Dubbed Dimensional Managed DC, the product is designed to provide retirees with an inflation-protected income stream for life in the form of monthly checks during retirement.
Like a defined benefit pension plan, it manages investment decisions for plan participants.
According to the company, Dimensional Managed DC differs from other income solutions because it creates a customized plan for each employee to achieve pre-established goals by managing interest rate, market and inflation risks.
During retirement, the plan provides access to multiple payout options, including inflation-protected annuities.
Another new entrant offering solutions exclusively to the 401(k) market, New York-based investment advisory firm Financial Engines launched its own lifetime income option in January called Income+.
The plan is designed to provide employees steady monthly payouts during their early retirement years from their 401(k) account directly into their checking account, giving them more control of their money, and does not lock them into an investment or insurance product.
Plan participants can start and stop payouts from their 401(k) account at any time, and gain full access to their savings as needed.
Assets within the plan are managed with an income objective, using bonds to develop an income floor, equities and a lump sum of money set aside in fixed income that can be used to purchase an optional annuity outside of the plan.
Other retirement income alternatives
Consumers who purchase such products should be aware that investment-only retirement income products do not guarantee income for life, unless they purchase an optional annuity, says Larry Glazer, managing partner for Mayflower Advisors, a wealth management firm in Boston.
Moreover, he says, retirees can create the same type of income stream using existing strategies.
"There are many products out there that can help create income," says Glazer, who directs some of his clients toward Manning and Napier's Pro-Blend conservative target-date funds. "It's not specifically a newly created product, but for many investors that's an appropriate alternative to short-term bond funds or these new products, which still gives them a fighting chance of beating inflation," he says.
Likewise, retirement planners who are 10 years away from retirement or more "would be well-served" with a traditional balanced portfolio that consists of 60 percent equities and 40 percent bonds, or an equity income product, like mutual funds or exchange-traded funds that strive for lower volatility than the overall market and a moderate dividend payout, he says.
As retirees increasingly rely on their own savings as a source of monthly income, it's important that they consider the pros and cons of all the retirement income vehicles available to them, especially the newest products on the block.
"At the end of the day, clients really do want the guarantees and would like to have a pension, but the trend is clearly away from that so they're always going to be looking for alternatives," says Glazer. "We just need to be very careful about what alternatives we give them."
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