"Of Mutual Interest"- Jason Zweig, Investing Columnist for "Money" magazine & Author of "Your Money and Your Brain"
Tuesday, October 16, 2007PAUL KANGAS: In tonight's "Of Mutual Interest" segment, a new type of mutual fund and I mean really new, as in on the market for a month new. Jason Zweig, investing columnist for "Money" magazine and author of "Your Money and Your Brain", joins us to talk about income replacement funds. And welcome back to NIGHTLY BUSINESS REPORT, Jason.
JASON ZWEIG, INVESTING COLUMNIST, MONEY MAGAZINE: Thank you Paul.
KANGAS: So tell me exactly what are income replacement funds?
ZWEIG: Well what these funds do is they seek to enable someone who is retired to replace savings with income. You take the money that you have built up over a lifetime of investing and saving and you convert it into regular or pretty regular monthly income and that can be valuable for people.
KANGAS: That's a psychological change though isn't it for someone who has saved money all his life and all of a sudden, he's got to pay it out.
ZWEIG: Exactly, Paul. What's happening here is you have to change gears when you retire and we all know this, but no one really enjoys it very much. After building up money over the course of an investing lifetime, now you have to parcel is out to yourself so you can live off it and these funds seek to do that for you.
KANGAS: They sound like a good idea, replacing income that you're missing, but there must be some risk.
ZWEIG: Well, of course there's a risk. The risk is there's no guarantees. Unlike a traditional annuity, these funds could enable you to run out of money before you run out of time. And that could be a problem but they are designed relatively carefully so that that risk is fairly low.
KANGAS: I know there aren't many of them yet, but do they have a heavy front end load commission?
ZWEIG: No. The ones that exist so far do not have a commission and also they charge fairly moderate annual expenses as well. They're not fairly expensive.
KANGAS: How about management fees? Sounds like they might require a little more time with each customer. Are the management fees high?
ZWEIG: The management fees are reasonable, Paul. These funds are not customized. If you and I were in the same age and had the same life expectancy, we would be essentially put in the same fund. In your case, you would certainly have well over a 30-year time horizon and you'd be put in a fund with a very long-term objective.
KANGAS: Would you suspect the portfolio to be largely income common stocks?
ZWEIG: Someone who has a shorter life expectancy will have a higher allocation to income than someone with a longer expectancy.
KANGAS: We just have 20 seconds left. What is your recommendation if you were about to retire.
ZWEIG: My recommendation here, Paul, is I would probably wait a year or two. I would like to see whether these funds live up to their promise and I'd also like to see whether increasing competition will bring the cost down.
KANGAS: Very interesting Jason and we appreciate your being with us once again.
ZWEIG: Thank you, Paul.
KANGAS: My guest Jason Zweig, investing columnist from "Money" magazine and author of "Your Money and Your Brain."
