Lifetime Income Benefit

aka - Guaranteed Minimum Withdawable[GMWB]

aka - Guaranteed Lifetime Withdrawable Benefit,

aka - Lifetime Income Benefit, [LIB] Ontario

An Investment & Spending Solution For the Boomer Generation

The guaranteed minimum withdrawal benefit (GMWB) or guaranteed lifetime withdrawal benefit (GLWB) products have recently been receiving a lot of attention in the Ontario marketplace. The market leaders are Manulife’s IncomePlus Series SunLife’s Sunwise Elite Plus Canada Life's LIB or Lifetime Income Benefit and Desjardin’s Helios Guaranteed Investment Funds. They have been very successful at targeting needs of Canadian baby boomers in a time when they transition from saving for retirement to generating income in retirement. These products are not entirely new, as they are actually enhancements to existing segregated fund products.

The principle of these plans is simple. If if you draw down your principle in a pre-determined and consistent rate, say 4% per year, and your funds are exhausted before you are, the insurer guarantees to continue the payments at the predetermined rate (e.g. 4%) for the rest of your lifetime. Plans are available for RIF money, TFSA money and non registered money. The nuances of the plan and the differences between plans can be complicated and confusing, so professional advice is highly recommended.

Both the GMWB and GLWB offer a guarantee on the withdrawal of a certain percentage of the portfolio each year. The percentages are in the range of 3.5% to 5%. The difference between the GMWB and the GLWB is that the GLWB is a lifetime benefit, while a GMWB is a benefit for 15 to 20 years. Obviously, the GLWB offers a guarantee on a smaller amount than a GMWB since the guarantee is for life.

Why buy a GMWB from an insurance company?

It is only available as a benefit of a Segregatd Fund. 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 a minimum of 75% of the capital as the protection of capital as well as several other attractive features that life insurance products have been offering.

However, the extra protection comes at the cost of higher management fees. The management fees add up over time and they grow with the market value of your portfolio. Many articles have been written about whether the higher fee for the extra protection is worthwhile. If the goal is to save money for retirement, it is quite expensive and it may not always make sense. However, planning the retirement years requires a look at some of the different risks that can affect how well your portfolio achieves your objectives.

Why are guarantees important?

The unique risks that people face before and during retirement are

  • Outliving retirement savings
  • The erosion of purchasing power from inflation
  • Savings being depleted at a faster rate because of a bad timing of market returns

A GMWB/GLWB/LIB product addresses these risks in a way that a long term diversified approach to investing alone fails to address. The protection comes with an additional cost, but it can save the right client from losing a lot of money.

With the introduction of the GMWB,d GLWB and LIB 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/LIB 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. There are numerous companies offering Segregated Funds and this GMWB benefit.

At CSIA we can advise you in Ontario on whether or not a GMWB/GLWB/LIB is a good option for you, and which insurance companies are offering the best products.For more details on this and other subjects please browse

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