Manulife "pension builder"
I'm new to this forum. There looks like a lot of knowledgeable people here.
My financial adviser is trying to get me into this Manulife's pensioner builder. In a nut shell, the way it works is if you put in, for eg: $100,000.00 it would earn 5% simple interest per year so after 10 years you would have $150,000.00. Then it would pay you 4 1/2% of that $150,000.00 in a monthly cheque of about $675.00 for life. If I die it would continue on for my wife also. (I may not have my figures exact).
It sounds like a good deal other than the management fees are high. 2 3/4%. My problem being is I don't know how these high management fee would effect this policy. (I'm not real knowledgeable in these kind of matters).
Is anyone familiar with this "pension builder"? Is it a good thing? What are your thoughts?
Last edited by wooly; 2012-01-25 at 07:58 PM.
Your adviser (or should we call him salesman?) is probably getting a nice commission. The fact that he can't give you straight answer tells me that you should probably ditch him/her.
Simple interest for 10 years? That is never good (I shouldn't say never but almost never). It sounds like you need to shave off 2.75% so you would be getting 2.25%? A GIC pays better than that (and that's compound interest too). After 10 years just buy an annuity.
I didn't run the numbers but sounds like a crappy deal to me...
It doesn't grow at 5% simple interest. Only the guaranteed amount of income is growing at that rate. If you tried to cash out you would get what the plan is worth. I doubt it would make very much money due to the very high fees charged within.
Since you will be tied to this plan for the rest of your life or suffer the consequences of moving (consequences being the cost of everyone at Manulife and your advisor enjoying the rewards of your money, but you).
In my opinion, in 98% of all future scenerios you would be better off investing in a traditional life annuity (immediate or deferred), but of course they sell you on the allure of the 2% of time, you will get your cake and eat it too (big income, big pile of money left, however as I said there really is a 98% chance that you will get OK income, and no money left).
Hmmm. Where did the money go?
The Manulife profit builder.
At what age would it be paying out an income?
Is the income indexed, or does the $675 per month payout remain the same?
I'm pretty sure of the answers, however I might be surprised. Makes a difference to those who'll answer your first question.
If we set aside the required 5% rate of return to get you to the $150000 in 10 years time, and we only look at how long you could receive an income from that $150,000 if you did your own investing,
it conservatively should last you approx 26 years, with the following assumptions:
- Income is NOT indexed.
- Rate of return on your investment is only 3% (conservative target)
However, if you want to allow for a rate of inflation indexing on your income (say 2%), it would last approx 20 years.
The tricky part in this DIY scenario is getting to the $150,000 in 10 years. It can be done starting with $100,000 in 9 1/2 years as long as you can get 4 1/2% compounded interest.
Personally I'm ALWAYS skeptical of these investment vehicles offered from publically traded, Life Insurance Agencies which are driven by profit (answerable to the BOD's and shareholders). Also, I will always try to index my income in retirement ... not sure if this investment type does???
If however you very conservative, and can retire at 50, then perhaps this type of investment makes sense. The longer you're receiving the $675, the more attractive the investment.
I'm 56 years old and plan to work until at least 65. Maybe longer. The longer I put off withdrawing from this plan, the higher percentage it would pay. So if I live off my other investments and don't touch this "pensioner builder" until later, say 67 or 68, the more I could withdraw from it. Again, it pays for life for either me or my spouse.
Originally Posted by mind_business
From what I understand, the per month payment would always remain the same. I'm pretty certain it's not indexed.
I'm skeptical also. I haven't signed anything and I'm going to hold off in doing so. The selling point is having the monthly payments for life.
Last edited by wooly; 2012-01-25 at 08:00 PM.
Without all the bells & whistles, this is some variation on a deferred annuity. I don't know why they are telling you what the %return is and their MER, unless your return is not in fact guaranteed, which then is a whole other kettle of fish.
In March 2011 the rates for an immediate, joint, non-registered, annuity for a 65 yr. old were about $500/month per $100K invested. http://www.lifeannuities.com/article...es-canada.html
So your $150K ought to get you $750/mo/, not $675.
I don't have tables for deferred annuities, but if you want to go this route, I suggest you shop around and get competitive quotes.
PS. If the payout at age 65 is guaranteed, then this is essentially a deferred annuity. You are giving them a lump sum of cash to invest as they see fit, in return for a guaranteed monthly payment after age 65. The investment risk is entirely theirs. All you need to do is compare their rates with what other compnaies are offering.
If it is not a guaranteed payout, then they are trapping you into a non-refundable investment, with no guaranteed return, and a 2.75% management fee. All the investment risk is yours. In which case you ought to invest the money yourself.
Last edited by OhGreatGuru; 2012-01-22 at 07:11 PM.
The payout is guaranteed for as long as either me or my spouse lives. The investment risk is entirely theirs. That's why my adviser is telling that I then don't have to worry what the markets are doing.
Originally Posted by OhGreatGuru
Here is a Manulife video that explains it.
But if they are going to shave 2.75% in management fees off the principal, I don't see the advantage???
Last edited by wooly; 2012-01-22 at 07:49 PM.
Just so you know, there is no advantage here. For example, if you defer the receipt of $10,000 in withdrawals over 2 years and they add back that exact amount over the rest of your life, you are not receiving any extra benefit. Obviously if it is not needed then defer it, but if you don't need a certain amount at 65, will you need more at 67?
Originally Posted by wooly
I doubt the fees are as low as 2.75% when you add the guaranteed withdrawal benefit fee to the base MER, but verify this yourself. I don't think I have ever seen the "all in" fees less then 3% and some are closer to 4%, although they have got a little more competitive since they were first launched.