If you’re nearing retirement, you’re probably aware of the anxiety-inducing task that lies ahead: figuring out how to replace your paycheck with a steady stream of income generated by your investments.

But now, more employers are beginning to offer ways to help you prepare for that eventuality while you’re still working. This year, Financial Engines — which employers hire to provide 401(k) investment advice to their employees — introduced a service whose goal is to protect your portfolio before you stop working  and to generate consistent monthly payments that can be deposited into your checking account after retirement.

“What we are doing is taking the person’s assets and structuring them so that it provides steady retirement income for the rest of their life,” said Christopher L. Jones, chief investment officer at Financial Engines.

Though the plan is somewhat customizable, the general model it starts from is as follows: You live on the income from your portfolio through age 85, and using another portion of your savings, you can buy an immediate annuity at any point up to age 85 that will allow you to collect that same level of income for the rest of your life.

The service, called Income+, is essentially an extension of the investment management the company already provides for employees during their working years. With Income+, however, your portfolio will gradually become more conservative as you approach retirement, similar to the way target-date funds work. So starting about five years before retirement, the company will gradually restructure your portfolio, shedding stocks and putting that money into some combination of bond funds available in your 401(k) plan. At that point, or about age 60, for instance, a typical portfolio might have about 58 percent invested in stock funds with the remainder in bonds.

But by the time you retire, say, age 65, about 20 percent of the portfolio would be invested in stock funds, with another 65 percent in fixed income. The remaining 15 percent would also be invested in bond funds, but it would be set aside for the eventual purchase of an annuity — if the retiree wanted one. There are no requirements to buy anything.

“Our goal is to produce steady income payments for 20 years and then enough money to buy an annuity to maintain that income for life,” Mr. Jones said. If  the annuity — which is bought outside of the 401(k) plan — is skipped, retirees usually have enough money to continue payments for another seven or eight years, he said, but then it will run out.

Once you’re ready to begin collecting income, the money would be deposited into a bank account each month. The payments are intended to rise enough to keep pace with inflation, or about 2.5 to 3 percent a year (that’s why a slice of your money is kept in stocks). But if the market performs poorly, your payments may remain steady that particular year. Likewise, if the market is on fire, your payment may increase a bit more. Generally speaking, though, as you age, the stock allocation will be reduced and that money will be reinvested into fixed income.

The only time your payment might decrease would be if you pulled out a big enough sum to pay for an unexpected expense, like repairing the roof or a medical issue. When Financial Engines tested the allocation in severe market downturns (like 2008), it said that the payments remained steady. But if the bond fund manager you’re using made a “catastrophically bad” investment choice, that could also your payments to decrease.

Roughly speaking, you can expect your annual payments to be about 4 percent of your portfolio. So in the current interest rate environment, a $500,000 portfolio might generate a little less than $20,000 a year, though that would generally increase over time.

Financial Engines said it could also help investors figure out if and when it made sense to buy an immediate annuity, where you give a pile of money to an insurance company in exchange for a lifetime stream of income that starts right away. (Financial Engines does not sell these products, nor does it make money on recommending them, but it can suggest a few providers).

Eventually, Mr. Jones said that the company may incorporate longevity insurance into its model, which is essentially an insurance policy that protects you against living much longer than you expected. Think of it as an immediate annuity that you buy at a discount since you pay for it in advance; the lifetime income payments don’t begin until much later (See my article and post for all the nitty-gritty details). Right now, the tax laws make this a less attractive option (I’ll spare you the details, at least for now), though Mr. Jones said he was optimistic that those tax rules would become more favorable in the foreseeable future.

It’s also important to note that Financial Engines acts as a fiduciary, which means it must act in customers’ best interest. And employees (or retirees) continue to have complete control over their money and can opt out of the program at any time — the company can continue to manage your money until you die, or you can decide to move everything into a rollover I.R.A. shortly after you retire. In fact, Mr. Jones said, the company would eventually like to offer this type of advice to I.R.A. investors, too.

Investors can contact Financial Engines’ trained representatives at any time with any questions. While they are all registered investment advisers, they are not necessarily certified financial planners, which is known as the gold standard in the planning world. “Because we are independent, we can help them with questions like, ‘When should I take Social Security?’ or ‘Should I take my pension income over time or should I take it as an annuity?,’ ” Mr. Jones said. “We can help them understand how all of the pieces come together.”

Naturally, all of this management comes at a cost (Financial Engines provides a discount for employers who automatically enroll their employees in the program, though workers are free to bow out). The service costs anywhere from 0.25 percent to 0.60 percent of assets, though the amount you pay is based on your account balance. If your plan offers low-cost index mutual funds from reputable providers, your total costs — for your investments and the advice — can be less than the cost of the average mutual fund.

Of course, if your employer’s plan offers only high-cost, actively managed funds, Financial Engines can only help you make the most of your limited options. But Mr. Jones said most of the companies it works with are large employers with solid investment choices, and it has advised those with weaker lineups to strengthen them.

But you’ll need to judge whether the investments in your plan are up to par, or whether you’re better off rolling the money over into an I.R.A. after you leave the company or retire. On the other hand, if you really like your 401(k) options, your employer might let you roll over money from something like a traditional I.R.A. and then Financial Engines could manage all of it.

Several employers with 401(k) plans run by Aon Hewitt and Mercer have signed up for the new service. In fact, Milacron, a plastics and machinery company, said it would automatically enroll its 401(k) participants over age 60.

What do you think of the new service? Would you use it? And if you are enrolled, let us know your experiences thus far.

Article source: http://feeds.nytimes.com/click.phdo?i=772349d625729ebd798ddeb014c6b610