The American Funds Retirement Income Portfolio Series consists of three managed portfolios — Conservative, Moderate and Enhanced — that can help retirees address their income and longevity needs.
Made up of American Funds, these portfolios:
- Were created by the Portfolio Oversight Committee, the predecessor to the Portfolio Solutions Committee — a seven-member team of seasoned investment professionals — based on extensive research and their in-depth knowledge of the underlying funds.
- Seek to support varying withdrawal rate ranges and risk tolerances while maintaining as much of a retiree’s initial investment as possible.
- Were designed to be a part of a broadly diversified retirement income portfolio.
A recent survey found that the chief concern among retirees is having the ability to maintain their lifestyles in retirement. In addition, investors in retirement want to be assured of asset growth as they take withdrawals from their investments.
The American Funds Retirement Income Portfolio Series strives to:
- Be a withdrawal source for a retiree’s lifestyle — or, discretionary — spending needs as a complement to other investments and sources of income in their portfolios.
- Preserve as much of the initial investment as possible, even as retirees take regular withdrawals.
Translating Need and Risk Into Withdrawal Rate Ranges The Portfolio Solutions Committee used extensive research and modeling to determine the suggested annual withdrawal rate ranges for each of the three portfolios (as of January 1, 2020).
Each retirement income portfolio is designed to address varying income needs and risk tolerances, and each has a suggested annual withdrawal rate range.
These suggested withdrawal rate ranges:
- Were determined by the Portfolio Oversight Committee, the predecessor to the Portfolio Solutions Committee, based on their experience and in-depth knowledge of the underlying funds, as well as the extensive research and computer simulations used to create each portfolio.
- Were based on income and capital gain expectations — taken from both historical data as well as market projections — for each of the portfolios.
- Are suggestions only, and should be evaluated over time. These ranges are a starting point; the actual rate should be determined on an individual basis by the financial advisor and retiree, and should be adjusted to maintain sustainability in various market conditions. In addition, differences in the portfolio returns, inflation (or deflation) and interest rates over time may prompt the Portfolio Oversight Committee to change the suggested withdrawal rate ranges.
- May include part of the investor’s principal, to the extent the income earned by the portfolio (in dividends and bond income) is less than the withdrawal amount. The portfolios are designed to accommodate this, and will seek to grow assets over time as well as provide withdrawals, though there is no guarantee the portfolios will support a given withdrawal rate in all market environments.
- Should be determined by individual investors as one part of their total retirement income picture, including Social Security or other sources of guaranteed or interest income. These portfolios are designed to address lifestyle, or discretionary, expenses in retirement, not necessarily basic living expenses.
American Funds Retirement Income Portfolio — Conservative℠
With significant allocations to The Bond Fund of America® and U.S. Government Securities Fund®, this portfolio focuses more on preservation of capital, while still seeking to provide current income.
- 2.75%–3.25% Suggested annual withdrawal rate range*
- 35%–45% Equity allocation range
American Funds Retirement Income Portfolio — Moderate℠
The portfolio includes several fixed-income funds, but the allocation is weighted more toward income-focused funds like Capital Income Builder® and The Income Fund of America®.
- 3.00%–3.75% Suggested annual withdrawl rate range*
- 40%–60% Equity allocation range
American Funds Retirement Income Portfolio — Enhanced℠
With greater allocations to income-focused equity funds, this portfolio has more potential upside over the long term, but will likely result in greater volatility.
- 3.25%–4.00% Suggested annual withdrawl rate range*
- 55%–75% Equity allocation range
We built the American Funds Retirement Income Portfolio Series to help address the needs of investors nearing or in retirement.
These funds of funds are:
- Focused on withdrawals and longevity. They seek to support different withdrawal rate ranges while maintaining as much of a retiree’s initial investment as possible.
- Flexible. They’re made up of different mixes of equities and bonds, allowing for variation in withdrawal rates and risk tolerances.
- Actively monitored. They benefit from the ongoing research and attention of the Portfolio Solutions Committee.
The Portfolio Solutions Committee — investment professionals who have a long history of successfully managing funds to pursue investor objectives — monitor the American Funds Retirement Income Portfolio Series.
Retirement income portfolios are complex. At times the need to take withdrawals can conflict with the desire for capital preservation. The historical roles of stocks and bonds have shifted in recent years, making the interplay between markets more difficult to navigate.
That’s why the Portfolio Oversight Committee, the predecessor to the Portfolio Solutions Committee:
- Performed exhaustive proprietary research, analyzing both historical data and likely future scenarios.
- Deployed data that reflects both even and extreme market conditions.
- Relied on their deep experience in managing the underlying American Funds.
The seven seasoned investment professionals in the Portfolio Solutions Committee offer:
- Experience. The committee averages 27 years of industry experience, as of January 1, 2020.
- Familiarity. They know the underlying funds well; all manage at least one of the underlying funds in the portfolios.
- Oversight. They continually monitor the portfolios — more intensely in times of volatility.