The new funds behave identically to existing target-date funds until you turn 55.
When you retire, you can take your retirement funds, convert them into an annuity, and rest assured that you have a guaranteed income for life. At least in theory. In practice, almost no one ever does this.One of the biggest problems with the defined-contribution retirement plans most Americans have is that they don't provide an income upon retirement, just a lump sum. At that point, retirees are largely on their own.
The new funds behave identically to existing target-date funds until the employee is 55. At that point, the fixed-income component starts to get switched over to something called "lifetime income," which includes things like forward contracts rather than just plain vanilla bonds. Once the owner of the fund turns 59½, they have the option — at any point for the rest of their life — to convert the lifetime income funds into an annuity provided by an insurer.The annuities won't be indexed to inflation, which means that the guaranteed income will shrink in real terms over time.
The amount annuities pay out is therefore conservatively calculated — which is to say, the insurers try to err on the side of paying out less rather than more.
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