Targeted-Distribution Fund

Categories: Managed Funds

The point of saving for retirement is to have cash when you're older. You put money into all those investments over the years. Now, finally, the cash goes the other way. You get to start receiving some checks.

Enter: the targeted-distribution fund. It's an investment vehicle dedicated to sending you those checks.

The details vary from fund to fund, but these setups allow you to remain invested in the market while still receiving the cash you need to pay for retirement stuff...like rumba lessons and fishing tackle. The money that comes from these funds isn't guaranteed (as they would be with an annuity). However, unlike with an annuity, you continue to have upside potential. You can still earn a return when the market goes up (though you can still lose money when it goes down).

Meanwhile, you receive distributions on a regular basis, cash paid out of your account that you can use for retirement expenses (hearing aid batteries and joint liniment).

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Finance: What is sequence risk, and how ...1 Views

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Finance Allah Shmoop What is sequence risk and how can

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it derail retirement All right people You worked as a

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plumber The requisite You know butt crack growth started when

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you fell in love with non light Miller beer in

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your early twenties And it grew as you did in

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direct proportion With your savings you put as much as

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you could into your four Oh one k overtime You

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grew a plumbing in parts business nicely You owned a

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small building you invested in stocks that paid a dividend

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If you bought bonds that matured at different times you

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bought a last to die life insurance policy for your

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kids and you paid off your home mortgage Yeah So

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at the end of your working career you have a

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whole mess of assets which you will gradually sell off

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the hey for Hawaii resort bills to pay from my

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ties with pink umbrellas in him And you know to

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pay for his and her massages for you and your

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wife of forty three years So where does sequence risk

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come alive in this otherwise beautiful American dream story Well

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let's start with the bonds When you were fifty three

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you put ten grand into a six percent corporate fund

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coming do twenty years later at seventy one Now with

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only two years ago until that bond matures Well you

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know you have a few more interest payments due coming

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to you And then that bond pays ten grand in

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two years It's original principles being returned to you Luckily

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you bought one of these bonds every two years in

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your fifties and sixties such that you knew they would

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come to our rather pay back your original principle of

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ten grand every two years for a decade in change

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You have all this cash cash Ola coming to you

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from other places as well It comes in the form

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of dividends from your stocks and the likely sale of

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your building and a whole bunch of other little assets

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that you'll slowly pull out of Your four Oh one

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k pay taxes on it So where does sequence risk

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then Come in Like what's wrong with all this Well

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for you Joe the plumber you've done an excellent job

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diversifying the cash liquidity needs that you'll have to fund

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the rest of your life together You know with your

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wife The cash comes in waves gentle waves of ten

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grand here twenty grand there of stream of dividends So

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you always have cash handy to pay your bills It's

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really easy right Well what about Bob Bob the plumber

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not the builder He made the same money you did

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but has everything in growth stocks and one big fat

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building He owns no bonds no other cash producing entities

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That's it So he's been doing just fine selling shares

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Obama's on Facebook Google Netflix And if you have a

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growth stocks would performed well But things never work out

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so well in the real world After President Oprah decided

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to regulate Silicon Valley those stocks all got cut in

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half and then worse and kept falling and falling and

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falling And well now Bob has no liquidity because he

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depended on selling growth stocks to fund his life Even

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though the stocks are crazy cheap now he still has

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to keep selling them Pay taxes on well any gains

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he may still have left from when he bottom a

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while ago and then use those cash proceeds to hopefully

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be able to fund his life He also has that

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building which is in a bear market now and it

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can't really sell so he'll get only a third for

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it If he has to sell it right now can

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he borrow against it Kenny margin against his stocks Really

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risky If you start doing that because of stocks keep

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going down then your margin executes a call provisions and

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basically you lose all of your stocks meaning if stocks

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go down and your margin rates are more than fifty

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percent the broker's likely will force you to sell even

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more stocks And so you lose even more money and

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it means probably a lot fewer mai tais for Bob

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So sequence risk is all about retirement planning so that

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retirees have oodles of cash coming in regularly safely to

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fund the lives they want you know in their golden

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years there Why Well because most hotels won't take flush

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valves or trap vents or toilet seats as payment eh

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