The question of how much you can safely withdraw from a portfolio has always been a major concern for retirees and those contemplating retirement.

Recent market behavior has again brought the question of how to maintain a steady withdrawal rate to the forefront.

Unexpected but necessary adjustments to income along the retirement path can be very disruptive to plans and lifestyles. But income streams can be smoothed out if some of the income is produced from a reliable monthly stream such as a pension.

For those who do not have a pension, there are now some options to simulate the income stream.

Up until very recently, the way to create an income stream was pretty much limited to a single payment immediate annuity (SPIA). But now retirees have new options from mutual fund companies, including two from Fidelity and three from Vanguard. (See related article.) Fidelity's offerings are called Income Replacement Funds, and Vanguard's are the brand new Managed Payout Funds.

SPIAs can still be a good choice, but the commitment to an insurance policy is a big decision and irreversible. And some studies have shown SPIAs are not optimal for those under 65. On the plus side, the income is guaranteed.

The new fund products from Fidelity and Vanguard offer features that fall between normal target retirement funds and SPIAs. Vanguard's Managed Payout Funds appear to be a bit more annuity-like.

Different Goals

While the new offerings have some features in common, their goals are quite different. Both are funds-of-funds products like target retirement funds, but Fidelity Income Replacement Funds are intended to produce date-specific gap income. Vanguard Managed Payout funds are intended for extended-term payout.

Fidelity gap income might be very useful early in retirement when other income streams or asset additions are anticipated at a later date. They might also be an ideal way to hold off social security until payments are higher.

Fidelity offers 14 funds with different target dates ranging from 2016 to 2042. Each fund intends to pay out total returns plus all principal by the target date. Payouts will be inflation-adjusted each year. The funds will automatically reduce equity allocations as the target date approaches.

Each Income Replacement fund has a target payout, but it's not guaranteed. For instance, IR 2022 will try to provide an initial payment of just over 8% if you opt for the smart payment program. The payout may be adjusted on a yearly basis depending on performance.

Vanguard Managed Payout Funds offer only three choices: A growth focused fund with an initial target return of 3%, a growth and distribution fund with a target return of 5%, and a distribution focused fund with a target payout of 7%.

Like Fidelity, the payouts are not guaranteed, but Vanguard has gone a bit further in sophistication.

Smoother Returns

Vanguard Managed Payout Funds are modeled after university endowment plans and may incorporate several strategies not offered in any other Vanguard funds. The fund's optimal strategy and payout will ultimately be based on past three-year performance. This will tend to smooth returns even more.

The growth focused fund is expected to increase in value significantly. The growth and distribution fund is expected to outpace inflation and the distribution focused fund will not attempt to keep pace with inflation.

Vanguard began initial subscription to the funds on April 21 with a target date of May 5 for operation.

As noted, neither of these new products are guaranteed like an SPIA, but in both cases, you keep full control of the assets. You can move in and out of these funds just like any other mutual fund, and there are options on withdrawals. Initial investment for both Fidelity and Vanguard is $25,000. Expense ratios are very close at around 0.6%, although Vanguard anticipates the fees to drop as assets grow.

The new Vanguard Managed Payout Funds and Fidelity Income Replacement Funds address a major problem for retirees. They may not be a perfect solution, but they should prove to be very popular. For more information, follow the links below.

Fidelity Income Replacement Funds

http://personal.fidelity.com/products/funds/mutual_funds_overview.shtml.cvsr?refhp=pr

Vanguard Managed Payout Funds

https://personal.vanguard.com/us/JSP/Funds/All/FundsMgdPayoutFundsJSP.jsf

Single Payment Immediate Annuities

http://www.immediateannuities.com/?g_immediate_annuity