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Similar to The Canadian Retirement Market: Guaranteed Income For Life
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The Canadian Retirement Market: Guaranteed Income For Life
- 3. Jonathan Clements Personal Finance Columnist for the Wall St. Journal “ Retirement is like a long vacation. The goal is to enjoy it to the fullest, but not so fully that you run out of money. ”
- 6. Market Risk How do I protect my retirement income from market volatility? How can I draw an income and grow my money at the same time? Longevity Risk How can I be certain I won’t outlive my money? Inflation Risk How do I maintain my standard of living over 30 years? Retirement Risks
- 7. S&P 500 Index 1998-2009 Before and during retirement Market Risk
- 8. Different order – Different outcome Assumes $100,000 portfolio subject to $750 monthly withdrawals* Return Sequence (%) +7 +7 +7 +7 -13 +27 -13 +7 +27 +27 +7 -13 Age money is depleted 86.5 83.3 81.1 94.9 +/- months -38 -65 +101 Market Risk * Withdrawals begin at age 65 Source: Milevsky & Salisbury, September 2006
- 9. Probability that an average 65 year old will live to… Age 80 85 90 Male 55% 33% 15% Female 71% 53% 30% At least one 87% 68% 41% Source: Milevsky & Salisbury, September 2006 Longevity Risk
- 10. Inflation Risk Purchasing Power in 20 years… 2% inflation $0.67 4% inflation $0.45 1% inflation $0.82
- 13. Introducing Guaranteed Income For Life
- 15. Income for Life Guaranteed annual income for life beginning after age 65* 5% Bonus 15+ years without withdrawals Automatic Resets for life Income For Life *Subject to legislative minimums and maximums and certain conditions.
- 16. Guaranteed income protection for retired investors Income For Life…
- 18. Guaranteed income protection for pre-retirees 5% Bonus + Income For Life
- 20. Guaranteed income protection with automatic resets 5% Bonus + Resets + Income for Life
- 21. GMWB Fees Class B Class C 0.35% 0.35% 0.50% 0.50% 0.65% 0.70% 0.90% 0.95% Level 1 - Income Level 2 - Conservative Level 3 - Balanced Level 4 - Equity
- 22. Leading portfolio managers Investment Choice
- 23. The Sales Process 1 2 3 4
- 26. Consolidate your book of business Full-service financial planning [Retirement income] Advisor Benefits
- 27. Guaranteed Minimum Withdrawal Benefit is a $10 billion+ market and growing fast Guaranteed Minimum Withdrawal Benefit is a $1.5 trillion+ market and growing faster! Success in Canada & USA
- 30. All charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results. To the extent of any inconsistencies between this guide and the May 2009 SunWise Elite Information Folder and Individual Variable Annuity Contract and any Supplements, the terms of the Information Folder and Contract and any Supplements prevail. For full product details and disclosure, refer to the Information Folder and Contract and any Supplements . Sun Life Assurance Company of Canada, a member of the Sun Life Financial group of companies, is the sole issuer of the individual variable annuity contract providing for investment in Sun Wise Elite segregated funds. A description of the key features of the applicable individual variable annuity contract is contained in the Information Folder. SUBJECT TO ANY APPLICABLE DEATH AND MATURITY GUARANTEES, ANY AMOUNT THAT IS ALLOCATED TO A SEGREGATED FUND IS INVESTED AT THE RISK OF THE CONTRACT HOLDER AND MAY INCREASE OR DECREASE IN VALUE . ®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc. ™Harbour Advisors is a trademark of CI Investments Inc. ®Sun Wise is a registered trademark of Sun Life Assurance Company of Canada. *Invesco and all associated trademarks are trademarks of Invesco Holding Company Limited, used under licence. Trimark and all associated trademarks are trademarks of Invesco Trimark Ltd. ®Fidelity Investments and the Fidelity design are registered trademarks of FMR Corp. ®RBC Asset Management is a registered trademark of Royal Bank of Canada. ™TD Asset Management is a trademark of The Toronto-Dominion Bank, used under licence. Franklin Templeton Investments, Franklin Templeton Investments Quotential Program and/or Franklin Templeton Investments and design are registered trademarks of Franklin Templeton Investment Corp.
- 31. Click here to proceed to the self-assessment.
Editor's Notes
- Sun Wise Elite Plus – Rethinking Retirement Planning Hello, and welcome to this presentation on Sun Wise Elite Plus – a new way to think about retirement planning. My name is XXXX, for CI Investments, and on behalf of CI, I want to thank you for taking time to learn about this exciting offering from CI Investments and Sun Life Financial. Sun Wise Elite Plus is not just another investment: It marries the growth potential of mutual funds with the protective features of an insurance contract. And it comes a with distinctive feature – the Guaranteed Minimum Withdrawal Benefit or GMWB , to help provide a predictable, sustainable, guaranteed income for life. Now your clients can have the security of knowing they can have the income they need during retirement.
- Agenda Broadly speaking, we are going to cover off these five items. We’ll commence with a review of the state of the Canadian retirement marketplace and see why the “Income for Life” proposition is so timely. Next, we’ll review the three key risks that individuals face as they enter the “Retirement Risk Zone” and then move into how Income for Life from SunWise Elite Plus serves to effectively mitigate and may even eliminate some of those retirement risks. We will then explore the key benefits for both you and your clients and review the educational and marketing support material that CI has created for you. Let’s get started.
- Quote Before proceeding, I would like to share this quote from Jonathan Clements, the personal finance columnist at the Wall St. Journal: “ Retirement is like a long vacation. The goal is to enjoy it to the fullest, but not so fully that you run out of money.” Everyone looks forward to an enjoyable retirement, but as Mr. Clements has noted, the single greatest concern shared by anyone either in or about to enter retirement is whether or not the money they have saved will last their lifetime…
- Canadian Retirement Market A closer look at the Canadian retirement market reveals a number of interesting facts, which include: Within the next 10 years, Canadians age 55+ will control over 70% of investment assets . We are living longer lives . Close to one-half of Canadians age 50+ remain uncertain of best options for their retirement nest-egg, and Nearly one-third of this same group are concerned about maintaining their current lifestyle in retirement…
- Retirement Risk Zone The retirement risk zone exacerbates these concerns… In the real world, you can’t control investment returns. When investors are in their 20’s, 30’s or 40’s, they’re not too concerned about market volatility. This is because if there’s a market drop , it’s usually the best time to invest because you know that over the long term equity markets will generally continue to rise, and your investments will likely perform well. But things change in the years leading up to retirement, as well as those years immediately after you retire. This is the retirement risk zone. As you enter this period a market downturn can significantly reduce your retirement portfolio and you may have little or no time to recover from the losses. Within this zone you are most susceptible to the retirement risks .. .
- Retirement Risks As your clients enter the retirement risk zone they will need an investment strategy that lessens the retirement risks – market risk, longevity risk and inflation risk . They will probably have questions like: How can they protect their retirement income from market volatility? How can they draw an income from their investments and still grow their money at the same time? How can they be certain they won’t outlive their money? How can they maintain a standard of living over 30 years? Let’s look at each of these three key risks closer to gain a better appreciation of their effect …
- Market Risk Market risk is the most difficult of the three to control and predict. What if you or your clients had planned to retire in this market cycle? They may have had to change their plans and retire later, or live with a reduced retirement income because this is what many pre-retirees and retirees have faced in the U.S. equity market since 1999. With Sun Wise Elite Plus – as long as the client does not make excess withdrawals – the retirement income isn’t at risk, the income never declines , and when investments grow – so may the retirement income.
- Market Risk Perhaps a more powerful depiction of the risk posed by market cycles is what can be referred to as either “sequence” or “order of return” risk. Here we show a 65-year-old retiree with a $100,000 portfolio withdrawing an income of $750 per month. The far left column depicts four return sequences – each averages 7%. The actual annual return sequence , as experienced over the first three years (and repeated throughout), has a dramatic effect on how quickly retirement assets are depleted. As you can see, if a constant 7% annual return is experienced, the assets would be depleted at age 86. If there are strong returns at the beginning – plus 27% in the first year – the assets will last until nearly age 95 – more than eight years of additional income. However, if there are poor returns at the beginning – minus 13% – the assets will be depleted by age 81 – meaning five fewer years of income. Sun Wise Elite Plus can eliminate the risk associated with the negative 13% at the beginning – without taking away the potential for the 27% gain…
- Longevity Risk Longevity risk simply refers to the risk of outliving your money. For a couple who are age 65 today, there is almost a 70% chance that at least one of them will live to age 85. Since you never know how long you’re going to live, your clients need a retirement income solution that is guaranteed to provide income for life. Shortly, we will talk about how Sun Wise Elite Plus can eliminate longevity risk altogether.
- Inflation Risk Lastly, we have inflation risk. What is inflation? It’s rising prices, of course, and if you have a fixed income, it means that your income will buy fewer real goods over time. For example, here is what a dollar will buy you 20 years down the road with different levels of inflation. At 2%, which is the current Bank of Canada target for inflation, you lose one-third of your buying power over 20 years. At 4% you lose more than one-half over the same period. In retirement, your clients will want an income that will grow and stay ahead of inflation , so that they can continue to maintain their standard of living.
- Retirement Reality Armed with a greater appreciation of the retirement risks that your clients will face, you need to find out where their retirement income will come from, and how much of it will be guaranteed. In order to maintain their lifestyle during retirement, your clients will need 60% to 70% of their current income – or perhaps more. The government guarantees an income, but it’s not generous – currently, Canada Pension Plan pays a maximum of about $10,600 a year. Old Age Security is another $6,200, or so annually – for a combined total of $17,100. Today, less than 40% of Canadians have a company pension plan and the trend has been toward defined contribution plans – which means that your client, rather than their employer – assumes the risk of the underlying investments and the income that it will provide. Clients require an income solution that will serve to fill the gap between their sources of retirement income and both their essential expenses and discretionary spending …
- So, what should you consider? Well, generally, as people transition toward retirement they change their investment mix and become more conservative. Bonds and GICs provide safety and a steady, reliable income – but the interest they pay faces inflation risk and the prospect of depleting assets too quickly because interest rates are so low. Further they offer very little growth potential – and without growth the investments may not last for life. Equity investments, alternatively, can provide higher growth potential – but there’s exposure to market risk and the income may fluctuate year-to-year. For retirement income clients need to balance income security with growth…
- Introducing Sun Wise Elite Plus, with Income for Life. It delivers that balance and more…
- Income for Life Delivers that balance by providing: Predictable, sustainable, guaranteed income for life. And by: Eliminating market risk and longevity risk and mitigating inflation risk.
- SunWise Elite Plus Income for Life A guaranteed annual income for life beginning the year after age 65 – so that clients won’t outlive their money , regardless of market performance. For those who need income before age 65, there’s a guaranteed return of principal over 20 years. A 5% annual guaranteed income bonus that can offset market risk during the critical years just before retirement and provide a larger annual income in retirement. A utomatic income guarantee resets every three years that can act as a hedge against inflation and ensure that clients benefit from equity investing, without the associated downside risks. Let’s look at each of these features closer…
- Income for Life Let’s take a look at how it works: This example shows a retired investor, age 65, who intends to withdraw money right away . There is an initial investment of $200,000, so the guaranteed annual income is $10,000 – which is 5% of the initial investment. The chart is a worst-case scenario . It assumes that markets decline sharply during the retirement period. But, even under these circumstances , when the portfolio value is reduced to zero after 14 years, there is still income for life. Illustration assumes a 70% equity/30% fixed income asset mix (Equity portion is one third each S&P/TSX Index, S&P 500 Index, MSCI World Index; income portion is DEX Universe Bond Total Return) and a bear market declining on average 2% per year. Annual withdrawals are assumed to be 5% of the LWA Threshold Amount. Subject to legislative minimums and maximums and certain conditions.
- 5% bonus The 5% annual guaranteed income bonus offsets market volatility prior to retirement. It is allocated to the GWB every calendar year investors do not make withdrawals (at the end of each year) It is prorated for initial year plus the next 15 full calendar years. 5% bonus feature does not impact contractual maturity/death benefits or market value of the contract. In short, the 5% bonus provides income growth certainty, regardless of market performance .
- 5% bonus + Income for Life Let’s see how the bonus works in the case of this person saving for retirement. In this example, a $150,000 initial investment is made. The retirement is 15 years away and there are no withdrawals over that time. So, for the next 15 years, plus the initial year, the 5% annual income bonus is awarded for every year without a withdrawal. At the end of 15 years the income has grown by 75% – and that’s contractually guaranteed as long as the client does not make excess withdrawals which may have a negative impact on future payments. . At age 65, the LWA Threshold Amount is established for the first time at $266,875 and the guaranteed LWA income has risen to $13,344, even though the markets have declined significantly. SunWise Elite Plus ensures the growth of the retirement income in the critical years immediately before retirement. As with the previous example, the income is guaranteed for life – regardless how the investment performs. Sun Wise Elite Plus helps your clients reach their retirement goals without risk. The GMWB benefits are subject to legislated minimums and maximums and certain conditions – refer to the May 2009 Sun Wise Elite Information Folder and Individual Variable Annuity Contract and Supplements for details. And, there’s more... Illustration assumes a 70% equity/30% fixed income asset mix (Equity portion is one third each S&P/TSX Index, S&P 500 Index, MSCI World Index; income portion is DEX Universe Bond Total Return) and a bear market declining on average 2% per year. Annual withdrawals are assumed to be 5% of the LWA Threshold Amount. Subject to legislative minimums and maximums and certain conditions.
- Automatic Resets Investment gains are automatically locked in at December 31, every third calendar year throughout the life of the contract. An additional reset is also triggered on December 31 in year your client turns 65 and starts new three-year cycle. During the 15-year bonus period, resets serve to increase the value of the bonus since subsequent bonuses are calculated on the higher, reset amount. The reset feature works independently and does not impact contractual deposit maturity and death benefit guarantees, or the market value of the contract.
- 5% Bonus + resets + Income for Life Resets will also continue after withdrawals have begun. In this example, which is based on actual data from 1997-2008, if $200,000 had been invested in SunWise Elite Plus in 1997, six and a half years before retirement. The first reset occurs at the end of 1999. That growth plus the bonuses increase his RGWB to $279,514 and the guaranteed income to $13,976. All further bonuses are calculated on this higher value. As you can see the investment gains of the late 1990s would have been locked in with the automatic resets. And the guaranteed income would have been protected against the sharp market decline of 2000-2002. Sun Wise Elite Plus provides a way to help stay ahead of inflation, eliminate longevity risk and gain from the growth of the markets – without being affected by the downturns. The guaranteed income and mitigation of retirement risks can be negatively impacted by withdrawals above the annual entitlement. Illustration assumes 70% equity/30% income asset mix (Equity portion is one third each S&P/TSX Index, S&P 500 Index, MSCI World Index; income portion is DEX Universe Bond Total Return) based on historical rates of return, gaining on average 1.0% per year. Annual withdrawals are assumed to be 5% of the LWA Threshold Amount. Subject to legislated minimums and maximums and certain conditions.
- GMWB Fees SunWise Elite Plus comes with two different classes of units and a choice of principal protection at maturity and death: Class B – 75% at maturity and 100% at death Class C – 75% at maturity and 75% at death The annual GWB fee is calculated as a percentage of the Remaining GWB on December 31 of the immediately preceding year and is paid on that same date. The annual percentage varies, based on the Class of GWB Units and how we categorize the Fund, as shown in this table As an example, total fees for SunWise Elite Portfolio Series Balanced Growth Fund with Class C guarantees and the GMWB would be approximately 3.51% based on an MER of 2.91% and a separate GWB Fee of 0.60%. It is important to note that the GWB Fee is not part of the MER charged on the fund and is a separate distinct fee that will be shown on the client statement. Any units withdrawn to pay the GWB Fee will not impact the deposit maturity, death benefit or GMWB guarantee values.
- Investment Choice With Sun Wise Elite, your clients have the ability to benefit from the growth of equity investments with the protection provided by the deposit maturity and death benefit guarantees available on segregated fund insurance contracts. And when the investments grow, so does their income. That way your clients are better able to stay ahead of inflation. Sun Wise Elite Plus creates the balance between income security and the growth of the investments. With a complete selection of funds, your clients have the flexibility to tailor a portfolio to meet their individual needs. Sun Wise Elite covers Canadian, U.S. and global equities, as well as income and balanced funds. It offers some of the most prestigious managers from Canada’s top mutual fund companies.
- The Sales Process Choose Investments – choose the investment strategy that fits the investor’s risk profile. You can select from a multi-asset, multi-manager, multi-style lineup of more than 50 funds, or choose one of seven managed solutions. Choose Protection Type – decide on the type of protection your clients need based on what stage they are at in their life cycle and their investment objective: A – Guaranteed income protection with the GMWB and various choices of principal protection at deposit maturity or death B – Principal protection at deposit maturity or death (three choices) 3. Add Estate Planning Enhancements – choose estate planning enhancements, such as the Earnings Enhancement Benefit and 4% Annual Automatic Death Benefit Reset, to maximize the value of your client’s estate. 4. Structure an Effective Contract – s tructure the contract to ensure the desired effect at the time of the death of the annuitant's).
- Sun Wise Elite Plus A rider to all existing Sun Wise Elite funds More than 50 investment mandates , including Portfolio Series Managed Solutions Two maturity and death benefit guarantee options (Class B and C) – to suit any client’s needs Additional estate planning protection riders (Earnings Enhancement Benefit and 4% Auto Death Benefit riders) Competitive pricing , including low cost Private Managed Assets option for accounts greater than $500,000.
- Client Benefits With Sun Wise Elite Plus clients can create their own personal pension, which can provide security and peace of mind in retirement. They can start withdrawing at any time, stop when they want and restart at any time. It is well suited RRIFs because it is flexible enough to meet the legal requirements without effecting your client’s guaranteed income. It’s tax efficient for non-registered accounts since withdrawals are treated as partly as return of capital (which is not taxed) and capital gains (which are taxed at a preferred rate). And, they have access to their savings at any time, but excess withdrawals above the annual entitlement may have a negative impact on future payments.
- Advisor Benefits Helps consolidate your book of business. You can provide full-service financial planning by offering your client a secure source of retirement income. A way to annuitize your book and provide a ‘trailer for life”.
- Success in Canada & U.S. Since launched in late-2006, the GMWB market in Canada has grown to more than $10 billion. In the U.S., where it has been around for a half a dozen years – the market is now $1.5 trillion and growing.
- Research by NAVA, a U.S.-based industry association, confirms that the timing is right for a product such as SunWise Elite. According to NAVA: We are now witnessing the Wealth Transfer Effect – as money moves to the boomers from their parents, the boomers are becoming more risk averse and looking at new ways of risk management. In addition, company pension plans are dumping retirees without any information or education on retirement income planning. Since they are left on their own to cope, there is a need for a new breed of retirement specialists, that not only know the products available, but also how to manage retirement income. At the same time, boomers are shifting from building their wealth and worrying about rates of return, to worrying about their income and the risks they face in retirement.
- Marketing Support There is a wealth of material to support you. Start with our website at www.sunwiseeliteplus.com to check out the SunWise Elite Plus videos, including two case studies and other material. Also available is a full suite of marketing support material including advisor and client guides, case studies, as well admats and prospecting letters and other client material. You can find three PowerPoint presentations – including a technical presentation and this presentation on how to position the sale at our presentations website at www.ci.com/presentations. We also have a complete Event in a Box, everything you need to give client seminars on SunWise Elite Plus, including a client presentation. And, of course, you can always contact your CI sales representative, or the CI client services team at 1-800-563-5181.