The GMWB: Retirement income, guaranteed

Guaranteed minimum withdrawal benefit products are of mixed value.

Do I have your attention yet?

Maybe you are one of many Canadians who in total hold $17.9 billion in guaranteed minimum withdrawal benefit products as of June 30, 2012.

These products became particularly successful after the 2008 financial crisis and have continued to grow ever since.

Invest in the markets, but with guarantees. It seemed too good to be true. And maybe it was.

In fact quite a few of the early investors are sitting on funds now that are down in market value. But because of the guarantees they do not need to worry about losing money — for they are assured to receive back at least what they put in and possibly more through income guarantees.

When first introduced, these products allowed you to invest in some cases up to 90 per cent of your portfolio in the stock market. As part of the deal, if you kept your money invested for at least 20 years you were guaranteed to receive back five per cent per year for 20 years, totaling 100 per cent of your investment. As an added benefit, if you chose to defer withdrawing funds until a future year, the companies would offer bonuses that would provide additional future income.

In truth the guarantees were nothing to write home about. Five per cent per year for 20 years, after all, amounts to a zero percent return on your money.

The true benefit of the product was that if the markets went up, you could do much better. But if they went down — at least you wouldn’t lose anything.

Overall it was a pretty good proposition. Too good, in fact, to the point where companies offering these products have had to scale back benefits substantially.

Which brings us to today’s question: are these programs still worthwhile?

That depends, I suppose, on whether you own one of the earlier versions of the product, or are considering committing new money.

In the case of new money, it is debatable. The fees have risen; the available investment options have become more conservative; and based on life expectancy, you are no longer assured to receive a full return of your initial investment in guaranteed income.

However, if markets perform well by historic standards, you will likely fair better than would be the case with other guaranteed investments.

What about the case where you already have money in one of these programs.

Should you continue?

That would depend on a number of factors. Chances are your guarantees have been left intact, which would be comforting if your market value has dropped. But at the same time your investment options and your fees have changed.

If that is the case it may be worth your while to seek out an objective opinion from a qualified financial advisor as to your best course of action.

For more on this feel free to call or e-mail.

 

Jim Grant, CFP (Certified Financial Planner) is a financial advisor with Raymond James Ltd (RJL). The views of the author do not necessarily reflect those of RJL. This article is for information only. Raymond James Ltd. is a member of Canadian Investor Protection Fund.  For more information feel free to call Jim at 250-594-1100, or e-mail at jim.grant@raymondjames.ca. and/or visit www.jimgrant.ca.

Just Posted

The proposed running track upgrade at Ballenas Secondary is now on course. (PQB News file photo)
RDN: Parksville track upgrade project gains some traction

Staff recommends board approve $204,000 funding

The total earnings of Town of Qualicum Beach council and mayor amounted to $186,649 in 2020, including expenses. (Town of Qualicum Beach photo)
Nine Qualicum Beach town employees earned more than $100K in 2020

Mayor and council received earnings totalling $186,649

(PQB News file photo)
Fireworks report highlights enforcement challenges for Regional District of Nanaimo

Director: ‘I just think it’s wasting everybody’s time’

Terry Mazzei next to a truck after it was struck by lightning, with him inside, on Wednesday afternoon, June 9. He walked away from the incident without injury and the truck sustained only mild damage; a blown front tire and newly broken gas gauge. (Wendy Mazzei photo)
Nanoose Bay man walks away unscathed after lightning strike

VIDEO: ‘We like to think that his dad was watching over him’

Douglas Holmes, current Alberni-Clayoquot Regional District chief administrative officer, is set to take on that position at the Regional District of Nanaimo come late August. (Submitted photo)
Regional District of Nanaimo’s next CAO keen to work on building partnerships

Douglas Holmes to take over top administrator role with RDN this summer

Canadian Prime Minister Justin Trudeau participates in a plenary session at the G7 Summit in Carbis Bay, England on Friday June 11, 2021. THE CANADIAN PRESS/Adrian Wyld
Canada donating 13M surplus COVID-19 vaccine doses to poor countries

Trudeau says the government will pay for 87 million shots to be distributed to poor countries

Premier John Horgan speaks as provincial health officer Dr. Bonnie Henry, right, and health minister Adrian Dix look on during a press conference to update on the province’s fall pandemic preparedness plan during a press conference from the press theatre at Legislature in Victoria, Wednesday, Sept. 9, 2020. THE CANADIAN PRESS/Chad Hipolito
B.C. officials to provide details on Step 2 of COVID reopening plan Monday

Step 2 could allow for larger gatherings and a resumption of recreational travel

Indigenous Services Minister Marc Miller is seen during a news conference, Wednesday May 19, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld
Indigenous child-welfare battle heads to court despite calls for Ottawa to drop cases

Feds are poised to argue against two Canadian Human Rights Tribunal rulings

The Great Ogopogo Bathtub Race has been held in Summerland as a fundraising event. Do you know which Canadian city introduced this sport? (Black Press file photo)
QUIZ: A summer’s day at the water

How much do you know about boats, lakes and water?

Two-year-old Ivy McLeod laughs while playing with Lucky the puppy outside their Chilliwack home on Thursday, June 10, 2021. (Jenna Hauck/ Chilliwack Progress)
VIDEO: B.C. family finds ‘perfect’ puppy with limb difference for 2-year-old Ivy

Ivy has special bond with Lucky the puppy who was also born with limb difference

A million-dollar ticket was sold to an individual in Vernon from the Lotto Max draw Friday, June 11, 2021. (Photo courtesy of BCLC)
Lottery ticket worth $1 million sold in Vernon

One lucky individual holds one of 20 tickets worth $1 million from Friday’s Lotto Max draw

“65 years, I’ve carried the stories in my mind and live it every day,” says Jack Kruger. (Athena Bonneau)
‘Maybe this time they will listen’: Survivor shares stories from B.C. residential school

Jack Kruger, living in Syilx territory, wasn’t surprised by news of 215 children’s remains found on the grounds of the former Kamloops Indian Residential School

A logging truck carries its load down the Elaho Valley near in Squamish, B.C. in this file photo. THE CANADIAN PRESS/Chuck Stoody
Squamish Nation calls for old-growth logging moratorium in its territory

The nation says 44% of old-growth forests in its 6,900-square kilometre territory are protected while the rest remain at risk

Most Read