Investing 101

Investing for life

Will you outlive your money?

Did you know that, according to the World Bank, the lifespan of the average Canadian is steadily increasing, rising from 71.1 years in 1960 to 81.2 years today? This raises an interesting question for people who are starting to plan for retirement and are wondering, “Will I have enough income to last my lifetime?” One way to help alleviate these worries is to invest in segregated funds with Guaranteed Lifetime Withdrawal Benefits (GLWB).

How do GLWBs work?

GLWBs are available through certain segregated fund contracts. And although there are similarities with mutual funds, segregated funds are actually contracts issued by insurance companies. Like mutual funds, segregated fund investors pool their funds with other investors.

 As well, a wide variety of funds are available with different investment objectives. Unlike mutual funds, however, which can suffer from severe market declines, segregated funds protect investors by guaranteeing 75% to 100% of their principal at death and maturity.

A segregated fund with a GLWB guarantees the policyholder an annual income for life, even if the policy market value falls to zero (subject to excess withdrawals). The income benefit is a fixed percentage of the initial investment, and while it has the potential to increase (through features known as deferral bonuses and income resets), it will never decrease.

Who should consider a GLWB?

A GLWB is most suitable for two types of investors:

1. Investors who are concerned about outliving their savings.

 2 Investors who do not have a steady source of retirement income from a company pension plan or life annuity. The lifetime income benefit will act in the same manner as a pension plan, providing income for the life of the investor.

GLWBs come with an additional cost and are not for everyone. Some investors do not want to incur the added price of the lifetime protection. For many investors, however, the cost is worth it for the security and peace of mind.

However, GLWBs should be just one part of a well diversified retirement income portfolio. Investors should keep some funds liquid and easily accessible for emergencies and other needs that may arise. GLWBs do
not allow investors to take out extra money without incurring penalties.

Mackenzie segregated funds

Mackenzie Investments offers segregated funds through some of Canada’s most well-known and popular segregated fund providers, including Canada Life. Through Canada Life, Mackenzie offers 15 segregated funds, including five which are eligible for their GLWB, referred to as the Lifetime Income Benefit.

Example: The lifetime income benefit option on Canada Life segregated funds policies pays a guaranteed amount of lifetime income, even if markets don’t perform well. Here’s how
it works:

Investors, age 65, contributes $500,000 premium. Begins immediate income and receives $25,000 for life ($500,000 X 5%). Income is paid for life even if the policy market value is zero.

For illustration purposes only. Policy value is hypothetical and not indicative of future performance.

For more information, go to Canada Life’s Lifetime Income Benefit website.