Anyone heading for retirement, or in it already, faces a high-stakes financial puzzle: How much of your savings can you spend each year before you run out? Financial planners have argued the question for decades, but the mutual fund industry has been silent.

Now Fidelity thinks it has an answer. This fall it will launch 11 Income Replacement funds, each one a balanced portfolio of stocks and bonds with a monthly withdrawal plan designed to keep the checks coming until the date of your chosen, termination.

Of course, you could do this yourself. But most people don't want to pick an asset allocation, choose funds, set up automatic withdrawals and rebalance every year; Income Replacement funds do it for you.

Like the company's target-date funds, these are portfolios of Fidelity funds that grow more conservative over time. But instead of building toward a target date, Fidelity has created a monthly withdrawal plan to tap your account until your chosen horizon date. Ideally, that money will come from dividends, bond income and the growth of the fund; if not, Fidelity will go into your principal to cover the difference.

So how much do they pay out? That changes every year. Fidelity has abandoned the idea that retirement income should be as predictable as a weekly paycheck. Instead, the company will figure your monthly payments as a percentage of your annual account balance. If your portfolio grows, so will your payments.

The percentage of money you get each year also rises closer to your horizon date. (The funds range from Income Replacement 2016 to 2036.) At 20 years out, you get 6.4 percent of your balance spread over 12 monthly payments; by the time you're 10 years away, you'll be getting 10 percent. In the last year, the fund pays 100 percent of what's left. And if you expire before your funds do, your heirs receive the balance.

Letting withdrawals fluctuate is a better way to approach retirement income, says Steve Horan, a researcher at CFA Institute. Typically, planners suggest that you can take 4 percent of your assets in the first year and the same amount every year thereafter. But if you adjust based on market returns, you can significantly increase your safe withdrawal rate, Horan says. That's one reason Fidelity's payments look so high.

The other reason? This income isn't supposed to last forever. But these are also the funds' biggest drawbacks, critics cry, and if the market crashes, your monthly payments could drop.

"If the portfolio isn't performing, you'll have to live on less," says Joe Banach, a Denver financial adviser who specializes in retirement planning, and he notes that retirees can run into trouble if they underestimate how long they'll need the money.

That's why some planners suggest drawing income from multiple sources -- mutual funds for growth and annuities for safety. Though costly and difficult to liquidate, annuities can provide guaranteed income for life. Fidelity's new funds cost less than 0.65 percent per year, and you can sell your shares at any point.

In any case, expect to see more income-replacement products: Fidelity was a leader in developing target-date funds a decade ago; now almost every fund company has them. These Income Replacement funds may be the first of their kind, but they certainly won't be the last.

Fidelity has abandoned the idea that retirement income should be as predictable as a weekly paycheck instead, it's a percentage of your portfolio.

Source: NYTS