The closest thing to getting a pension involves buying an immediate annuity, which offers guaranteed income for life in exchange for upfront cash. But annuities are pricey for the peace of mind, and then there's the loss of liquidity and investment control.
Some financial firms offer annuity-like options within 401(k) plans, while others are rolling out new products that seek to provide lifetime income without the use of an annuity.
Call it the modern-day pension plan, minus the guarantee.
"A lot of retirement income products haven't sold as well as anyone expected, so I think there are a lot of firms stepping back and taking another look at their products," says Matt Schott, vice president of retirement income for Boston's Financial Research Corp., a research firm focused on the investment and asset management industry.
Indeed, about 26 percent of asset managers surveyed by FRC in March said they were either building or improving upon products without guarantees, using asset allocation techniques that they believe increase the certainty of income payouts while keeping risk to capital at a minimum.
The annuity-free retirement income options described below are a sampling of what's available or what's coming soon to 401(k) plans or through financial advisers. They are either pure play asset management products, in which a firm actively manages a portfolio on the client's behalf, or hybrids that employ active management plus an optional annuity for those who can't sleep at night without the guarantee.
A target-date fund spinoff
This summer, Putnam Investments is launching a suite of income-oriented target-date funds designed to generate lifetime income by blending absolute return strategies that focus on wealth preservation with more conventional relative return -- or benchmark-focused -- mutual fund strategies.
The products, called the Putnam Retirement Income Fund Lifestyle 1, 2 and 3, allow financial advisers to customize risk levels and withdrawal rates to meet their clients' changing needs during their drawdown phase. Two of the funds already exist -- Lifestyle 1 is the new name of the Putnam RetirementReady Maturity fund, and Lifestyle 3 will be a new and improved version of the Putnam Income Strategies fund.
Like many other retirement income funds, these products are funds of funds. Lifestyle 1 is the most conservative, containing a combination of Putnam's Absolute Return 100, 300 and 500 funds, an asset allocation fund and a money market fund. Putnam's Absolute Return funds employ hedging strategies in their quest to manage market volatility and outperform inflation by different margins over three years or longer.
Lifestyle 2 and Lifestyle 3 contain somewhat more aggressive holdings than Lifestyle 1, including domestic and international stocks as well as convertible securities. These funds are only available through an adviser, though they will also be made available to 401(k) plans.
Monthly paychecks from 401(k) plans
Dimensional Fund Advisors also plans to launch an insurance-free pension solution later this year.