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Roger and Linda are approaching their retirement. With continuing volatility in the markets, they are concerned about what effect a market downturn in the few years leading up to or just after retirement would have on their income. They also think that GIC investments would not protect their retirement income very well from inflation.
Like more and more Canadians today, neither Roger or Linda are part of a pension plan. Becausethey will be fully responsible for their retirement income stream, it's very important to them to have a plan that can potentially replicate a pension.
A new segregated fund product, that features a Guaranteed Minimum Withdrawal Benefit (GMWB), was introduced in Canada in late 2006. These plans are a long-term investment that provide a guaranteed income, either now or in the future, regardless of market performance. This type of plan may be ideal for Roger and Linda as they seek a predictable, sustainable and possibly increasing income that may last for life.
Roger and Linda are about fifteen years from their target retirement date. By depositing to a GMWB plan now, they like that they can earn a 5% income bonus for each year they don't make withdrawals. These are not a cash bonus, but add to the amount their income will be based on in case market returns are poor. For example, if they deposit $100,000 to the GMWB plan, they know that in fifteen years their income will be based on no less than $175,000. This means an assured income for them if markets fail to perform.
On the other hand, if markets do well, Roger and Linda like that their gains can be automatically 're-set' at certain intervals. These plans also have a death benefit guarantee that can increase with these market value re-sets. For example, if their $100,000 initial deposit grows to $125,000 after three years and re-sets, future income bonuses will be based on the new amount. If the investment performs poorly after a gain has been re-set, the death benefit and income guarantees will still be based on the new re-set amount.
GMWB plans also provide a guaranteed income stream that has the potential of increasing if the investments perform well. If, however, they perform poorly, the income stream will not decrease as long as only the guaranteed minimum withdrawal is made each year.
For informational purposes only and not intended as a specific product offering. See the Information Folder and Contract for a complete summary of plan guarantees and features.
Copyright © 2008 Life Letter. All rights reserved. For informational purposes only and is based on the perspectives and opinions of the owners and writers only. The information provided is not intended to provide specific financial advice.. Readers are advised to seek professional advice before making any financial decision based on any of the ideas presented in this article. This copyright information presented online is not to be copied, or clipped or republished for any reason. The publisher does not guarantee the accuracy and will not be held liable in any way for any error, or omission, or any financial decision.
This publication and website are intended for Ontario residents only and the information contained is subject to change without notice. Mutual Funds are offered and regulated through Global Maxfin Investments Inc. (GMII). Insurance products (including Segregated Funds) and Income Tax Planning is provided under the name of Ausim Mobeen. GMII does not supervise these activities and will not be accountable, responsible or liable for such activities. This publication contains opinions of the writer and may not reflect opinions of GMII. The information contained herein was obtained from sources believed to reliable, but no representation, or warranty, express or implied, is made by the writer or GMII or any other person as to its accuracy, completeness or correctness. This publication is not an offer to sell or a solicitation of an offer to buy any of the securities. The securities discussed in this publication may not be eligible for sale in some jurisdictions. If you are not a Canadian resident, this report should not have been delivered to you. This publication is not meant to provide legal or account advice. As each situation is different you should consult your own professional advisors for advice based on your specific circumstances.
