(The Wall Street Journal) - Baby boomers are quitting the work force, so Wall Street's going to work.

Its latest pitch: "payout" mutual funds that provide retirees with regular income. These funds come on the heels of a slew of new income-generating insurance products, including immediate-variable annuities, "longevity insurance" annuities and tax-deferred variable annuities with living benefits.

But many retirees dislike the complexity and high fees of variable annuities. They also shun immediate annuities, fearing they will die soon after buying them, thus losing part or all of their investment. That's created an opening for fund companies — and they're grabbing their chance.

l Spending down. In October, Fidelity Investments unveiled 11 Income Replacement funds. The funds charge 0.54 percent to 0.65 percent in annual expenses. Each pays a monthly dividend between now and its "maturity" date, which ranges from 2016 to 2036.

To get the full benefit of the funds, you need to enroll in Fidelity's Smart Payment Program. Under the program, your account is gradually liquidated between now and your fund's maturity date, with the aim of creating a monthly income stream that rises with inflation.

Fidelity's funds have two key drawbacks. First, you could outlive your fund and the income it provides. Second, if you hold your fund in a regular taxable account, each month shares are sold will mean you have a capital gain or loss to report on your tax return.

Still, there are a host of intriguing uses for the funds. Boyce Greer, president of Fidelity's fixed-income division, says seniors might purchase one of the funds to give themselves extra income in the first 10 years of retirement, when they're more active. Alternatively, the funds might be bought by older retirees who no longer want the hassle of managing their portfolio.

l Dishing it out. While Fidelity's funds will help you spend down your nest egg, other offerings aim to generate income while, with any luck, keeping your principal intact.

For instance, John Hancock has two payout funds in the works. One intends to kick off a steady quarterly dividend, while the other will try to deliver an income stream that rises with inflation. Meanwhile, Charles Schwab just introduced its Premier Income fund, which will combine a slew of mainstream and exotic securities. The goal: to kick off a heftier yield than a traditional income fund.

The most appealing offerings, however, could come from Vanguard Group, which expects to roll out three low-cost payout funds in early 2008.

One fund will aim to pay three percent annually, with both that income stream and an investor's principal rising faster than inflation. Another will try for a five percent pay-out, with that income and a shareholder's principal climbing at the inflation rate. Finally, the highest-yielding fund will go for a seven percent pay-out, while aiming to preserve an investor's initial investment in nominal terms.

Vanguard, in effect, is pointing out there's a trade-off between current income and future growth, and then leaving investors to decide which combo they want. You might opt, say, for more income later in retirement and to bequeath more to the kids — but you'll have less to spend today.

To meet their goals, the funds will need to damp down volatility and still earn decent returns. To that end, they will own conventional stocks and bonds. But they will also allocate money to inflation-indexed bonds, real-estate investment trusts, commodity-linked investments and a market-neutral fund, all of which have a history of posting gains when mainstream investments suffer.

Even so, the funds' payouts will fluctuate modestly. Don't like that uncertainty? Instead, you could buy something that provides guaranteed lifetime income, like an immediate-fixed annuity, which might pay 7.5 percent a year to a 65-year-old woman, and even more to men or to those who are older. But that means giving up your principal — and betting you will live to a ripe old age.

"People fundamentally don't find that deal attractive," argues Vanguard investment analyst John Ameriks.

"Having income isn't the only thing that's important to retirees. Here, we're trying to give people income, while still giving them access to principal and even growth with some of the funds."

Choices, Choices

Payout mutual fund or lifetime immediate-fixed annuity? Here's how to decide.

l A fund is best if you don't mind fluctuating income and still want access to your principal.

l An annuity makes sense if you're in good health and want a healthy stream of guaranteed lifetime income.