# Empire Life Insurance Company’s Class Plus 2 product



## Jets99 (Aug 26, 2011)

I’m looking for opinions on an investment “product” that is being proposed to me by an investment person where I bank.

It’s the Empire Life Insurance Company’s Class Plus 2 product. It's a guaranteed retirement income (annuity product) that provides a GWB Guaranteed Withdrawal Benefit at your selected retirement age at 55 or beyond. Your principal is protected but can be invested in a variety of ways across Fixed income and Equities and they offer a 5% “Bonus” each year.

So if the market tanks you loose nothing and you still earn the 5% Bonus each year at minimum. The upside is if the market does well your invested principal generates more than 5% but at a minimum your rate of return is 5%.

What’s the catch? 

In a 100% bond portfolio the MER is 2.55%.
An equity portfolio 80 equity 20 bond the average MER is 3.85%.

And there are other nuances I have not fully understood. Evaluation of this thing over 30 years is mind boggling. 

So the short question is, anyone familiar with these? 


PS - NHL Pre-Season kicks off this weekend!! Go JETS GO !!! :chuncky:


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## andrewf (Mar 1, 2010)

The catch is that you have a very high likelihood of never getting more than 5%.

If you want to know more about these kinds of products (and you should, if you're considering using one), I can recommend the book Pensionize Your Nest Egg. It explains the pros and cons of products like this as well as annuities, and can help you frame your thinking about retirement income. You can probably get it from your local library.


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## Jets99 (Aug 26, 2011)

Thanks Andrew but why do you say high likelihood of never getting more than 5% ? You can invest in equities or fixed income so 80 equity 20 bond for example. In a good year you should expect more than 5% with that mix. 

Good advice on the book. I bought it and read it last year but going to re-visit it. If I can find it. From what I recall one recomendation was purchasing an annuity as a portion of retirement income and thats partly why I was interested in this Empire product.


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## andrewf (Mar 1, 2010)

GMWB generally have a base withdrawal rate based on the initial amount invested. That money is deducted from the notional value of your account each year. So your investments have to have a high enough return to (i) cover the substantial MER and (ii) cover your 5% withdrawal rate. Something like 9% a year. If you get stellar returns, your account may rise significantly in the short term and you may get a reset where your yield is based on the new higher value. But once returns are sufficiently poor that the notional value falls well below the original value you invested, the amount being deducted overwhelms any return you might make. Year after year, the notional value is whittled away until it declines to zero, after which time you're essentially left with an annuity paying out a fixed rate on your initial investment.


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## alingva (Aug 17, 2013)

it is a bad idea to buy annuities when interest rates are low but this is the time when insurance companies love to sell them. the opposite is true when rates are high (80-s for example). if we have 15% and you are locked with 5% max increase - you are guaranteed to lose money


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