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GLWBs are a type of Variable Annuity with a Guaranteed Lifetime Withdrawal Benefit. They combine the guarantee of lifetime income found in regular Life Annuities without locking in the funds permanently.
GLWBs can be used for non-registered investments, TFSAs, RRSPs or RRIFs.
GLWBs are a good choice if you wish to:
- Increase your guaranteed lifetime income AND
- Have access to liquidating the fund if your circumstances change
- Protect your investment from down markets, but still participate in growth in up markets
- Protect your capital with a Death Benefit Guarantee
- Reduce taxes on income from non-registered funds
The benefit to owning a GLWB is in ensuring that your capital is not depleted by the combination of negative market returns and withdrawals in retirement. It is a way of ensuring that your RRSPs and RRIFs don’t deplete themselves before you die. It’s also a way of potentially increasing your guaranteed income to provide for inflation. You can start a GLWB in advance of needing retirement income and maximize the Guaranteed Minimum Withdrawal Benefit.
At Ottawa Asset Management, we review your goals and needs and help you to decide how to structure your income to provide peace of mind and lifetime income. We work with all the major Canadian providers of GLWBs to find you the best rates for your policy.
Call us or book online today for a free consultation.
What is a GLWB?
GLWBs were first introduced in Canada in 2006 by Manulife Financial. It is a Segregated Fund income vehicle that guarantees a minimum withdrawal benefit for life. You can continue making deposits after the plan is started, and you can continue to increase your Guaranteed payment if you defer receiving payments. Income payments from non-registered GLWBs are given preferential tax treatment (similar to Life Annuities); this adds to the value of this unique investment vehicle. GLWBs can be single or joint with a spouse.
If your life circumstances change, and you need to access the capital, you can choose to withdraw more than the minimum, up to all the remaining funds (subject to tax on capital gains, plus regular tax on Registered funds).
As with other segregated funds, GLWBs have a Death Benefit Guarantee (75% to 100% of the Income Base). The Death Benefit Guarantee is automatically reset to lock in market gains on December 31st triennially.
Plans vary between providers, but a sample policy would work like this:
- The percentage of guaranteed withdrawal changes with age. At age 55, the GLWB is 3.00%; increases to 4% at age 65, and to 5.00% for 75 years old and above.
- The ‘Lifetime Income Withdrawal Base’ is the amount deposited. If you are not making withdrawals, the Income Base grows by a 5% bonus (simple interest) annually. The Income Base is also reset automatically every 3 years (on December 31st) if the Market Value is higher.
Here’s an example: An annuitant at age 55 makes a deposit of $100,000. If payments commence at age 55 (the earliest age for withdrawals), the payments would be $3,000 per year (3% of $100,000) until age 65 when it would increase to $4,000 per year (4% of $100,000). If the annuitant defers making withdrawals until age 65, the $100,000 income base increases by 5% simple interest over 10 years. At age 65, this results in a ‘lifetime income withdrawal base’ of $150,000, which would pay $6,000 per year.