GMWB is a strategic plan offered by insurance companies under segregated contracts which offers minimum withdrawal options starting age 65 for life. The income will be provided to the annuitant as long as he or she survives and will not be affected negatively by the stock market downturns. The annuitant can pick and choose the funds based on contract availability and can diversify as per the risk profile. This plan is suitable in both situations where someone is using registered or non-registered funds.
The contract offers 5 % bonus every year in the year the portfolio gets return less than the bonus and there is no withdrawal made in the contract. This bonus is not available if the annuitant cancels the contract in between. Most of the companies who offer GMWB product allow the investors to keep money in segregated fund contracts and transfer is allowed into GMWB at the time of retirement or as per their choice. They keep on getting minimum bonus and portfolio is not negative in the year market didn’t perform. GMWB has distinct advantages for the investors but there are some fees attached to it other than MER’s. Please talk to a licensed advisor to make an informed decision.
How does it work?
Here is a short description of how GMWB products work:
(a) Investment – You invest money in GMWB products through registered or non-registered plans in the insurance company just before your retirement.
(b) Election – The insurance company provides you with a slew of choices to choose from. The choice you make sets an upper limit to your equities and other benefits you get.
(c) You get income guarantee – Income is guaranteed for life based on the age as per offered table.
(d) Increased income – What makes GMWB products stand out from other financial products is your ability to increase your income as you get close to the retirement age. This can be done either by a 5% bonus (in case you don’t withdraw money) or by locking in your market gains for three years.
(e) Guaranteed income – As soon as you turn 65 you can begin to withdraw. Although your withdrawals will decrease the value of your investments, it will have no effect on your income as it will still be counted as 5% of the original investment.
Your family and dear ones receive what’s left of your investment after you die. The contract is creditor protected, by-pass probate and in case of non-registered money the named beneficiary gets all the money tax free.