Wall Street has introduced a new retirement investment option that combines target-date funds and annuities, aiming to provide automatic diversification and a steady income for life. However, with the average retirement account sitting at just $88,400 and Americans aged 55 to 64 having a net worth of $364,000, the current options don’t seem sufficient for a comfortable retirement. The conventional 4% rule suggests that retirees can expect $2,061 per month, which is barely above the poverty line.
While the promise of guaranteed income sounds appealing, the target-date fund performance hasn’t been as impressive as desired. A comparison between a target-date fund and an index fund showed a significant difference in returns, with the index fund outperforming by a substantial margin. This could lead to a loss of nearly $5,000 per month in potential income for retirees, making the new Wall Street product less attractive for those looking to maximize their retirement savings.
For a better retirement option, retirees may want to consider closed-end funds (CEFs) like the Liberty All-Star Growth Fund (ASG), which offers a 9.3% yield. This translates to $775 per month for every $100k invested, providing a steady income without having to sell off stocks. ASG has outperformed the target-date fund significantly in terms of long-term gains, offering a combination of strong returns and liquidity that index funds cannot match.
With CEFs like ASG, retirees have the flexibility to reinvest dividends or withdraw funds to pay bills, allowing for a more customized approach to retirement investing. The high yield of ASG also eliminates the need to rely on Wall Street’s financial products or the 4% rule, making a “dividends-only” retirement a feasible option for investors. Overall, by focusing on CEFs with strong returns and steady income, retirees can potentially fund a more comfortable retirement sooner than expected.
It is essential for retirees to explore various investment options beyond traditional target-date funds and annuities to maximize their retirement savings. By considering CEFs like ASG, investors can benefit from higher yields, long-term gains, and liquidity that traditional financial products may not offer. This alternative approach to retirement investing could provide retirees with the financial security and flexibility needed to enjoy a comfortable retirement without having to rely solely on limited options provided by Wall Street.
