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Your Retirement Income Blueprint: A Six-Step Plan to Design and Build a Secure Retirement by Daryl Diamond

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The New (well, newer) Kid in Town: Variable Annuities

Late in 2006, Manulife Financial introduced Canadians to an income delivery vehicle that has been extremely popular in the United States since 2002. It is a variable annuity with a guaranteed minimum withdrawal benefit (GMWB). Initial response by consumers was very strong, with billions of dollars flowing to this financial tool. We are now at a point in Canada where basically all life insurance companies have a product offering of this type. They go by different product names and there are subtle differences among them, but basically they are “variable annuities.” It would take a few pages to describe this product in detail. In fact, the information booklet issued by the life companies to describe the offering to potential investors is larger than this book. Here, however, is an overview of this financial tool.
This product is really a portfolio of segregated funds (mutual funds with an insurance wrapper) that provides a stream of guaranteed income for life. The income amount is set at 5 per cent of the original investment if income commences immediately and you are age 65 or over. For those starting income before age 65, the payout decreases to 4.5 per cent and drops to 4 per cent for those younger than 60. For simplicity, let’s look at a scenario where the annuitant is 65 at the time the income begins.
The percentage of guaranteed withdrawal can increase from 5 per cent if the original deposit is made in advance of the ...

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