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Retirement Income Fund (RIF): Meaning, Overview, Types

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What Is a Retirement Income Fund (RIF)?

A Retirement Income Fund (RIF) is an investment product available to anyone as a conservative means of saving for retirement. A RIF is generally a mutual fund that is well diversified in large and mid-cap stocks and bonds. A RIF balances its portfolio to allow for moderate gains using a conservative approach to attempt to retain value while providing income to investors.

Key Takeaways

  • A retirement income fund is designed to produce steady returns and yield higher than conservative investments such as CDs.
  • A retirement income fund with a consistent dividend can help offset any losses from market downturns.
  • Be aware that some funds permit the fund manager to “dip” into the principal amount in order to meet payout schedules.
  • Although RIFs are constructed to be conservative, there are no guarantees of performance.

Understanding Retirement Income Fund (RIF)

Retirement income funds are actively managed funds that are intended to provide conservative, moderate growth for assets tucked away for retirement purposes, such as individual retirement accounts (IRAs). There is no special tax treatment for these funds despite their name; they are treated as normal mutual fund investments.

Like a mutual fund, they are exposed to market risk and are, therefore, not a guaranteed retirement income. Some types of retirement income funds pay out regular distributions, such as monthly or quarterly. This type of fund usually has a required minimum investment and will incur fees similar to other mutual fund products.

Types of RIFs

Investment companies such as Vanguard, Schwab, Fidelity, and John Hancock offer these actively managed funds. Vanguard’s Managed Payout Investor Fund (VPGDX), according to the company, “is designed to give you regular monthly payouts that can help you manage a portion of your retirement expenses. The fund is intended to supplement your other sources of retirement income. 

The Managed Payout Fund targets an annual distribution rate of 4%. To accomplish this, the fund’s portfolio managers aim to adjust the fund’s overall asset allocation over time with an emphasis on sustaining its monthly payouts, keeping pace with inflation, and preserving capital over the long term. The fund invests in a broad range of asset classes and other investments and aims to balance risk and returns.”

Perhaps not coincidentally, 4% is the maximum withdrawal rate that many advisors recommend for retirees to keep from outliving their assets. These funds may not be a good bet for younger people because they are aimed at throwing off cash and might be best for people already in or nearing retirement.

Money in Vanguard’s fund is spread across numerous other Vanguard stock, and bond funds with the mix changed at the discretion of the fund manager. Keep in mind that the fund is also allowed to dip into the principal to meet its targeted payout amount. This means some of the money invested is returned to the investor, and there’s less in the fund with which to make future gains.

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