Understanding Managed Payout Funds
Managed payout funds are mutual funds designed to provide you a fixed level of monthly income through various strategies, for as long as the money in the fund lasts. For example, some managed payout funds generate an income amount that stays the same for a year, but that you then can adjust (or the fund itself will adjust) depending on the fund’s investment performance. In that case, your payout may vary from year to year.
You may consider using managed payout funds to maintain your investment, grow your investment (with no guarantees) or even pay back your investment over time (typically a period of 10 to 30 years). Companies offer many different options for managed payout funds, so be sure to fully understand how one works before you invest in it.
Managed payout funds are similar to immediate annuities, which typically pay a fixed amount of income annually. Both products are designed to produce income, but there are significant differences.
- Variable payouts: Annuity income typically is fixed, while managed payout fund income can rise or fall over time. In fact, the amount of income you receive from your payout fund can vary over time, sometimes dramatically, depending on the performance of the financial markets. In addition, annuity income can be guaranteed for life, while managed payout fund income is not guaranteed to last.
- Inheritance: If you plan to leave an inheritance, a managed payout fund can be a better choice than an immediate annuity. You can pass on whatever value is left in the payout fund to your beneficiaries. With an immediate annuity, payments typically cease at the end of your life (or your joint beneficiary’s life, depending on who lives longer).
- Fees: Managed payout funds typically are less expensive to operate than immediate annuities. By having lower operating expenses, managed payout funds let you keep more of what the fund has earned. That means more money in your pocket to spend on living expenses.
- Flexibility: Managed payout funds can give you more flexibility than immediate annuities. If you need to access money in an emergency, you always can sell your shares in a payout fund. In most cases, you cannot withdraw all of your principal from an immediate annuity.