Fidelity Funds – Fidelity Income Replacement 2040 Fund (FIRWX)
Click to Enlarge Fund type: Income replacement fund
Fidelity Funds has an interesting product that helps pre-retirees and retirees cope with income requirements in retirement.
While a target-date fund seeks to build your retirement assets to retirement and beyond, Fidelity’s income replacement funds are designed to ensure you have enough income and assets to last through retirement.
Let’s assume you are 60 years of age, intend to work another five years and live until you’re 85. The Fidelity Income Replacement 2040 Fund (FIRWX) makes sense because that’s about when you expect to die. FIRWX is designed to gradually reduce your investment to zero while slowly increasing your monthly payments over time.
By investing in a combination of equity and fixed income funds that are rebalanced each year to reflect an increasing need for income as opposed to capital appreciation, you’re essentially buying a target date fund in reverse.
In many ways, FIRWX is like an annuity except that the monthly payouts aren’t guaranteed. Should the stock and/or bond markets reverse substantially as they did in 2008, you could have less to live on. For this reason, they’re especially appropriate for retirees with other income streams such as a pension, etc.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.