BlackRock joins hunt for the white whale of retirement income

As advisers and asset managers continue to hunt down the white whale of retirement income, BlackRock Inc.’s latest effort purports to give pre-retirees a better idea of the income they’ll get and what they need to save to get there.
The asset management giant filed a new suite of bond funds yesterday with the Securities and Exchange Commission called the BlackRock CoRI Funds. These offerings invest largely in investment-grade corporate bonds, U.S. government bonds and Treasury Strips.
What makes the funds different from many offerings already in the market is the fact that they come with target maturity dates. That’s because they’re aimed at 55 to 64 year olds, and they’re intended to provide retirement income once an investor reaches age 65. In fact, the SEC filing provides a breakdown of CoRI funds from 2015 to 2023.
Alongside the new fund filing, BlackRock also released its CoRI Retirement Indexes, which measure the performance of the CoRI funds and function as a tool for financial advisers and their clients.
Advisers and investors can use the indexes to calculate how much estimated income an investor will get from his or her retirement savings or the amount of savings a client needs in order to generate a particular amount of income.
Further, the index can act as a benchmark against advisers’ portfolios for pre-retirees, measuring how close or how far off the mark clients are from replicating their projected income.
Advisers and investors can track the progress of BlackRock’s bond indexes on the New York Stock Exchange, where they are listed. The indexes provide the estimated cost of providing $1 of future annual inflation-adjusted lifetime income starting at age 65.
The components that go into the index calculation include cash flows, inflation expectations, interest rate adjustments, mortality adjustments and longevity pool risk premiums, said Matthew O’Hara, head of research and product development for BlackRock’s U.S. and Canada defined-contribution group.
The index itself is composed of bonds: corporates, U.S. government bonds and Treasury Strips.
The release of the CoRI funds and the launch of the index are part of increased efforts by asset managers, 401(k) providers and even financial advisers to build a bridge for clients making the transition from asset accumulation to distribution.
Pinpointing the best way to translate lump sums into retirement income has proven a daunting task, however. The industry has wrestled with issues such as modeling what that income would look like for younger savers with small account balances or determining how future health care costs should factor into the equation, for instance.
On May 8, the Labor Department requested public input on translating savings into lifetime income projections on employees’ benefit statements. The agency received a deluge of input from advisers, 401(k) providers and industry groups — a total of 69 letters as of today.
Chip Castille, head of BlackRock’s U.S. and Canada defined-contribution group, noted at a press briefing today that the asset management industry hasn’t done the best job in guiding investors toward that income goal.
“We’re not serving pre-retirees as well as we could,” he said. The industry’s retirement planning tools typically have involved lengthy questionnaires that inundate the investor with information and still leave them feeling like they haven’t solved their income problem, Mr. Castille added.