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Retirement income funds, or RIFs for short, are a type of retirement savings account. Unlike Individual Retirement Accounts (IRAs) or 401ks, retirement income funds do not have special tax advantages, such as allowing for pretax contributions or tax-free growth in the account. Since retirement income funds are any group of conservative investments that allow the owners of the accounts to save for retirement, there are endless types or combinations of investments that can put together to create retirement income funds. RIFs are usually actively managed mutual funds.
One of the main characteristics of a retirement income fund is that it is a managed account or portfolio. This makes the primary type of retirement income fund a mutual fund. These accounts are typically comprised of bonds, mid-cap stocks, and large-cap stocks.
Another characteristic of these types of retirement savings accounts is that they earn moderate capital gains. This is typically possible because the retirement account is composed of moderate gaining and conservative types of investments. While income gains are not huge, retirement income funds do provide investment income. These accounts are actively managed, so it is possible for the specific bond funds and stocks that make up the account to change. The account manager uses the account holder's risk tolerance and financial income goals into consideration when choosing where to invest the money.
Even though these types of retirement accounts provide income and are actively managed, the account is still subject to risk. Since mutual funds are composed of bonds and stocks, market volatility affects the income the retirement fund earns. In addition, these types of accounts do not provide any guarantees, unlike investing in the conservative certificates of deposit (CD) that some rely on for retirement savings and income. This means that when the time comes to start withdrawing money from the fund, there could be nothing or little left of the original principal deposit amount or income that went into the account over the years.
To invest in these types of retirement savings accounts does require a minimum deposit to start the account. The amount required varies between funds. Typical mutual funds charge investors fees, and the same holds true for retirement income funds. While investors can find different combinations of mutual funds and bonds that make up a managed retirement income fund, retirement income funds are essentially another type of managed mutual funds.
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