What Is a Retirement Income Fund (RIF)?
A retirement income fund (RIF) is an investment productavailable to anyone as a conservative means of saving for retirement. A RIF is generally a mutual fund that is well diversified in large and mid-cap stocks and bonds. A RIF balances its portfolio to allow for moderate gains using a conservative approach to attempt to retain value while providing income to investors.
Key Takeaways
- A retirement income fund is designed to produce steady returns and yield higher than conservative investments.
- A RIF with a consistent dividend can help offset any losses from market downturns.
- Be aware that some funds permit the fund manager to dip into the principal amount to meet payout schedules.
- Although RIFs are constructed to be conservative, there are no guarantees of performance.
Understanding Retirement Income Funds (RIFs)
Retirement income funds are actively managed funds that are intended to provide conservative, moderate growth for assets tucked away for retirement purposes, such as individual retirement accounts (IRAs). There is no special tax treatment for these funds despite their name; they are treated as normal mutual fund investments.
Like a mutual fund, they are exposed to market risk and don't necessarily promise the guarantee of retirement income. Some types of retirement income funds pay out regular distributions, such as monthly or quarterly. This type of fund usually has a required minimum investment and will incur fees similar to other mutual fund products.
Investors have a variety of options to choose from when it comes to RIFs. These include mutual funds, exchange-traded funds (ETFs), annuities, guaranteed investment products, and pensions to name a few.
RIFs are common in Canada. An individual can transfer funds from their other registered retirement account, like a registered retirement savings plan (RRSP), into a RIF when at the end of the year they turn 71 or when they need to take income. Earnings in a RIF are tax-free while income is taxed as regular income.
Examples of Retirement Income Funds (RIFs)
RIFs are offered by a variety of firms in different forms. The following table compares two examples of mutual fund RIFs - the first from Charles Schwab and the other from Vanguard. All the information listed below is current as of July 2024.
| Schwab Balanced Fund | Vanguard Wellington Fund | |
|---|---|---|
| Symbol | SWOBX | VWELX |
| Objective | Seeks growth and income | Seeks growth and income |
| Minimum Investment | No minimum | $3,000 |
| Expense Ratio | 0.50% (net) | 0.26% |
| 1-year and 10-Year Returns | 14.24% and 7.16% | 14.96% and 8.06% |
| Net Assets | $671.16 million | $112.74 billion |
Remember, when you choose an investment, it's always a good idea to do your due diligence and ensure that it aligns with your investment goals and strategy.
What Is a Registered Retirement Income Fund?
A registered retirement income fund is a tax-deferred retirement savings account. It is common in Canada. Canadians can convert their registered retirement savings plans into RRIFs by the end of their 71st year. Any earnings and interest grow tax-free but withdrawals are taxed as earned income.
When Should You Start Saving for Retirement?
It's always a good idea to start saving for retirement when you're young. You have several factors working in your favor if you do so, including compounding interest, a higher tolerance for risk, and a greater number of years to contribute to your savings. But this shouldn't dissuade you from saving when you're older because it's never too late to plan. This means you should be setting aside a certain portion of your income toward your retirement savings.
What Is the Best Type of Fund for Retirement?
There is no easy answer for this question. That's because the answer depends on several factors, including your risk tolerance, age, financial situation, and goals, among other things. But the general idea of a retirement nest is involves saving, conserving, and growing your capital. This means finding funds and investments that provide you with steady returns and varied risk. Younger investors may be able to handle riskier investment vehicles while older investors may want to lower their exposure to risk so their capital is protected.
The Bottom Line
Saving for retirement can be a daunting task. Not only do you have to decide how much you'd like to save, but you also have to determine your goals and how much you'll need once you leave the workforce. Retirement income funds can help you reach those goals. These accounts are designed to help you save while giving you income when you retire. As with any other type of investment, make sure you do your research and speak with a financial professional to see if a RIF is right for you.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Royal Bank. "Registered Retirement Income Fund (RRIF)."
Charles Schwab. "Schwab Balanced Fund™."
Charles Schwab. "Beyond the 4% Rule: How Much Can You Spend in Retirement?"
Government of Canada. "Registered Retirement Income Fund (RRIF)."
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