Manulife IncomePlus is a Guaranteed Minimum Withdrawal Benefit (GMWB) type of variable annuity product aimed at people who are about to retire or in their early retirement years. It guarantees an income stream for the lifetime of an annuitant and a withdrawal balance and comes with a reset feature that could potentially increase the balance (and the income stream) based on the performance of an underlying fund. This Manulife brochure offers examples of how the product works.

IncomePlus has become very popular, attracting more than $5 billion in deposits since its launch about two years back. The downside protection offered by minimum withdrawal guarantees and the upside potential offered by market growth (and, it must be mentioned, hard sell by financial advisors) could explain its popularity. Other providers such as SunLife and Desjardins have launched similar products.

It is hard to see how these products are better than low-cost, diversified portfolios that have a large fixed-income component suitable for someone at or near retirement considering that the income stream is not indexed to inflation. The fees for these products are extra-ordinarily high: a 0.25% to 0.75% fee for IncomePlus in addition to a MER in the range of 2.75% for the mutual funds on offer. Does anyone believe that the upside potential of market growth will amount to much when paying 3.5% in fees every year? Why then are advisors pushing their clients to buy these products?

This article has 120 comments

  1. As a shareholder I love the product, but I wouldn’t recommend it to anyone I like!!

    The principle of the product makes sense, but its certainly not structured that way. $14/month fee with quoted interest rates that are very high compared to a traditional mortgage doesn’t really make it very cost effective. Especially when you consider that they’re asking you to move your mortgage, chequing account and savings account to one company – there should be a meaningful savings for doing that.

    I think for anyone on a budget who can commit some extra earnings to their mortgage to repay it off effectively doesn’t need a product like this.

    It sells simplicity – but at a serious cost.

  2. Annuities are pushed hard by financial advisers since they make much more on them than selling index funds.
    Btw I never understood why anyone would purchase an annuity instead of purchasing long-term govt bonds. The bonds would also guarantee income for life ( and beyond)

  3. Nurse911, I think you are confusing Manulife One bank account with the IncomePlus variable annuity. Completly different animals. As an advisor, I have never pushed this product, rather it has been clients who want it. I explain the extra costs, how a portfolio that has a high income component will “based on history” provide better inflation protection etc. It usually comes down to “peace of mind”. The only alternative most of these clients will consider would be a GIC ladder.

  4. Manulife spent a lot of money on marketing this product, and with the recent market downturn, I believe there is even more appeal now for these “guaranteed rate” plans. They’re also designed to replace traditional pension plans (which become rarer and rarer these days). These products are very successful in the US. As long as clients are aware of the fees and the product is sold properly, it can be a good part of someone’s retirement portfolio. If you want a win – win, buy some of this and buy Manulife stock also.

    I also think the returns would be taxed more favorably than a bond or GIC. Also, they pay 5% DSC commission to an advisor, plus trailer fee.

  5. These types of products are popular for one reason only….fear sells! You can charge big fees and commissions to provide a vague guarantee that will likly be of little use. Clients often ask for the product because they are afraid. What I do not understand is why advisors have jumped on this so enthusiastically; other than for the fat fees. This product may be right for a small segment of the investor market, but it works for a huge portion of the advisor markets.
    Questions: How often in the past 50 years would a reset have been beneficial? How often would the underlying funds have earned a return greater than the fees plus inflation?
    Does fear sell better than sex…..and is this product the viagara equivalent for scared seniors?

  6. Canadian Capitalist

    I wrote this post because a friend (who works with an advisor) was pitched this product and she asked for my opinion. The advisor didn’t mention anything about the high fees or why this product may or may not be suitable. While an annuity can be a form of longevity insurance, products such as this sell only because they create an illusion of getting a free lunch — excess returns without risk. Average investors may not understand this and be influenced by slick advertising but advisors should know better.

  7. A friend also asked for my opinion on this a while back and this is the response I sent:

    The fees on the product are 0.75% plus the average MER on any of the given funds you can choose for a whopping average of 3% in fees…..just to put your money with them. So even if your investments match or exceed the market, you’re losing money unless you beat the market by 3%
    every year.

    The Guaranteed Minimum Withdrawal Benefit only increases if the Guaranteed Minimum Balance increases. The GMB only resets and may increase every 3 years (if your funds make money but at 3% annual fees, good luck). Now here’s the kicker. They tell you you have access to
    your money anytime BUT if you withdraw ANY amount within the first 3 years (before they reset the GMB) your virtually guaranteed never to increase the GMB, thus never changing your income payments….for life.
    You only deplete your savings. They only guarantee withdrawals up to you Guaranteed Minimum Balance as of Dec 31 in the first year. Wow.

    Here’s the another thing. You’re basically allowed to withdraw 5% a year. If you don’t withdraw in the first 15 years, they add 5% to you GMB. Thanks. I didn’t take my 5% I’m entitled to in any year so now you add it to my earnings and they make it sound like they’re doing me a
    favour? Weird.

    Now get this. If I were to buy this and start withdrawing right away, I’d never increase my GMB, thus never increase my GMWB (of 5% a year), and I can only withdraw up to my initial GMB as of Dec 31 in the first year so I basically deplete my savings 100% in 20 years. AND I wouldn’t
    make any money since my GMB is never adjusted EVEN if my funds made money.

    If I bought this for 200K today and started withdrawing my GMWB of $10,000/year, I would have 190,00 at the end of year 1, 180K at the end of year 2, 170K at the end of year 3. Now, if my investments made money, and it placed the market value above $200K, my GMB would increase
    and my GMWB would increase as well. Now, with MER’s of 3%, I’d have to get returns in the neighborhood of 8% just to have a chance of increasing my GMWB. If not, I’m sunk. Now, they’re nice and they guarantee that I can withdraw up to my original GMB. So I can withdraw my money for another 17 years and that’s it.

    You’d really be better off holding funds in anything other than this fund. This is so stacked in Manulife’s favour it’s not even funny. There is no guarantee of anything. They’ll take all your money and hold it for you and give it back in small chunks….and they won’t even give your interest or earnings on it….unless you don’t take anything out.
    Then they’ll give you what you were supposed to take out. Wow.

    It looks really, really bad.

  8. “Why then are advisors pushing their clients to buy these products”?,,, Commissions of course.

  9. @ Philip

    I’m not suggesting this would be a wise investment, i don’t know enough about it. But I don’t think the program is quite as bad as you suggest. I’m pretty sure the guaranteed minimum withdrawal is guaranteed for life, not 20 years as you suggest.

  10. Yes venter, my mistake.

  11. Canadian Capitalist

    Philip: I’m going take a closer look at IncomePlus in future posts. Also, I’m going to compare this with other options. I agree with your analysis that the product is simply smoke and mirrors and as Mike points out using fear to sell like hotcakes.

  12. These are products absolutely irritate me about this industry… Mike @ 2nd opinion is absolutely correct about how fear sells.

    Manufacturers and IAs bank on the fact that many investors look to their IA to lead them toward some kind of finanical nirvana through these complex products. Investors abdicate responsibility in this respect and it costs them dearly.

    Some good advice from the Oracle of Omaha – to paraphrase – if you don’t know enough about it, don’t invest in it.

  13. Canadian Capitalist

    brent: Philip is talking about how much principal is available for withdrawal, not the income stream itself, which is set based on the balance at age 65. If an annuitant takes the annual income, the balance is reduced by that amount provided the underlying fund hasn’t grown. With 3.5% in fees and 5% in withdrawals, chances are it won’t grow as much. So in about 16 years or so, chances are the balance will be zero but the annual payments will continue.

  14. First off, I understand that if it now has $5 Billion in only 2 years – obviously a lot of advisors are selling it.

    As an advisor, I have never seen more clients bring up a financial product to me and suggest they go into it. So obviously, this product is resonating well with consumers.

    That said, the product is terrible for all the reasons outlined in CC’s post and the above comments.

    I have had to talk so many clients out of buying this – more so than any other product I have ever seen. So far, I have been able to talk everyone out of it, and I would rather a client leave and take their account elsewhere than go into it through me.

    In other words, I won’t put anyone in it – regardless of how much they might want it. But newer advisors, or those with less confidence to disagree with clients may be putting clients in because they are asking specifically for it.

    Idealy, people should try to do their homework before going into questionable products. But as a fast rule, when it sounds like you are getting upside without potential downside, you can be sure the product has been crafted to be easy to sell, give you the impression you can have your cake and eat it to, and you will ultimately learn that the product just plain sucks.

  15. cc, thanks for the clarification, that makes sense.

  16. Investors seems oblivious to the fact that all companies have to make a profit. In any type of insurance, you pay the insurance company the amount they expect to have to pay to you in claims over a period, plus an additional 30% odd for administrative cost and profit.

    An investment ‘guarantee’ is nothing if not insurance, and the company that provides it has to make a profit, and the investor is going to pay for it, that is the bottom line.

  17. This product was pitched to us last week – the annuity by SunLife. I asked the advisor why a person would buy it if they had enough to live comfortably on their retirement funds. He suggested that everyone likes something that guarantees an income for life. However, if you have enough put away, you can guarantee your own income without paying any extra fees.
    I guess the only thing to be careful of is to have some critical illness insurance in case one does become ill – that could take a big bite out of a retirement fund.

  18. For all those here who say that advisors would only sell this as an advantage to themselves, show me what you have been able to offer your clients over a thirty year history that provides some certainty to your clients’ retirement years. Also, these products are sold on the same basis as all mutual funds in terms of commissions paid.

    To say that such a product is ‘smoke and mirrors’ implies that other pitches are not. When you sit down with your clients and explain to them the ‘advantages’ of a well-diversified, asset allocated portfolio, and give them projections, how much are you willing to stand behind that projection. Not at all, I suspect.

    You would rightly say both that over the long term equity MARKETS tend upward, but also that past returns are not predictive of future performance of any individual instrument.

    Here’s a question for all you ANDEX fans: how long did it take for the the Dow to recover to the same level it had reached immediately prior to the collapse of October 1929? Not sure? Try 26 years.

    Most clients’ portfolios cannot withstand a 90% drop that takes 26 years to recover because of their life circumstances. While I think it highly unlikely that such an event could occur again, most advisors would have said that we wouldn’t suffer a correction of the size we are experiencing now. And most advisors can’t predict what will happen over the next 3-5 years either.

    Modern portfolio theory has lots of great ideas, but your clients don’t live on theory, they live on their assets in retirement.

    None of you is examining either the death guarantees of such these products either, or the estate planning advantages of such products.

    These products offer the potential upside of equity markets, according to your choice of products within them, and a number of guarantees, as well as tax advantages. Yes, you pay for the guarantee, but then again what don’t you pay for in life when you get something in return.

    Other than well-to-do clients, who can undertake an increased amount of risk (but why would they even consider mutual funds if they’re well off), average people want to establish an opportunity to maintain their lifestyle in retirement, not speculate. They’re looking for the highest degree of certainty possible within an opportunity that will provide them with some better returns and tax advantages than the safest investments.

    One last point, I daresay that many/most advisors as well are pushing the products that they are instructed to flog by their companies. How much is that in the best interest of the client. And many advisors as well work in circumstances where their firms will not entertain clients with less than 100K+ of investible assets.

    These new products are trying to meet a market need, and seem to do so well. Certainly the timing of economic forces seems in their favor, for now.

  19. Brad, I am not trying to be a jerk here, but I have read your comments three times and can’t grasp what you are getting at.

    I am thinking you are saying that these products are good because you can stand behind them, and 90% drops take 26 years to recover from. I am sure you are trying to say more, but I can’t pick it out.

    Surely there are other more client focused portfolios you can stand behind… and the range of alternatives are not limited to just a portfolio that can fall 90% in value vs. IncomePlus?

    You ask us to “show me what you have been able to offer your clients over a thirty year history that provides some certainty to your clients’ retirement years” OK … Let me try. …. What about laddered bonds or GICs for risk averse clients. You won’t make as much in terms of commissions (20 basis points per year vs 5% upfront and 0.5% in trailers) but your risk averse clients will be far better served. I can stand behind that.

    This is a very pro-indexing blog, and I am not a real fan of indexing. I do understand its appeal however. I personally think the very few good mutual funds out there are far better options for investors but I don’t think I would be able to convince the CC’s readership of that. In any event, this kind of garbage in an investment vehicle is why “active management” gets such a bad name.

    As for serving a need – like crappy PPNs, these types of guarantees are only serving the need of people that are easily misled, are too trusting, and can’t /don’t understand the better options.

    If you are an advisor, frankly, I feel you should know better.

  20. Rob,

    I am not trying to say that GMWBs are the only way to go, but rather they offer a much better alternative than most of the service that most clients have received historically from the financial services industry.

    Calling something garbage isn’t really identifying what you think the downsides of the product are. Or were you just referring to PPNs? I’m not clear.

    When you can receive the upside benefit of managed portfolios from third-parties within the product with the downside protection of the guarantees, I don’t see what the problem is. The Dow is now in the same spot it was at 10 years ago (without adjusting for inflation), so unless you can offer clients a method that significantly outperforms the market, and are willing to guarantee it, I don’t see why you think clients are worse off with GMWBs. I am skeptical about GMWBs where there is no offer of third-party funds or portfolios.

    As for indexing, while I expect markets to rebound over time, with the Dow in the same place it was in 1998, I remain as unconvinced as you state that you are.

    My point about guarantees is what can you offer your clients that exceeds a 5% bonus guarantee without having to worry about the timing of their investments. You suggest GICs. I don’t think that with the tax treatment of GICs that people will be ahead of where they would be at with GMWBs, especially with the addition of the death guarantees and the tax treatment of distributions at estate time.

    GMWBs are not a panacea, but I think they serve a significant (and vastly underserved) part of the market very well.

  21. Canadian Capitalist

    Brad: I don’t know what you mean by “standing behind a projection”. There is no certainty in anything (including IncomePlus), all you can do is put the odds in your favour. Take the income stream from IncomePlus, which isn’t indexed. It is a nominal income stream that at periods of high inflation would result in a rapid loss of purchasing power. So, what high degree of certainty are we talking about? Even in a low interest rate environment of 2%, in just 10 years, there will be a 22% loss of purchasing power.

    It is true that equity markets can be down for a long time. But why would a retiree be 100% in stocks in the first place. Even if he is, what about the income from stocks? Stocks do provide dividends that can be consumed. And unlike, bond coupons or annuity payments, there is good chance that dividend will keep pace with inflation. Future posts will look at alternatives: from 100% bond portfolios to a mix of stocks and bonds and how the effects of sequencing problems are over-stated in the IncomePlus product literature.

  22. I still don’t see why selecting equities in a mutual fund inside a GMWB with baseline guarantees and tax advantages, is a worse alternative to purchasing the same equities inside a mutual fund with the GMWB and other advantages.

    Yes, there is an increase to the management fee, which when fully and properly disclosed to the client, enables them to determine whether they want the advantages at that price.

    The financial services industry has a lot to answer for right now, in my opinion, as to how clients have been served over the past 20 years, regardless of how advisors are being paid (DSC, fee for service or whatever).

    Telling someone whose retirement has just been set back 10 or more years by market performance, or who runs out of money in retirement that ‘all you can do is put the odds in your favour’ seems disingenuous and irresponsible to me. Most middle-income clients are not interested in ‘odds’ when it comes to their retirement, in my experience.

  23. Excellent topic CC! Of course it is not a product that I would ever have an interest in.


  24. Canadian Capitalist

    Disingenuous? You mean as opposed to pretending that inflation isn’t the biggest threat facing retirees? Irresponsible? As opposed to investing in a 80/20 equity-fixed income split, paying 3.5% in fees and hoping that you are going to get much more than the baseline benefits?

    An investor paying 8.5% in fees isn’t going to see many resets and a dwindling balance. Guess what? They could get the same “advantages” with a bond portfolio such as one in Rob’s comment and not run of money for the retiree’s lifetime and have money left over for heirs. The reason is quite simple: a 5% in nominal payments isn’t such a big deal. A retiree can put it in a chequing account paying 0% and have it last 20 years. If he dies in 15 years, there will be a full quarter of the capital left. Some guarantee! Or invest in a stock-bond mix and have very good odds of keeping pace with inflation. I think this is as close to a no-brainer as you can get.

  25. As I tried to point out previously, there is no way for the client to get a net benefit out of this ‘guarantee’ – the stable capital value is an illusion of safety; over any significant period (a full market cycle) the client will have to compensate the company for the payouts it had to make during a market downturn such as the present, plus its operating expenses and profit. That is the only way for the company to survive, and unfortunately the ‘guarantee’ for the client is that he/she will lose out.

  26. Pingback: Manulife IncomePlus versus a Bond Portfolio

  27. Canadian Capitalist

    NN: Yes but in many situations it makes sense to offload a risk to an insurance company because we may be unable or unwilling to accept even a small risk (such as hitting someone while driving or the home burning down) even if the provider makes a healthy profit. That doesn’t seem to be the case here. Like you point out, there is little chance that the income stream will be reset at a much higher level and the nominal income stream will be whittled down by inflation. I don’t see how this product provides protection against longevity risk.

  28. Brad,

    Actually it took Dow Jones only 15 years to reach a breakeven point from its 1929 highs. So if you purchased $100 worth of Dow Stocks in the heights of the market, you could have had $100 in Dow Stocks by 1944-45.

    But I also do not believe that all the assets of a retiree would be in stocks. A 25% – 50% allocation to fixed income is essential for retirees, even if they are pretty good at picking dividend growth stocks.

  29. Dividend,

    Week of Aug 26, 1929: Dow 380

    Week of Nov 22, 1945: Dow 380

  30. Whoops, sorry:

    Week of Nov 22, 1955: Dow 380

  31. Canadian Capitalist

    Brad: Aren’t you forgetting dividend payments? Dividend yields in the early part of the 20th century exceeded bond yields. It is incorrect to focus just on price levels; it is total return that matters.

  32. This chart may be of interest:

    You’ll see that dividend yields were quite high in the first part of the century as CC points out.

    The full article is here which asks about the inversion of the dividend yield to interest rates that occurred in the 50’s:

  33. I still think that advisors motivation in selling these products is the commissions. Everything else is just rationalization and self-deception.

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  35. Canadian Capitalist

    DAvid: The solvency of companies offering these guarantees is a risk as well. I, for one, thought AIG was too big to fail (though it does seem that AIG’s obligations will be honoured).

  36. I took from it that Manulife may be in a more precarious situation than some (many) might have thought.


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  39. People:
    What you are all forgetting is the magic of compound interest. If I put my $200,000 into a vehicle that compounds the interest every year for 15 years, I end up with far more than $375K that Manulife guarantees. Just using the crudest of forumlas,the money would be worth nearly $418K at 5%. I could take $20K out of the fund every year (5%) and never touch the principle which would be $418K.

    What am I missing here?

  40. I am a Manulife Income Plus customer with PART of my portfolio invested with Income Plus. From what I am told:
    My initial investment will attract a 5% bonus in the GWB each year I dont touch it until I am 65 when I can begin withdrawing 5% a year from GWB — so for simple math … an initial $100K left in for 15 years will have a GWB of $105K after year1, $110K after year 2, $115k after year 3 etc with an ultimate GWB of $175K after 15 year — I then can withdraw a guaranteed income for the rest of my life. This is if the markets go down and show no improvements. Manulife will RESET the GWB every 3 years if the market has improved the value of your original $100K. As I said at the outset, this is a PART of a retirement portfolio and provides what I like to think of as a “pension” that can be banked on. Am I wrong?

  41. Canadian Capitalist

    Rusty: Good point. A 5% addition to principal over 15 years is equivalent to a 3.8% CAGR. It is highly likely that the underlying portfolio would do better than 3.8% even with the high MERs. But like you point out, it is possible to draw 5% (without adjusting for inflation) from a low-risk portfolio for a long time.

    Jay: The key is that with the high fees paid, there won’t be many resets and so we are essentially talking about a fixed annuity. But, fixed annuities pay much more than 5%. As a reader pointed out, an immediate annuity for a 60 year old 7.4%, much higher than IncomePlus.

  42. My advisor put me into the CI SunWise ElitePlus product in April of this year and I am planning on retiring at the end of 2009.

    My underlying portfolio is down close to 30% but because of the guarantees and bonuses, my retirement income will be based on my deposit plus the 5% bonus (plus another 5% in 2009).

    So, was it worth paying the “high fees” to get this benefit?

  43. Rob — exactly — I realize the fee is relatively high but it’s the same with my underlying portfolio as well — I got into Income Plus in February of this year. I am glad to pay the higher fee. I have not seen anything in this blog that shows me it was a stupid move to go with the guarantees earlier this year! Jay

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  45. What are these resets based on?

    Even my advisor doesn’t know.

    My financial advisor pushed me into Income Plus. And then he pushed me to be 100% invested in the market-related mutual funds during this huge downturn (rather than, say, directing at least some of the funds to a safe haven like money market fund or bond fund or whatever).

    As far as I can tell it is now impossible for me to ever see a reset in my entire life.

    I phoned him up and told him this is not what he promised me.

    He told me that the resets are not based on the value of your holdings in the mutual funds.

    I said “so what are they based on?”

    He said he’d check what’s happening with the other clients he has and see what their resets have been based on.

  46. Excellent discussion. I would like to add to this Death Benfit are also adjusted for Withdrawal and Fees. I do not think it will leave much after you start withdrawing funds.

    I still believe one has to look after their own interest, no agent or advisor will do it 100% Buyers Beware.
    Manulife Incme Plus is not easy to understand as it looks, one has to do lot of questioning and analysis.

  47. Will the M-IP portfolio give as much guarantee of 5% annually compared with a GIC @ 5% without loss of principle? Seems like true returns have to be 8.5% if fees are 3.5%. Lots of mutual funds have lost 30% so far so, like stocks, no guarantee there either, blue chip or not!
    Interesting how fund salesmen are so cash averse – no commissions!!!!

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  49. I would like to thank all the participants to this discussion for their comments. My advisor has recommended that I get into Income Plus. Since this same advisor got me into bonds instead of stocks, and then Guaranteed notes instead of stocks, I am inclined to listen to his advice. I only lost half of what I otherwise would have lost in the downturn He urged me to protect my portfolio even further, since I was close to retirement, but I didn’t listen as well as I should have.

    I still have the bonds, and I would like to do something with them, since the yield is less than 3% over the next 3-4 years.
    I turned down the Income Plus option last September because I don’t like Manulife and I thought the fees were too high. Now I don’t think that the markets will recover very soon, and the guarantees look more beneficial. If I don’t take 5% this year, and take 5% for the following 2 years, maybe I can actually get a postive reset in year 3.

    I do wish that Manulife had constructed the product a little better, including a cost of inflation and lower fees, but they have to make money too.

    I get some detailed projections next week, and thanks to your comments, I’ll make sure it includes realistic fees and rates of return. I’ll be sure to quia my advisor about his take too.

    thanks again for your input.

  50. It is confusing. I was told to look at the bottomline. 5% a year.
    What do i get after all fee’s etc paid out.
    Fixed 10yr bank loan non registered at 3.25% @ 200,000.00
    I get to write off 100% of the interest payments against my income.
    I stand to make 310,000.00 after ten years from IncomePlus
    as a worst case scenario. After paying my interest charges i get 45,000.00 in profit. I didn’t have to do anything. Just sit back and close my eyes. No hassles. Sounds too good to be true. But it’s real!

    That’s not bad as a super safe investment.

  51. Pravspresso: Oh, it ain’t real! Because if you want to pay off your loan at the end of the day, the 5% per year is not cash to you but added to your Guaranteed Withdrawal Balance. The GWB is a value used to calculate your 5%withdrawal amount. What YOU get at the end of your loan term, when you cash out, is the market value minus any withdrawals and not the GWB. You are right it is confusing!

  52. Well if you want to change your mind about this plan,it will cost you 6% of your total….also the fee’s have gone up as of Oct.2……new people in this plan will only get 4 and half % GW…read all the fine print and you will know more about this plan then your adviser….

  53. dj: what do you mean it will cost 6% of total to get out of IP? Can you expand?

    Also, Manulife has discontinued selling the original IP and now is selling IP version 2. Version 2 does not have as high a GW. This would lead one to conclude that if an investor got in on IP a year and half ago that they got a good deal.

  54. ok here’s the bad news,now lets say you read all the fine print and you want out of this investment—3.6% off of your total balance ,plus a break fee,based on you total balance to date plus any reset adjust cost base,will bring it to 6% (eg. 100 k plus cg 20k plus 5k rest =125k minus 6% = 93,750) it will cost you 31250. to change your mind about this investment!!! No jay the fee are up for version one also 10bp per fund (5x75bp=375bp plus 150bp plus 50bp=575bp) that’s 5.75% off the top before you start making money. Ask you adviser about the Oct1st. sp. reset he didn’t tell you about.

  55. I understand $100,000 is original investment what is 20k plus 5k ?

    What is Oct 1st Sp reset?
    Kindly explain, thanks


  56. dont have to ask the advisor — got a letter from ML advising about the .1% increase in fee … on $100K this translates into an extra $100 per year.
    Anyway, my second point above is that ML have obviously rethought the initial IP product and come out with version 2 which is not as good a deal for the investor.
    In this market — I will take my 5% guaranteed increase on the GWB every year. What can you get on a 5 year GIC right now? Maybe 3.25%? Dont forget – with this product it’s a long term thing — 15 years from initial investment at age 50 to guaranteed annual withdrawal at age 65 for lifetime.

  57. Shah the 20k is how much GIF has gone up sence jay has been in this plan (feb09) eg 20% up even though the market is up 40% from Febo9 , he has lost 5.75% ML fees plus high mers on the seg funds in the plan . 5 funds times 2.75 =13.75%. The 5k is the GW that happens every year in this plan,paid on july1st. but you can roll this back in,if you don’t need the money and becomes part of your total balance. There was a sp. reset on Oct1/09 for V1, because of plan changes, most advisers didn’t bother (lots of paper work, and no upside for them) Also Resets are not Free,will cost you 3 to 5% of total balance . Jay i hope you have read the fine print….you do know were that 5% is coming from? So jay did your adviser call you about the sp reset?

  58. Thank you very much excellent explanation.



  59. dj: can you just say in plain english what you are talking about here? what is a “sp. reset”? I have read the fine print … but your question about “do I know where that 5% is coming from” seems to suggest that this a mystery that I have missed. Can you bring us up to speed? I thought the plan reset every 3 years — and only if there is an upside. I have only been in the plan since March ’08 so have not had a reset yet … that I know about. Do you know something that we don’t???

  60. I believe every year notional 5% is added and at reset time MV is compared with Notional Value and which ever is higher is New MV and Notional Value to start with.

    BUT when you cash out Always Market Value will be considered and not Notional Value

    This is my understanding.


    I believe one is better off with Laddered Bond Portfolio earning interest in Tax Sheltered Account and not taking risk of investing in stocks where if Stock Goes up it is not capital gain it is taxed as normal income when you withdraw funds and if you loose it is all yours no tax write off


  61. I will go into more detail Thursday (it’s late here) but you will find out why i call this the Lazy Adviser Fund .

  62. male 42, invest 100k to lifetime auuity with Canada Life,I can get 5500 for life time.

    in 18 years I get back all my principle and reinvest it to stock dollar average,after that i get 5500 as retirement income for life long.

    I think it’s better than invest incomeplus.
    any comment plz?

    • Canadian Capitalist

      @Jordan: That’s what I think. Check out the other posts in the series where I compare IncomePlus with bonds and stocks…

  63. OK,this is how it goes, Jay puts 200k in GIF Mar.08 ,every year he rolls over the 10k GW (this is not new money), at the end of Mar.11(3yrs) he has 250k, the reset will cost him 3%, now he has 242k,the good news is his GW is 12k,the bad news is you can’t roll over the GW in the year you do the reset. Now lets say jay gets two good resets over the next six years (9 yrs in the plan) ,after ten years jay will have 400k… anyone with a CFP should be able to build ten yr. GIC latter that will do the same, with way more flex able options….a lot can happen over 10yrs.

  64. Sorry Jay the “Special Reset ” was for people who started a GIF in 2009……now the Lazy Adviser Fund part, CFP gets 150bp for opening a plan and 150bp at each reset, plus 50bp trailer for each year your in the plan. Plus golf games, dinners and if a high pro. ,free trips…..CFP is not going to get that for building you a GIC or Bond latter.

  65. Jay the 5% is your money (1st. money in, 1st. money out), so as you take 5% out ,your guarantee (200k or 100k)will be gone after 10 years….at some point a real annuity will be offer to you, by your CFP, hopefully higher then 5%.

  66. —“Jay // Nov 17, 2008 at 7:23 pm

    I am a Manulife Income Plus customer with PART of my portfolio invested with Income Plus. From what I am told:
    My initial investment will attract a 5% bonus in the GWB each year I dont touch it until I am 65 when I can begin withdrawing 5% a year from GWB — so for simple math … an initial $100K left in for 15 years will have a GWB of $105K after year1, $110K after year 2, $115k after year 3 etc with an ultimate GWB of $175K after 15 year — I then can withdraw a guaranteed income for the rest of my life. This is if the markets go down and show no improvements. Manulife will RESET the GWB every 3 years if the market has improved the value of your original $100K. As I said at the outset, this is a PART of a retirement portfolio and provides what I like to think of as a “pension” that can be banked on. Am I wrong?”…..sorry jay your wrong. It’s not a DRIP,this is how how the GW works ,in jan. of every year MFC set’s a side the GW an your CFP will tell them you want the cash or a roll over….in July the action happens ,if you take your 5k out, the GB goes to 95k. Now if you roll it over your still at 100k GB . Now here’s the fund part ,MFC seg funds are lagging the market from jan to july , now in late july they play the catch up game to make it look like your 5k was reinvested . Your” Not” getting paid a 5% div. , i must say MFC did a fine job of maketing this plan to CFP and the old trust unit guys.

  67. Canadian Capitalist

    @dj: You are right about the MFC’s brilliant marketing. Too many fees in this product for investors to benefit.

    Ironically, MFC was hurt badly because they sold IncomePlus like hot cakes and didn’t hedge all their risk. But their loss is not investor’s gain. I’d be very surprised if IncomePlus turned out to be better than the alternative: some combination of bonds, stocks and annuities depending on the investors personal circumstances.

  68. dj & CC: call me naive and too simple to match wits with the likes of you two BUT … am I wrong in the following?
    $100K invested in 2008 @ age 50 = $175K GWB 15 years later @ age 65 if left untouched = $8750 per year (5% of 175K) for the rest of the investor’s lifetime no matter how long he or she lives. AND the original 100K is life insured to the named beneficiary. Without any comments about other better investments, laddered GIC’s etc … can I get a simple yes or no to whether the foregoing is an accurate representation of the net result of IP?

  69. Hi Jay:

    Where do you get idea of original 100 is life insured.What your estate or beneficiary will recieve is MARKET Value Less all Withdrawal and fees.. Guarnteed is only for Calculating Withdrawal Benefit. 5% Bonus added every year is only NOTIONAL NOT real money to the value of your accunt. It is only to arrive at number to determine Withdrawal Benefit.

    You are right on $8750 withdrawal benefit per year for life if you keep funds untouched for 15 years and if there is no Reset at a higher amount.


  70. Further to my previous email, once you start withdrawing there is no 5% added, where as if it is in GIC or BOND whatever is the account balance it earns something,
    Here amount will remain invested in the market and it will have to make in excess of 5% to improve the account balance which is diminishing fast and not earning anything.

  71. I gotta get out of this nightmare. The withdrawal penalties will get less and less and then I am thinking of cashing out and buy some combination of true annuity, bonds & real return bonds. I wanted to retire in 08 but have been too scared to.

  72. ok — so how much would it cost to get out your money? assume $100K invested in March 08 to IP?

  73. Re: what will it cost to cash out of a $100K Income PLus that was bought on Mar 08?

    The documentation identifies the following redemption fees:
    to Mar 09 5.50%
    to Mar 10 5.00%
    to Mar 11 5.00%
    to Mar 12 4.00%
    to Mar 13 4.00%
    to Mar 14 3.00%
    to Mar 15 2.00%
    after that 0.00%

    So applying that:

    to Mar 09 $5,500.00
    to Mar 10 $5,000.00
    to Mar 11 $5,000.00
    to Mar 12 $4,000.00
    to Mar 13 $4,000.00
    to Mar 14 $3,000.00
    to Mar 15 $2,000.00

    Let us know if there are other costs wh8ich we don’t know about. Thanks.

  74. P.S. Perhaps Manulife would appreciate no longer having to plan for the obligation to pay out a lifetime guarentee ot those who own Income PLus. That’s a big headache for them right now. If so, then perhaps they will start providing incentives for Income PLus owners to cash out.

  75. Well if you look at my Oct 28,2:09pm and 4:58 post, you will see it’s on your total balance ,not just the 100k. Plus they are using the seg fund market lag on you, MFC is making a ton of money on this plan, that’s why your CFP got you to sign that contract.

  76. Thanks.. yeah I see that now. P.S. CFP means salesman I guess.

  77. I am thinking of investing in the GMWB fund. I would like to know if it is a requirement for an investor to start withdrawing $5,000 annually after they reach the age of 55. If they do not need to withdraw that amount and leave the money in their account would the 5% interest be added to their initial investment year after year. Please advise. Please reply to my e-mail address. Thank you.

  78. All i’m going to say is….read all Fine print an get more then one advisor that’s not selling this product, to tell you the real story.

  79. OK guys here is a question for all of you financial gurus! 58 years old, no mortgage, no kids, $1.5M available, wants to retire. What would you do?

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  82. SLWF, I would first ask how much income you need.
    What sources of income will you receive (employer pension, cpp, oas)
    Of the $1.5M, how much is registered & non-registered?
    Based on your assets, and the current yields of the blue chip dividend growers here in Canada I would be very comfortable putting together a yield portfolio that provides about $60,000 per year to you over and above pension, cpp and oas listed above.
    Hope this helps.

  83. SLWF: careful, it is very difficult to get a straight answer from any of these guys in this blog. There are tons of acronyms thrown around and a lot of complicated “answers” that do everything but answer the question. I believe that most respondents in this blog make a living from selling financial solutions and their confusing and condescending answers to simple questions in this blog are a great example of what is wrong with their industry.
    I, for one, have opened up a simple, easy to understand iTrade account and I buy my own ETF’s each month — the MER’s are a fraction of what the companies’ these guys represent charge and you can buy and sell your own stocks, bonds etc etc for about $9 per trade. It is simple to understand, there are no hidden fees and best of all — no condescending BS!

  84. @Jay: I thought RRSPDave provided a very sensible answer. The first question one should answer is how much do I need to live each year? That’s a key question because a $1.5m portfolio will be just fine for someone who can manage with $30K per year but may outlive capital if the withdrawal is $100K per year. Dave’s portfolio suggestion isn’t all that different from yours.

    I can’t disagree with your approach. I’m a DIY investor as well. I stick with simple products such as ETFs for my investments. And that’s what I mostly write about on the blog as well.

  85. A simple but important question:
    What happens to my account after I have received the 5% for 20 years and I die?
    On the book, all my capital has been taken out. Is there anything left to my spouse or estate?
    For a balanced fund or ETF, if I receive 5% every year and the annual return is also 5% per year, I will still have my captial left to my spouse.
    How about Income Plus? Is it like a simple life annuity that nothing left after I die?

  86. To the previous question, I beleive this is the answer. If the mutual fund you choose (inside the Manulife account) earns 5% a year after fees and you withdraw 5% a year, then then the Manulife account will be the same as the ETF approach in your question…. When you die you will still have the original capital left in it at any time you can cash it out. Or if you die, you can pass it on to your spouse.

    So this is the question I’d really like to hear what the answer is: How do we make sure we get the returns we want? Where do we get the best advice as to which is the best mutual fund to choose inside the Manulife account. Or when to switch from one to the other (which I beleive we can do 4 times a year without any charges or fees)?

  87. @Confused: to the first part of your answer – that means it is better than the Pension or Life Annuity, as for the IP, there is still the market value left to my estate or spouse even after I have received the 5% for 20 years (= my original capital is used up), right?

    To the last part of your question – since they guarantee me 5% distribution every year until I die, why I have to bother what fund to choose or switch? If the fund performs better, I may be able to reset it. If the return is less than 5%, they still have to give me 5%, right?


  88. Let’s say your income plus account has a $100,000 value (i.e. the market value). A year goes by. You tale your 5% ($5,000 withdrawal). And let’s say the market went up 2% during that year ($2,000 gain in the account). Then you die. At this point your spouse would get $97,000. Not $100,000.

    This is a simple example of what happens when you taking 5% from the Income Plus but the mutual funds do not perform at 5%. Every year that happens it will reduce the market value and therefore reduce the legacy that you will leave when you die.

    If this happens a lot (esp when there are bad years with losses) then the market value will definitely keep going down and down and eventually it will reach zero. That’s when it becomes like an annuity.. Yes, they will still pay you the $5,000 every year till you die. But then that’s it. Zero is left for the spouse.

    In summary, that’s why I think we definitely care if the mutual funds are chosen properly.

    P.S. Yes, if you are really lucky the mutual funds wil perform so fantastic that you will see a reset and then get even more then $5,000. Thayt will also make it likely you will be able to leave money after you die. But I am ignoring that for now (that would be almost too good to be true… I’d be happy just to make sure my market value remains at least what my original investmnet was).

  89. Just a quick note to reiterate my question:
    – where do we find someone who would be good at avising us which funds to choose
    and when to move the money from one fund to another (e.g. from equiteis to bonds or a money market fund) inside the IncomePlus.

    The financial advisors I use are useless. They just choose the fund that pays the highest fees and tell me to buy and hold forever.

  90. Hi folks…..

    I always thought that if you wanted income for life, you had to wait till you’re 65 before you could start withdrawing. But this link says 55:

    Anyody know anything about this? Did Manulife change their policy?

  91. You could take some cash out every July 1st. after the 1st. year in the plan (google ROC)but really if you want this plan to work for you…a few resets “could” make a larger payout.

  92. RCO runs out after 20 years.
    I was more interested in income for life.

  93. Ya you nailed it…so lets say you waited until 55 to start to draw down ,sometime around 75 you would be drawing invested cash ,but if you die before 90,Manulife is still makes out like a bandit…..but if you like this investment/insurance plan,go for it.

  94. How does this plan work for new investors in their forties?

  95. …for primarily RRSP money

  96. 2008 behind us, 2011 behind us, would be interested to hear some updated conversations. The product has a place but like most products it is over used or misused. For those without guarantees ( no deferred pension plan ) and using RRSP’s as their main income stream the product can work.
    We cannot ask 70 year old investors to place their life savings into equity funds, so do not compare the product to 7%-9% returns when the secure alternative is actually 2% GICs (5 yr ladders, exciting).
    For registered funds RRIF rules will start with minimum withdrawals so don’t get caught up in the 5% comparison draw, as your principal diminishes beyond age 70, GMIB creates a floor. So as most exhaust accounts at age 80-85, GMIB continues. Twenty-five years ago the plan was to diminish life savings to age 85 (spend your kids inheritance), this is your protection beyond 85 unless you are comfortable with an OAS/CPP level only.

  97. Basically it is working out like this.
    1) The money goes into mutual funds. The funds yeild dividend income and interest income (and capital gains too if it has been an up year and they take some profits).
    2) Then at the end of the year they take their fees (in other words they take the 4% dividend income and interest income and put it in their pocket).
    3) Then in April, I get to pay the taxes on the 4% dividend income and interest income out of my own pocket.

    The market value is therefore going sideways. The next year comes along and we start 1, 2, 3, all over again.

    However, when I turn 65 I will get an income for life. So it’s not all bad,

  98. Latest News on April 11, 2012: Standard Life To Suspend GLWB Sales!
    Check details from the link below:

  99. Thanks for that article. SunLife also discontinued any future sales of GLWB products. Standard Life may re-introduce them at a later time, according to the article. My impression is that, going forward, these products will not be offered with terms and conditions that are as good as the ones as we got in the past when we bought them. The reason is low interest rates and shaky economies around the world.

  100. Read back on this thread to a couple of years ago … I was told by the “experts” in this thread that it was not a good move to own Income Plus. I bought it in March 2008 and right now I am glad I did. The stock markets have been completely volatile and the interest rates have never been lower. The 5% “notional” return I am getting and the guarantees are hard to beat when you look at it now — 4 years later. I am not surprised London Life, Sun Life and Manulife have revamped these products if not completely stopped selling them. I am just glad I bought when I did AND I am even happier that I didnt listen to the supposed experts in this thread who told me that I could get a far better return blah blah blah.
    Just lends credence to the sentiment that the financial services industry and advisors in general have very little idea of what they are doing. You’re best to follow your own instincts and do what is best for you. It is very evident that financial advisors only have one interest — their own.

    • Not true Jay, I had a few clients that were risk adverse and close to retirement in ’08. In the spring of that year I was worried about the sub-prime mess in the US (had been reading Schiff, Roubini etc) and felt these clients were perfect candidates for these products. They listened to me and are very thankful because all hell broke loose within 6 months of their purchases.

  101. There is no absolutely good or bad product (except fraudulent), it is all relatively speaking. Some people even don’t bother to study the details of the product so only take the bank’s GIC. If you are happy with the 5% guaranteed return, why not? But if we know there are simple balanced and income mutual funds that are used in the IncomePlus plan, why not just use these funds by paying less fee and having better return, full control and flexibility of our investment?
    Of course, no mutual fund guarantees any return! That’s the give and take.

  102. There are two aspects to the guaranteed return.

    1) The guaranteed base amount (which starts off being the amount you paid)
    2) The income for life.

    Before you take the income for life, the guarenteed base amount goes up by 5% every year, even if the mutual funds go down.

    When you want to start taking the income for life they compute 5% of whatever the guarenteed base amount has risen to at that point. Then you get that for the rest of your life.

    So there are two guarentees. Not just the income for life. But also that the original investment will also go up no matter what, too, until you start to collect.

  103. Has anyone moved their IncomePlus accounts into a discount -broker account like QTrade or TD waterhouse? i.e. where you don’t have an advisor and you do all your buying and selling yourself?

  104. So there are two guarentees. Not just the income for life. But also that the original investment will also go up no matter what, too, until you start to collect.

    I believe the above statement from April 12 email from confused has one error. There is no Guarantee for ORIGINAL Amount to go up every year. It all depends upon mutual fund performance and lock in exercise amounts, if market has gone down, Value of the Fund will go down, if one dies ONLY market value will be refunded after deducting withdrawals etc..

    Guarantee is for Income for Life and minimum increase of 5% untill you start your withdrwals.

    Comments. clarification appreciated..

  105. hi folks..

    I phone the Manulife information line (1-888-626-8543) and they confurmed that you cannot move your Income Plus accounts into an on-line or discount broker like QTrade or TD waterhouse where you don’t have an advisor and you do all your buying and selling yourself? The reason they gave was that you would have to list yourself as the advisor of record and this is not allowed. The advisor of record must be licensed to sell “segregated funds” which is the general term for what Income plus is.

  106. Re: “So there are two guarentees. Not just the income for life. But also that the original investment will also go up no matter what, too, until you start to collect.”

    Note that it says “until you start to collect”. After you start to collect it will go down for sure.

    You see this on your statements from Manulife (“Report on your Segregated Funds”). For example let’s say you paid $100,000 to buy the thing three years ago. And the market value went down since then. You would get a statement saying:

    – on Dec 31, 2011 your investments were worth: $80,000

    so that’s less,right?

    But it will also say what the two guraantees are:

    – Your current Guaranteed Withdrawal Balance is: $115,000

    – Your current guarenteed Withdrawal amount is: $5,750

    And if you want to get the $115,000 you can just start taking out $5,750 every year, starting immediately, untill you get it all out. If the value of your investment goes to zero, no problem you will still get this money, but of course after it’s gone, then there won’t be any income for life.

  107. I have 9 income plus accounts (RRSP and Spousal) and I think after doing many research that this one of the best product…..peace of mind….there is a guarantee of payment for life and i love it.
    so i do not care what market do …i am satisfied with the income for life i am getting….as i am sure market will do more negatives in yearssss to come.

  108. Agreed.. it’s got its merits for sure. Truly.

    We still have to make sure that the income doesn’t get reduced too much by inflation though. That’s why we have to try as much as we can to get good returns from the market holdings.

    I still am looking for how to make the best decision as to what funds to hold inside the Income plus accounts.

  109. P.S. The fund choice question is not necessarily to ask your financial advisor. Most likely if he works for XYZ company he will choose the XYZ company’s funds. And of those, he’ll recommend the ones that that pay him the highest trailer fees. So that would. not necessarily be good advice for you. (for him yes… for you no)..

  110. Funny this thread is still alive…Elie 9 accounts ? your advisor/adviser sure loves you,but not knowing what a bond latter or RoC means will sure keep him happy for along time into “his” old age.

  111. I have multiple accounts too. That way you get to manage the total amount in a more granular way.Plus you could do things like collpase one account to cash if you had to without afftecing the other accounts. If it was in one big account you’d be penalized for doing that. Plus you can pick different funds in different acounts and switch from one fund to another at different times.

  112. Good post name Confused ,if i asked your adviser it would be cash cow…if your happy clap your hands.

  113. Hi DJ,

    So what are you doing instead? How’s that GIC or Bond latter working out for you?

    Please show us all how your approach works, esp with interest rates at all time lows and will stay that way for years to come.

  114. … and learn

    but have fun at that golf game with your adviser

  115. It is not just a matter of 100% GMWB products or nothing. If you do your research and read about Moshe Milevskys Product Allocation approach you will see the idea is to get as high a chance of your money lasting through retirement as possible. It’s called a Retirement Sustainability Quotient or RSQ. The goal is an RSQ of 90 or higher. You use the product allocation tool to get the best balance of investments in 3 silos to optimize the RSQ. The silos are regular life annuities, GMWB products and other investments (GICs, ETFs, mutual funds etc). Those without a pension are the best candidates for this approach. ETFs and index funds may be inexpensive but they have zero guarantees, especially right now with all the economic problems in Europe, the US, China slowing, aging western populations etc. Can’t put a price on peace of mind.

  116. “Can’t put a price on peace of mind”…..haven’t looked at your grid ? Moshe knows what side of his bread is buttered . CFP’s don’t like heavy lifting ,pushing product is the name of the game .

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