Data & Research May 18, 2011

EBRI Analyzes Retirement Income Adequacy of Annuities

Research from the Employee Benefit Research Institute (EBRI) finds that immediate annuities or longevity annuities would be effective at reaching desired income adequacy targets, especially for lower-income retirees.
Reported by

The difference between immediate annuities and longevity annuities is that longevity annuities delay payments until the retiree hits an advanced age, instead of generating income immediately. 

The EBRI analysis also shows that a key factor in planning for a high level of retirement income adequacy (90%) is whether the costs of long-term care are included in the calculations or not. If they are, no more than 80% − 90% of a retiree’s assets should be converted to an immediate annuity, with the balance reserved to cover long-term care costs. If a longevity annuity is used, retirement wealth should be split between the annuity and equity (stock) investments to ensure long-term care costs are covered. 

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Specifically, the report analyzes how immediate and longevity annuities can affect probable income adequacy in retirement by taking into account long-term health care expenditures. It attempts to find the optimal level of annuitization and asset allocation that would provide a desired level of confidence that individuals will have sufficient retirement income, based on three different types of risk: 

  • Investment income (how much money retirement wealth is likely to generate in retirement); 
  • Longevity (how long the retiree expects to live in retirement); and 
  • Long-term care (how much is needed to cover nursing home or home health care in retirement). 

As EBRI notes, various studies on longevity annuities have found that a modest allocation of retirement wealth to a longevity annuity can deliver as large a benefit as a significant allocation to an immediate annuity. EBRI’s new report compares the impact of immediate and longevity annuities on retirement income adequacy, assuming that a retiree would face long-term health care risk as well as investment income and longevity risk.

The complete report is available at http://www.ebri.org/.

Products May 18, 2011

Fidelity Launches Global High Income Fund

Fidelity Investments is rolling out its first fund in the global high-yield category, the Fidelity Global High Income Fund.
Reported by

The fund enables investors seeking diverse sources of income to gain exposure to a rapidly growing area of the global fixed‐income markets, according to the announcement.  

Fidelity Global High Income Fund allocates assets across four distinct markets: U.S. high yield, European high yield, Asian high yield and emerging markets debt. The fund will be lead managed by 15‐year Fidelity veteran John H. Carlson. Carlson will work closely with regional portfolio managers who are located in markets around the world and supported by Fidelity’s extensive global fixed‐income research team.  

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

Fidelity Global High Income Fund compares its performance to the Bank of America Merrill Lynch Global High Yield & Emerging Markets Plus Index. The fund’s performance is also compared to a composite benchmark comprised of the subportfolio benchmarks and neutral weightings shown in the table above.  

Fidelity Global High Income Fund’s retail class (FGHNX) is sold without a load and Fidelity has voluntarily capped expenses at 1.00% for the retail share class. The Adviser share classes have traditional Fidelity Adviser high income fund pricing. Fidelity has also agreed to the following voluntary expense cap for the Adviser share classes: Class A (FGHAX): 1.25%; Class C (FGHCX): 2.00%; Class T (FGHTX): 1.25%; and Institutional Class (FGHIX): 1.00%. There is a 1.00% short‐term redemption fee for shares held less than 90 days.

«