Guaranteed Life Withdrawal…

“Guaranteed Life Withdrawal Benefit” (GLWB) or “Guaranteed Income for Life” Products

Guaranteed Income for Life products have become very popular over the past several years, particularly since the market downturn of 2008. These products were introduced to address the risk of people outliving their retirement savings. The GLWB and GIL are not actually new products, rather they are an enhancement to segregated fund products (which are basically mutual funds offered through an insurance company with additional guarantees).

The basic features of the GLWB include:

• Guaranteed income for life. Once you start to take income, you’ll receive a guaranteed monthly amount for the rest of your life. The amount is determined by a preset percentage of the portfolio each year, depending on your age at the time you start taking income. Typically it is 5% at age 65: Lower if you start drawing income sooner and higher if you start later.
• For each year that you own the investment without drawing income, you receive a bonus (typically 5%). This bonus is kept with the insurance company until you start to draw income. Then it is added to the market value.
• You participate in any market gains earned by the investments that you choose. If the markets do well, your portfolio can lock in higher guaranteed values and be secured from the effects of inflation. If markets fare poorly, you can benefit from the protection of the guarantees. So, in either case you enjoy peace of mind knowing that a fixed amount will be there when you need it.
• There are other guarantees, including guaranteed death benefits and guaranteed maturity-value benefits. Only insurance companies can offer these guarantees.

What’s the downside?

• In order to offer guarantees, insurance companies will charge higher management fees on the underlying investments.
• If you transfer your money out of the insurance company, the company keeps any bonuses it has earned.

Why is this important?

The guaranteed protection can prevent an investor from losing money, but it comes with an additional cost.

Recent Updates

There have been changes to federal legislation which require insurance companies to increase reserves for these products. With low interest rates and stricter regulation, several insurance companies have recently implemented changes. Some companies have suspended new sales and others are lowering future guarantees.

Are Guaranteed Income products right for you?

I would be happy to help you determine how a guaranteed income product could impact your financial future.
Please contact me by phone or e-mail at tel: 604-669-1143 or email:  laura.chanin@holliswealth.com

This article was prepared solely by Laura Chanin who is a registered representative of HollisWealthTM (a division of Scotia Capital Inc., a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada). The views and opinions, including any recommendations, expressed in this article are those of Laura Chanin alone and not those of HollisWealth. 
TM Trademark of The Bank of Nova Scotia, used under license.

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