GMWBs bring investment stability to an otherwise uncertain future
With the world’s money markets in such a state of uncertainty, why invest now?
Cast your mind back five years, to summer, 2008. Across the globe, bankers, government officials and market analysts were holding secret treaties behind heavy oak doors, waiting to see what the world would look like with a new financial landscape. They knew that the fuse to ignite the greatest financial implosion since The Great Depression had been lit and there was very little left to burn. What would follow in the aftermath would be forever known as the Financial Meltdown of 2008. In many instances, the winds from that blast are still blowing along streets once paved with gold. The strife in the Eurozone in conjunction with the dynamic rises in the price of a barrel of crude oil see the foundations of many markets remain unsure, dissuading would-be investors from investing for their future.
Markets perform in the long term. Fact!
If we know anything about the markets, it’s that they always bounce back. As a long-term investment, no other medium has outperformed them and this time will be no different. True, some investors may still have cold feet from the summer of five years prior and the consequential financial collapse. Conversely, many investors are warming to the prospect that the markets cannot and will not stay this subdued forever. You may be in a similar position, sat as you are in your Retirement Risk Zone, watching your portfolio’s value rise one day then plummet the next. From experience, we know that few strive on this level of ‘excitement’. The majority of soon-to-be retirees or those who’ve recently clocked off for the last time long for investment stability. If you’re between 50-70 years old and have a pension in those ten years before/after Retirement Risk Zone, then fear not. The GMWB may well be the solution you’re looking for to help steady the ship and make your retirement plain sailing in even the roughest of seas.
Okay, I’m listening. What’s a GMWB?
In 2007, Manulife introduced IncomePlus, the prototype GMWB product if you will, to the market. GMWB stands for Guaranteed Minimum Withdrawal Benefit. I don’t know about you, but I’m liking the word ‘guaranteed’, I’m liking ‘minimum withdrawal’ and I’m certainly liking ‘benefit’. Too good to be true in one product? Not at all.
To date, Canadians have invested billions into GMWBs, for two reasons:
1. They offer the stability and security of guaranteed income, yet also retain the prospect that your investment could return even greater rewards
2. Even if you live beyond 100, you’ll receive a guaranteed minimum income every month and any residual balance will be left to your beneficiaries and not added to the coffers of the insurer, as is often the case with Life Annuities.
Why are GMWBs better than other investment savings vehicles?
GMWBs have become popular even in the face of adverse conditions for good reason. For instance, a typical GIC will produce a return in the region of 1-3%; okay, it’s a return, but not great, is it? A GMWB, on the other hand, ensures a Guaranteed Income Base bonus of 5% per annum as an absolute minimum; alternatively, if the market value equates to more, your bonus will reflect the greatest net value. On that score, it beats a GIC hands down. The reason so many investors refer to their GMWB as a personal pension is simple: it transforms your savings account, earning whatever minimal interest rate it does at present, into an Income account. And that’s not all. Whereas your savings account will expire when the money runs out, your GMWB continues to provide Guaranteed Income for Life. Just think about that for a second. However old you live to be, “Your income is guaranteed, For Life…” In that sense, a GMWB is akin to Life Annuity; Guaranteed Minimum Withdrawal Benefits gain superiority because any account balance when you die gets passed on to a named beneficiary, not some multinational conglomerate.
Claim your personal review and free report
Not all GMWBs are equal; they’ve become so popular that many variations exist in today’s marketplace. However, everyone’s circumstances are different. Before plunging in with both feet, it’s prudent to engage a professional to review your situation. A personal review is the only way to ensure that you choose the investment that will optimize what you have and bring the security and peace of mind to your retirement you thought may have already been lost.