What is a
Guaranteed Minimum Withdrawal Benefit (GMWB)
A new era for people who are fed up with market volatility...
The guaranteed minimum withdrawal benefit (GMWB) or guaranteed lifetime withdrawal benefit (GLWB) products have recently been receiving a lot of attention in the Canadian marketplace.
You may need to fire your Banker because this is offered only by an Insurance Licensed Financial Advisor, and Banks are not allowed to sell Insurance products in their branches, so they will never be able to speak to you about all the benefits listed below...
How it works:
1. You make a deposit, or transfer your existing RRSP account, GIC's or non-registered account into a GMWB Account.
2. Your money gets invested into a portfolio fund, with normally a slightly more aggresive nature than you would currently be using.
3. You sit back and relax, as whether the investment grows or not, for simply being invested, your Income account is guaranteed to grow by at least 5% Compounded for every year that you do not touch it, or the market value of the portfolio, whichever is Greater...
4. When it is time to turn your Savings Program into an Income Program, you are then given your Income Base for life. No matter what happens to your portfolio, your income will continue for the rest of your life, guaranteed by the Insurance Company.
5. Unlike a traditional Annuity from an Insurance Company, whatever value resides in your portfolio when you die, goes directly to your beneficiary, Not the Insurance Company...
How has your Investment Portfolio performed over the last 5 years?
If you had your money invested in the Toronto Stock Exchange Index, you have just wasted 5 years of your Investing life... And you had absolutely nothing to do with the Financial Crisis... What if this type of crisis happened in your Retirement Risk Zone?
So why invest with an Insurance Company?
A Life Annuity with ALL the potential benefits of the Market...
So you may be wondering why you would want to invest with an insurance company instead of a mutual fund or an investment company. Unlike mutual funds, segregated funds offer the protection of capital as well as several other attractive features that life insurance products have been offering.
But, unlike Traditional Annuities, as your investment grows, you gain a greater income base every year, and if the market falls, you are still guaranteed a minimum bonus rate from 4-7% to allow your initial investment to pay you more and more for every year that you dont touch it!
Why is this important?
The 3 unique risks that people face before and during retirement are
1. Outliving retirement savings
2. The erosion of purchasing power from inflation
3. Savings being depleted at a faster rate because of a bad timing of market returns in your retirement risk zone.
A GMWB/GLWB product addresses these risks in a way that a long term diversified approach to investing alone fails to address.
With the introduction of the GMWB and GLWB feature, segregated funds have become more attractive as it offers an additional capital guarantee that is designed to protect a client’s capital from adverse market conditions. The benefit of using this protection is that an investor can ride out the turbulent market conditions, while sticking to their long term investment objective without having to compromise their retirement lifestyle. If the markets do well, the portfolio can lock into higher guaranteed values and secure the portfolio from the effects of inflation. If the markets do poorly, the client can benefit from the protection of the guarantees so they know their money is there when they need it.
While mutual funds are designed for accumulating portfolio assets over the long term, GMWB/GLWB segregated fund products are designed for investors to transition into the retirement years. Financial advisors have largely been telling their clients to diversify and invest for the long term. That was good advice when the population was largely accumulating assets for retirement. Nowadays, a large proportion of the population is close to retirement and they face risks that need to be managed differently.
What else should I know?
If you are wondering where to get these products, you may be surprised at the fact that they are sold only by insurance agents. It is not common for bank investment advisors and financial planners to be licensed as life insurance professionals so they will not be able to offer these products.
As of early 2010, there are six companies that offer GMWB/GLWB products in Canada. They are: Manulife, Sun Life, Empire Life, Industrial Alliance, Desjardins Financial Security, and Transamerica. Each company offers features that differ from one another and it takes a good insurance advisor to explain the differences.
Don’t expect every financial advisor to be knowledgeable in this product. If your goal is to plan for a secure retirement with predictable and sustainable income without worrying about the value of your investments, it may be worthwhile to look into this type of product.
You Need to consider this strategy to compliment the success of your financial future...
Allow us to put together a customized plan based upon your own unique situation. Once you see the value of this financial tool, along with the peace of mind you receive to ride out the waves of the market, will you trully be amazed on how important this investment will be to protect your financial future.