Many target-date funds label their retirement-stage funds as “retirement income” funds, but that is misleading because these funds aren’t designed to generate income even though their names suggest otherwise.. See Tom Lauricella’s Wall Street Journal article entitled “‘Target-Date’ Funds Shortchanging Retirees
Vanguard’s Target Retirement Income Fund (VTINX) yields 2.7%. T. Rowe Price’s $2.3 billion Retirement Income Fund (TRRIX) has a yield of just 1.76%, and Fidelity’s Freedom Income Fund (FFFAX) has a yield of just 1.7%. Those are pretty low compared to the SPDR S&P Dividend Fund (3.3% yield), the iShares iBoxx $ Investment Grade Corporate Bond Fund (4.1% yield), and even a fund that tracks the S&P 500 stock index ($2.3% yield).
The term “income fund” is unclear and often misleading. The fund companies say that investors should be focused on total return rather than yield (the amount of income produced by dividends and interest alone). The total return of a fund equals the yield plus price appreciation or loss. All stock funds, mixed stock and bond funds, and even 100% bond funds produce a total return that may be more or less than the income yield, and therein lies the risk for investors.
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