Nearing retirement and wondering how you can possibly manage your retirement portfolio yourself? I'm talking about the funds you'll be rolling out of your 401K, 403B or other employer-based retirement savings program. Many people are asking that question as they look at those large chunks of money and want to be sure they don't outlive their money during retirement.

Fidelity and Vanguard want to make that easier and cheaper with an alternative to annuities. Fidelity calls them Income Replacement Funds and Vanguard calls them Managed Payout Funds. Eleven Fidelity funds were launched last week and Vanguard plans to make its version of three funds available by early 2008.

How do these differ from annuities? Annuities are a type of insurance with a guaranteed payout based on a contract. They can be structured with a guaranteed payment for the rest of your life (no matter how long that is) or can be structured with a set payout over a set number of years. The big disadvantages of annuities is that you lose all control of the money inside the annuity and you have to pay significant fees to the insurance company managing it.

Both Fidelity and Vanguard want to offer an alternative to annuities with cheaper fees because these funds do not have the expensive insurance component. But that will come come with a price -- more risk for you the investor. You do maintain control of the portfolio and you can roll your money out of the funds at any time if you're not happy with the results.

Fidelity offers 11 funds that each have a date the income stream will end, ranging from 2016 to 2036. Fidelity then manages the mutual fund portfolio to meet that goal with a combination of funds (primarily Fidelity's own mutual funds). The current expense ratio is 0.65% and you'll also incur the management fees of each of the funds. For example, suppose you had $300,000 that you want to roll over from your 401K and you want payments for about 30 years during retirement. The current annual target payment for the Fidelity Income Replacement Fund 2036 is 5.09%, which would be an annual payout of $17,000 per year. Add to that your Social Security of let's say $12,000 ($1,000 per month) and your retirement income would be $29,000 per year.

Vanguard developed a different structure for its funds. It plans to offer three different funds:

• Managed Payout Real Growth Fund - for conservative investors with a 3% annual distribution rate.

• Managed Payout Moderate Growth Fund - for the middle-of-the-roaders who will take on a bit more risk. It will have a distribution rate of 5%.

• Managed Payout Capital Preservation Fund - for investors willing to take on a even more risk. It will have a distribution rate of 7%.

Vanguard does not guarantee how long the money will last. Professional money managers usually recommend a payout of 4% to 5% if you want to be sure that your money will last throughout your retirement. I'm guessing with these different payout streams Vanguard will manage the Capital Preservation Fund with more aggressive investments to attempt to keep the income stream going as long as possible. But since there are no guarantees, if the market tanks in the riskier investments your principal could be diminished, which means you could run out of funds sooner.

Just like with the Fidelity Funds, Vanguard's Managed Payout fund portfolios will primarily own shares of other Vanguard Funds. Vanguard, known for the lowest fees in the mutual fund world, expects the management fee for these funds to be 0.34% plus the fees of the mutual funds held in the portfolio.

While it's much too early to know whether or not these funds will be successful, they do look like a promising alternative to the more expensive annuities. Take a close look at the prospectus before deciding what to do with your retirement nest egg and decide if this alternative makes sense for you.

Lita Epstein is the author of more than 20 books including "Working After Retirement for Dummies."