Guaranteed Income for Life

This product is usually referred to as a “Guaranteed Minimum Withdrawal Benefit” (GMWB), and it became very popular after the market devastation of 2008.

The GMWB is a version of the segregated funds available through insurance companies.  Your money is subject to the ups and downs of the capital markets but the product does provide certain guarantees. The money invested creates a “Notional” account. This notional account is used to guarantee an income when you are ready to take income from the investment.  That guaranteed income is guaranteed for life – your life.

The notional account is increased annually (the bonus) typically 4% – 5% in all years when no money has been withdrawn.

As well, on each third anniversary (typically) the actual market value is compared to the notional account.  The notional account will be reset to the market value if it is higher.

As this product is a form of Variable Annuity, any payments received from non-registered investments are deemed to be tax-free.

The GMWB segment grew explosively following 2008 but more recently many insurance companies have closed their product to new purchases.  Those companies which still have GWMBs available now offer less attractive features but remain a very valuable product for those seeking principal and income guarantees.

The other form of Guaranteed Income for Life is the traditional Annuity, although very low current interest rates make it unattractive for most at this time.

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