Creating your own Personal Pension using a GMWB,
and here is how it works…
Exactly what is a GMWB and how do they guarantee retirement income?
Guaranteed Minimal Withdrawal Benefits have shaken up the Canadian financial marketplace in recent years, much to the delight of 50-70 years olds in the ‘Retirement Risk Zone’, who never knew from one day to the next how their retirement funds were going to perform given the global Financial Meltdown.
Also known as a GLWB (Guaranteed Lifetime Withdrawal Benefit), the GMWB is only available through an Insurance-Licensed Financial Advisor. If your retirement fund is sitting in a bank doing you very few favours, it’s time to turn that nest-egg into a product that will work for you rather than line the pockets of the Mutual Fund Companies.
How a GMWB works…
There are two parts to a GMWB: the savings account and the income account. Your investment is the initial savings account, which you can add to over time. When you’re ready to reap the rewards of your savings growth, you flick the switch and that savings account becomes your guaranteed lifetime Income account.
In a nutshell, this is a brief overview of the process:
- You can transfer any Registered Retirement Savings Plan, GIC, non-registered account or make a cash deposit into your new GMWB savings account to begin.
- From there, your money will be invested in the traditional markets, using the same investment mentality and style which you may be used to today.
- Sit back, put your feet up and wait for your return. You can genuinely relax with confidence that your investment will grow your income by 5% per annum guaranteed. This amount is compounded providing you leave the savings to grow. If the market value of the portfolio return is higher than 5%, your income growth will reflect the higher performance.
- At the point you’re ready to start receiving your savings as income, you’ll see immediately what you can expect to receive from the insurance company as your guaranteed Income Base for the rest of your life
- If you die and there’s a residual balance left in your portfolio, these funds are passed to your named beneficiary and won’t go to the insurance company, as is the case with traditional Life Annuity products.
What growth has your investment portfolio achieved recently?
I hate to be the one to break this to you, but if your portfolio has been tied up in the “Toronto Stock Exchange”, you’ve flushed half a decade of investment opportunity down the drain.
5 Year Comparison of the Toronto Stock Exchange from August 2008 to August 2013
Were you to blame for the Financial Meltdown?
No. But consider, just for a minute, if this disastrous five years had happened in your Retirement Risk Zone, when you’re between the ages of 50-70. It doesn’t bear thinking about, does it?
Life Annuity coverage with investment market potential…
The benefits of taking out a GMWB policy with your Investment Advisor are numerous, compared with the traditional Life Annuity that you’d usually invest in via an Insurance Company. Segregated funds like the GMWB protect your capital, unlike mutual funds; additionally, the investment potential far outweighs the returns traditional life annuities offer. As long as you leave your savings untouched, your annual bonus through a GMWB will be 5%, depending upon your exact policy, even if the portfolio fails in the market.
If your portfolio investment soars, your annual bonus will reflect its high performance accordingly. Win-win!
See a quick video below on how a GMWB works, and how it may work for you…
Why tackling the 3 retirement risks is so important…
Once you retire, you’re subject to the money you’ve set aside during your working life funding your retirement. There are three unique risks that, if unchecked, can seriously damage your quality of life post-retirement:
1. Longevity – you live longer than your savings account for.
2. Erosion – your spending power depleting as savings don’t keep up with inflation
3. Retirement Risk Zone fatigue – markets failing your savings at the crucial peak of their growth 10 years before, during and after your retirement date
Long-term diversification overcomes investment-only shortfalls…
Adverse market conditions have been the blight of many peoples’ retirement funds. The GMWB/GMLB product has won popularity due to its unique method of protecting that capital during such times.
Should there be turbulence in the market similar to that we’ve seen in recent times, investors can ride that storm with impunity, knowing that their long-term investment program is not compromised, thus their retirement fund is in no way jeopardized.
Even if the markets suffer, a GMWB will protect your investment with the additional bonus of a minimum return on investment, no matter what.
In the past, Financial Advisors have advised their clients that diversification was the key to long term investment success. Whilst that may have been true of the landscape before the Financial Meltdown, that turbulence has forced us to look at other ways to invest.
Rather than accumulate a portfolio of assets over a working lifetime, a segregated fund option like the GMWB is more applicable to investors who want a safe passage for their funds as they approach the maturity of retirement.
Necessity is the mother of invention and with so many people due to retire so soon after the recent market debacles, risk management has had to be approached in a new and more profitable way, hence the popularity of the GMWB/GMLB products.
How can I invest in a GMWB?
The time to invest in a GMWB/GMLB is now. Of the handful of companies in April 2010 who were offering this type of guaranteed income after retirement product, only a few remain, so good is it a product for the retiree.
As mentioned, you cannot purchase this product through a bank as it is a combination of insurance and investment. Only Insurance-Licensed Financial Advisors can sign you up to and manage a GMWB.
As there are a combination of factors, not every insurance company or its agents will be 100% knowledgeable of all of the options available.
You truly need to speak to an expert in this field if you are to take advantage of one of the only policies on the market that combines both a guaranteed income for life plus bonuses if the savings are left untouched and at the market value, should portfolios perform heroically.
We are such experts. We’d love to put together a presentation highlighting how you need never have to look at the stocks and shares pages again and worry how your portfolio is performing.
Get in touch today and let us prove to you that this investment will not only protect your existing savings, but turn them into a guaranteed income account for life, leaving you to enjoy the carefree retirement you always dreamed of before the financial markets of the world fell through the floor.
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