The Fidelity Income Replacement Funds combine managed asset allocation with a withdrawal program and the new deferred variable annuity provides a guaranteed withdrawal benefit for the investor’s lifetime, according to the firm.
The 11-fund series comprising the Fidelity Income Replacement Funds consists of target dates in two-year increments from 2016 to 2036, and is available for direct purchase by investors or through a financial adviser. The funds start with a more aggressive asset allocation weighted toward equity funds for potential growth and gradually shift over time, as the target date approaches, to a more conservative allocation emphasizing fixed-income and short-term funds.
The funds also offer investors an optional, monthly payment program – the Smart Payment Program – for no added cost. The payment program comes up with a schedule of annual target payment rates to allow investors to receive regular withdrawals from a fund that keep pace with inflation, according to the company.
Investors can add more money, turn on and off their monthly payments, exchange into a fund with shorter or longer horizon dates, take additional withdrawals or sell the fund if needed, without penalty, Fidelity said. The funds can also be used to as a bridge to cover monthly expenses until Social Security or a pension begins, or for discretionary purposes, said Boyce Greer, president of Fixed Income and Asset Allocation at Fidelity, in a press release.
Investors can also purchase Fidelity’s new deferred variable annuity, choosing from two diversified portfolios that are actively managed by Fidelity. According to the press release, the cost of these annuities is about 40% lower than the industry-average annuity.
The two annuities offered by Fidelity are:
- Fidelity VIP Balanced – invests approximately 60% in equities and 40% in bonds and other debt securities;
- Fidelity VIP FundsManager, 60% — invests in other mutual funds and maintains an approximate target asset allocation of 60% in equities, 35% in fixed income and 5% in money market portfolios.
At the age of 59세, the contract holder and his or her spouse are immediately eligible to begin taking withdrawals, or the withdrawals can be postponed to a later date.
For more information on the new offerings is available here.