Guarantee your financial future with GMWBs

Ensurea monthlyincome with guaranteed minimumwithdrawal benefits

You can run but you can’t hide. Is there a safe place left to hide? A smart investor needs to diversify by investment product. It is not good enough to diversify solely by asset class now. There really is no safe asset class anymore. We have experienced a world of volatile markets. Are you thinking of selling everything and making another mattress, or for that matter a pillow of what’s left. That would be the worst thing to do, as most of us would run out of money before we run out of time.

One of the first exercises I do with a new client is going over their expenses, and then set up a budget, if need be. Then we talk in detail about all their fixed expenses and any “extras” they may have annually. Once we have that worked out, we can pretty well figure out what they would expect to happen in retirement regarding the “fixed” expenses. The next step would be to ensure that the proper planning is put in place that would cover the fixed expenses, as they come to realize they don’t want to run out of money. We talk about two very important things.

One, making sure if they can’t continue to earn an income, there will be some money still coming in to help pay the basic expenses, and two, deciding how much money they need by the time they retire. Most of us would like to have our money protected so it lasts the rest of our life, because running out of money is a scary thing. Your retirement years should be fun, not stressful. Stress only makes us sick, therefore shortening our healthy lives. Wouldn’t you rather never have to think about the market or running out of money in your retirement? For that matter, who wants to have to look after their investments when they are in their 70s, 80s and so on, especially in a prolonged volatile economic environment.

So, regardless of market conditions, you’re asking: ‘Is it possible?’ Well, it is, in fact, possible to guarantee your income for life with guaranteed minimum withdrawal benefits (GMWBs). I know most people over 60 would find this comforting — to never have to think about running out of money. So what is a GMWB? It is an investment with an insurance rapper. The main idea is it guarantees a regular cheque for the rest of your life. If you live to 120 years old, you will still continue to get your monthly cheque just like a pension plan.


I was chatting with my neighbour the other day (he is a teacher). He said he can retire in three years with a pension of 54%. His factor (most are the same) is 85. His full pension would be 70% of his salary and it would increase by 2% each additional year he works. Most would say he has no worries because he has a guaranteed paycheque for life.

Some of us think we have pensions when it comes to our government benefits. I would like to remind you that your RRSP or TFSA is not a pension. There is no lifetime paycheque attached to it. Unless you do have one of the GMWBs as part of it. Most of the insurance companies have them, and some are better than others.


A defined benefit (DB) is one type of traditional pension plan. It has a guaranteed paycheque during your retirement. The size of the cheque (usually monthly) depends on the number of years you worked for the company, as well as your best salary (usually last five years). If you have a spouse, that might also be factored in.

Canadians who retired in 2008 after the market correction, for the most part, started off on the wrong foot, or even now, with these massive market fluctuations. And remember, your retirement can sometimes be as unpredictable as whether you’ll be having a boy or a girl.

At this time, the only so-called pension most of us have is the Canada Pension Plan (CPP) and the Old Age Security program (OAS). But, for some of us, it is only a fraction of what is needed to live on. So, again I pose the question. What do we need to do in order for us to never worry about out living our retirement nest egg? Especially, if we want to leave some money to our children and possibly donate something to our favorite charity? Turn your savings into a regular income stream, with no downside. With some special product allocation techniques, you can better optimize your retirement income potential and, at the same time, minimize much of the financial risks.

Product allocation tools address the various challenges that we can face in the future by tapping into the guarantees and features of each of the following three product categories:

1) Systematic withdrawal plans (SWPs)

2) Segregated fund contracts featuring guaranteed minimum withdrawal benefits (GMWBs)

3) Annuities

By following a process, you can better optimize your retirement income potential and, at the same time, minimize financial risks by using the right investment vehicles.


You can set up SWPs on most investments, including mutual funds, to provide you with a predetermined amount of income each month, with flexibility if required. The investment can continue to grow as long as it is performing at a rate higher than the rate of withdrawal.


Most insurance companies use the following features and benefits that assist with the product allocation process, in providing you with sustainable income during your retirement years:

• Predictable income guaranteed not to decrease no matter how markets perform

• Sustainable income that will last for life and the life of a spouse

• Potentially increasing guaranteed income to help keep pace with inflation The features and benefits work together to allow you to invest for continued growth while being assured that your savings can provide a predictable stream of guaranteed retirement income for life.


Annuities can play an important role within a product allocation strategy. In exchange for a single lump sum deposit, an insurer makes guaranteed regular income payments that contain both interest and a return of principal. An annuity can guarantee income for a period of time, or for your entire life. There are several types of annuities, and I’m sure one can be tailored to your financial plan.

The need for safer investments are on the rise, along with the growing number of baby boomers (ages 44 to 63) who are looking for comprehensive investment plans which allow them to concentrate on having fun in their retirement and never having to worry about the markets moving in the wrong direction.

Do we also need to protect ourselves against inflation? According to the Bank of Canada, the average annual inflation rate over the last 20 years has been about 2.02%. While, at first glance, that seems like a moderate increase, when you add it up, the cost of goods and services has risen 49.29% during this time period.

To put this in perspective, let’s take a look 20 years into the future at the cost of a semi-private and private room in a nursing home in Ontario. We’ll apply the same rise in the cost of goods and services that we’ve experienced during the past 20 years (49.29%). Semi-private room, in 2010 the monthly cost was $1,857.15 and in 2030 it could be $2,773.14 per month, an increase of $915.59 per month and $10,987.08 per year. For a private room, the 2010 monthly cost was $2,167.71. In 2030, it could be $3,236.17 per month, an increase of $1,068.46 per month and $12,821.52 per year.

It’s inevitable, as time goes by, prices go up. From life’s luxuries to life’s necessities, such as food and health care. One of the best solutions to help with this risk, is purchasing long-term care insurance (LTCI) — a fairly new insurance product to Canada. Not all insurance advisors are qualified to even present it to the marketplace. Most insurance companies have different contract wording and it is very important to understand what you are buying, as you don’t want to find out while you are submitting the claim forms or, for that matter, your children or grandchildren assisting with the paperwork. Always work with an insurance specialist and above all ask lots of questions.

Posted by Robyn Latchman