-demand markets. There’s inherently more risk with this type of investing in real estate because fewer tenants per property are paying rent, unlike an apartment building that can have dozens or even hundreds of tenants paying monthly.

Choose A Real Estate Fund For Steady Retirement Income

When steady monthly income after retirement is an essential part of your plan, keeping your risks to a minimum is always key. Saint Investment offers the perfect solution with a real estate fund that delivers steady, secure income each month. We have a team of real estate experts who analyze every single property that goes into our income funds. Leverage our real estate expertise to your advantage with our retirement income funds. You’ll get detailed reporting and full transparency, enabling you to earn real estate income without the hassles of direct property management. Call (323) 483-0291 today to learn more!

Frequently Asked Questions:

What are retirement income funds?

Retirement income funds are investment vehicles designed to provide a steady stream of income during retirement. They are typically a type of mutual fund that invests in a diversified portfolio of assets, such as bonds, stocks, and real estate, with the goal of generating consistent income for retirees. These funds can be an attractive option for individuals who are looking to supplement their retirement income, as they offer a convenient and potentially less risky way to generate additional income during retirement.

How do retirement income funds generate income?

In order to create income, retirement income funds invest in a diversified portfolio of income-generating assets, such as bonds, dividend-paying equities, and real estate. By carefully maintaining their portfolios and seeking for high-yielding investments, the funds attempt to give investors with a constant source of income. Typically, the money earned by these assets is sent to investors in the form of distributions, which can offer a steady source of income throughout retirement.

What is the difference between a retirement income fund and a traditional retirement account?

A typical retirement account, such as an IRA or 401(k), is a tax-advantaged investment vehicle that enables individuals to save for retirement by investing in various assets, including stocks, bonds, and mutual funds. A retirement income fund, on the other hand, is a form of mutual fund that is meant to offer a continuous source of income throughout retirement. The primary distinction between the two is that a retirement income fund prioritizes income generation, whilst typical retirement funds emphasize long-term growth and nest egg accumulation. In addition, standard retirement accounts have certain restrictions for contributions, withdrawals, and taxes, whereas retirement income funds have variable regulations.