Income plan losing allure

Income for life? Hurry, it's changing

It seemed too good to be true, and it was.

Insurance companies have been marketing their Guaranteed Minimum Withdrawal Balance (GMWB) income funds for several years. Manulife

Financial was first out of the gate with Income Plus in 2006, followed by several others trying to emulate them.

Income Plus became the most successful new-product launch in Canadian investment fund history, selling $10 billion in the first three and a half years! In the midst of investment uncertainty, there has clearly been a lot of appeal for investments that guarantee your principal AND your retirement income.

A GMWB is essentially a personal pension plan.

When used as an income-generating tool, GMWBs guarantee your principal, and allow you to benefit from market growth.

Every three years you can lock in a higher income

base if markets are up. Your income entitlement is not harmed if market values drop.

There is a guaranteed five-per-cent annual increase to your income base during your accumulation period. When you start withdrawing at age 65, you're guaranteed at least five per cent of your income base for life.

If you need fixed-income investments to balance the equities in your portfolio, the guaranteed five-per-cent income boost sure beats current term deposit rates.

Think about what guaranteed income means. It doesn't matter how long the U.S. or the European recoveries takes. U.S. fiscal cliff? Housing crisis? None of these matter - it's income for life, regardless.

Those are the features that are most attractive to investors, but they've become too expensive to sustain in our current low interest environment.

Most of the companies have either abandoned or diluted their GMWBs. Only one remains in its original form, and that's Empire Life's Class Plus, which will

also change after this Dec. 31. Although Empire is currently limiting new investments to $50,000, they are allowing transfers in from other institutions up until March 29, as long as the forms are received no later than December 31.

If you're interested in this guaranteed-income strategy, check it out quickly, like next week. There are only a few working days left.

Although GMWBs will be less attractive in the New Year, don't despair.

Life annuities have been with us ever since Ancient Rome and provide retirees with another viable option for lifetime income. You give up con-

trol of your capital but you are assured of an income stream for life, even if you make the century mark!

Although I don't encourage anyone to rush into anything, if you've been procrastinating on investing in a GMWB, now would be a good time to get off the fence, before the last of the original products are gone. They'll still exist, but they won't be as good.

Financial planning issues aside, I'd like to wish you and those you love a Merry Christmas and best wishes for 2013.

The opinions expressed are those of Richard Vetter, BA, CFP, CLU, ChFC.

Richard is a certified financial planner and owner of WealthSmart Financial Group in Richmond. www.wealthsmart.ca.