It goes without saying that one of the most important aspects of a safe and satisfying retirement is ensuring a retiree has access to a consistent, steady cash flow. After decades of hard work, retirees tend to seek this income through a combination of Social Security and investing their nest egg. One approach that tends to work especially well for some retirees is liability matching.
For the uninitiated, liability matching is when an investor aligns their income and potential asset sales with upcoming expenses. This structured approach helps mitigate the risks of meeting financial obligations.
For those looking to give liability matching a shot, one way to do so is through a bond ladder ETF. These types of funds may provide a more structured and predictable view of bond exposure, which may bode well for those trying to time their income and principal opportunities.
TIPB Tackles Liability Matching With Income & Annual Principal
The Northern Trust 2035 Inflation-Linked Distributing Ladder ETF (TIPB) can serve as a compelling use case for investors seeking a liability-matching approach. TIPB constructs a laddered portfolio of U.S. Treasury Inflation-Protected Securities (TIPS) that mature through 2035.
Distributing ladder ETFs handle their principal differently than traditional bond funds, and this may work well for liability matching. Usually, a bond ladder ETF will take the principal received when a bond matures and reinvest it in the next rung. Instead, TIPB and other distributing ladder ETFs offer annual principal distributions. Naturally, these scheduled distributions may help retirees ensure they have the income to cover anticipated expenses.
This approach enables TIPB to work especially well for those seeking to foster a liability-matching approach to wealth management. TIPB’s laddered portfolio and annual distributions aim to provide structured, predictable payouts, making it easier for retirees to navigate everyday needs without the risk of liquidating other assets. And for retirees, tapping into guaranteed payments while preserving peace of mind can be a benefit in and of itself.
For more news, information, and strategy, visit the Bond Ladders Content Hub.
Disclosures:
ETF investing involves risk, and principal loss is possible. Shares of any ETF are bought and sold at market price (not NAV). They are not individually redeemed from the ETF. Brokerage commissions will reduce returns. The net asset value of the Northern Trust ETFs will decline over time as income payments are made to shareholders. Individual bonds carry an obligation to fully return principal to investors at maturity, however ETFs have no such obligation.
Before investing, carefully consider the investment objectives, risks, charges, and expenses. This and other information is in the prospectus and a summary prospectus, copies of which may be obtained by visiting www.flexshares.com. Read the prospectus carefully before you invest.
Northern Funds Distributors, LLC, distributor. Northern Funds Distributors, LLC and FlexShares are not affiliated with Northern Trust.
All investments are subject to investment risk, including the possible loss of principal amount invested. Investments do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
Not FDIC insured | May lose value | No bank guarantee
