For Raytheon Technologies employees, the Lifetime Income Strategy Fund offers a unique retirement planning option within the company’s 401(k) plan. This fund combines elements of traditional investments with an insurance component designed to provide guaranteed income for life. However, this approach may not be suitable for everyone, especially as it often becomes the default option for some employees, without a full understanding of its implications, costs, and potential benefits.
What is the Lifetime Income Strategy Fund?
The Lifetime Income Strategy Fund is essentially a hybrid solution that incorporates professionally managed investments with a built-in insurance component aimed at protecting retirees from outliving their savings. As part of this fund, your portfolio gradually shifts from growth-oriented investments like stocks to a more secure allocation in the "Secure Income Portfolio," which guarantees a set stream of income—referred to as the "Income Benefit." The goal is to offer retirees a predictable, pension-like income while still maintaining some level of control over their 401(k) balance.
By the time you turn 48, a portion of your assets begins shifting into this Secure Income Portfolio, and by age 62, your full balance is allocated to it, ensuring that your income stream is protected regardless of market fluctuations.
Key Benefits and Considerations
Guaranteed Income: The Lifetime Income Strategy Fund offers the benefit of a consistent income stream in retirement. This can be especially important in uncertain markets or for individuals who are concerned about outliving their savings.
Investment Growth: While offering guaranteed income, the fund also includes growth-oriented investments (such as equities) that can potentially grow your savings leading up to retirement. However, the equity portion reduces as you age.
Flexibility: Unlike a traditional pension, you maintain control over your retirement assets. You can access them if needed, though this may reduce your guaranteed income.
However, it's crucial to note that this fund is not without its trade-offs.
High Fees and Default Option
One key issue that some Raytheon employees face is that they may have been automatically placed in the Lifetime Income Strategy Fund as a default option when Raytheon merged with United Technologies, and the 401(k) investments were transferred to the Alight platform. This automatic enrollment can result in participants paying higher fees than they would in other available options—without necessarily receiving any personalized financial planning guidance.
I have worked personally with a few employees over the years and have found the mandatory shift in these funds to "safer allocation" for their investment election, which can diminish the performance compared to portfolios that emphasized traditional stocks higher than what the fund prescribes, which is important to consider, even if there is no guarantee that goes into traditional equity investments. Since each individual has different retirement planning needs and risk tolerance, a higher equity approach may be suitable for some and not for others.
What is more, the fees for this fund, particularly the insurance component that kicks in after age 48, can add up over time, potentially affecting retirement savings if the benefits of the guaranteed income are not fully utilized. For employees who don’t desire to invest in a primarily "annuity driven" approach to retirement assets it is important to consider if this fund is a valuable option or not, especially since there are no additional services offered to the investor in these funds.
Should You Consider an Alternative Approach?
While the Lifetime Income Strategy Fund offers some security, it doesn’t take into account unique key factors like:
Marital status
Pension availability
Planned retirement age
Other income streams
For employees nearing retirement, taking an "out-of-the-box" approach may not always be ideal. A more customized financial strategy that includes a higher allocation to equities may be more appropriate, especially if you have other sources of guaranteed income (such as a pension). Many employees from the legacy Raytheon company do have significant pensions from the earlier years of their career at the company, or pensions from previous government or military work since they are in the defense contracting industry. Higher equity exposure can offer the potential for continued growth in retirement, and an important hedge against inflations impact on your spending ability for retirement, which is critical if you plan to draw on your investments for 20+ years.
As a retirement planning advocate, having a personalized investment strategy is crucial. While target-date funds and lifestyle funds like the Lifetime Income Strategy Fund are designed for simplicity, they often overlook the nuances of each person’s situation. For many employees, working with a financial advisor can help you develop a plan that’s more aligned with your unique goals, even if this comes with additional costs. The value of tailored guidance often outweighs the fees by ensuring your overall strategy meets your retirement needs.
Key Issues to Consider for Raytheon Employees
Guaranteed Income vs. Growth Potential: How much do you value a steady stream of guaranteed income in retirement compared to the potential for higher growth in equities? This balance is crucial when choosing your investment approach.
Fee Structure: The Lifetime Income Strategy Fund charges fees that escalate after age 48, when the insurance component kicks in. Are you willing to pay these fees for the security they provide, or would a lower-cost option better serve your needs?
Personalization: Consider factors like marital status, planned retirement age, pension details, and other income streams. Does the "one-size-fits-all" approach of the Lifetime Income Strategy Fund suit your unique situation?
Default Enrollment: If you find yourself enrolled in this fund by default, it’s worth evaluating whether it truly aligns with your retirement goals or if an alternative option within your 401(k) might be better suited for you.
Final Thoughts: Is the Lifetime Income Strategy Fund Right for You?
The Lifetime Income Strategy Fund offers a balance of income security and investment growth, but it comes at a cost. Employees nearing retirement at Raytheon should carefully evaluate this option in light of their specific financial goals and overall retirement strategy. For many, a personalized plan that considers all aspects of their financial life—marital status, other income streams, and individual risk tolerance—may provide a more optimized approach.
If you feel unsure about your current 401(k) allocation or need guidance on how to best prepare for retirement, consulting with a financial advisor can add value by helping you build a strategy tailored to your needs.
Joseph Boughan is a CERTIFIED FINANCIAL PLANNER® serving many people including Raytheon Employees in the Boston Massachusetts, Cape Cod, and Rhode Island areas, but also works with clients nationwide.
By focusing on wealth management and retirement planning solutions, we ensure that Raytheon employees are better equipped to make informed decisions about their financial futures. If you’re in the Boston area, reach out to discuss how we can help you develop a retirement strategy that suits your unique situation.
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