If you want to educate yourself on these issues, look for 'Pensionize your Nest Egg' at your local library or book store.
This product sounds like a 'guaranteed minimum withdrawal benefit' plan. Definition:
http://www.investopedia.com/terms/g/gmwb.asp
They are a little complicated to understand, but the book above does a good job of explaining them.
Treat it as an enhanced version of annuity will help everyone understands it better I guess. In the past, you or your parents may have experienced buying an annuity product from insurance company and having a guaranteed cash flow for life. However, annuities are usually locked in. Once you put in there, if you pass away, insurance company keeps all your money.
Now Manulife Pension Builder is giving the guaranteed cash flow, but allowing your family to be beneficiary, and also allowing you to cash out your portfolio anytime in case of emergency.
Don't just think of fee people, a company of course will charge you if they are giving you advantages, but if you are parking just a portion of your money to build up your pension nest egg, this serves as a great cushion to create a stream for all the retirement expense (e.g. elderly home / health care, easily add up to $5000+ a month if you live too long, unless if you have more than $1 million to put in a GIC)
Don't forget, the market value of the portfolio can still grow (check the underlying 3 funds combination before they form the pension builder plan, historically they together has been growing around 5% per annum) , have your advisor done his/her due diligence and tell you about that?
It's right to be skeptical, but don't come to a conclusion too soon unless if you have done a complete due diligence.
Regular funds / stocks / real-estates doesn't give you a protection umbrella, and it doesn't give your advisor higher compensation by telling you this.
My adviser did cover the points you have mentioned.Originally Posted by Wealth Advisor
I like the peace of mind of steady cash flow for life and not having to care about what the markets are doing. Of course, I would not put all my eggs in this basket. Only a good portion.
He did also admit the management fees are high. If I understood more how these fees are collected and what I in reality would end up with after 10 years, maybe I would feel more comfortable with this plan. Right now I'm sitting on the fence.
Hey wealth advisor, when you say "the rising value of the funds", how does that affect the Pension Builder product? Do you mean that the benefit level resets periodically? Or just that the your beneficiaries might receive more than what you contributed when you die?
BTW, the fees with these products are always quite high. I assume that the fee is paying for the annuity-like elements indirectly.
MoneyGal has co-authored a book called "Pensionize Your Nest Egg" that covers GMWB products. IMO, GMWB might be worth considering but the fees on existing products are too high that is highly unlikely that these products will be better than the alternatives such as plain vanilla annuities and well constructed portfolios.
http://www.canadiancapitalist.com/ma...peace-of-mind/
http://www.canadiancapitalist.com/ma...ond-portfolio/
http://www.canadiancapitalist.com/ma...ore-dividends/
Canadian Capitalist -- Helping you invest & prosper
The Pension builder fund holds a bunch of bond funds. History isn't much of a guide when looking at these funds. I'm willing to wager that you won't see 5% returns over the next 10 years with this fund. Especially considering an investor is paying 2.75% in MER. Perhaps, you should do a better DD before selling your clients this product.
Canadian Capitalist -- Helping you invest & prosper
Think of it as a regular mutual funds/ ETF / stocks that you are buying, they all have market value. Instead of buying an annuity that you cannot cash it out for your whole life, Manulife Pension Builder allow you to sell at market value just like regular investments.
Therefore, if the market value increases, not only will that be good for your beneficiaries, you can also receive more proceeds treating like liquidating regular investments. Annuities do not allow you that option.
Since it is segregated funds, it will also provide benefits for creditor protection (if you want to leave your legacy to beloved one, RRSP is not completely creditor proof), and smooth out probationary period if you pass away.
Hope that helps.
If you feel uncomfortable about this, that's understandable. However, if you are regularly investing in funds / stocks, then I will ask, what are the reasons that you base your decision on? (marketing tools that shows you numbers? or your understanding of the sectors?)
The fees are mainly collected as MER and insurance premium, usually at January of each year. They are collected as built-in fee except the insurance premium you will see on statement.
If you feel that management fee is high, and want to have something that gives you a higher return and higher guarantee cash flow, you can choose Manulife Income Plus - which allows you to choose funds from 13 different fund companies, fees are relatively similar, but you can choose more moderately growth fund in the portfolio.
Net result could be like this, (e.g. if the fund is rising 7% net of MER, after insurance premium, you portfolio will rise approximately 6%. If market drops dramatically, at least your guarantee cash flow for life 4-6% depends on age, are still there) Use it to build your retirement nest egg is great.
If you do not feel very comfortable, start within RRSP, as you cannot cash out RRSP because of tax consequence. I recommended my clients to do with RRSP, when RRSP turns into RIF, after RIF depleted to zero, Manulife is still paying the guarantee cash flow for life.
If your advisor didn't tell you this, then he / she has not done the due diligence completely. Contact me if need any help.
I can be contacted through email. leave me notes here, i will provided you contact details.
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