Manulife Annuities: Income solutions you can ... - Warren...
Transcript of Manulife Annuities: Income solutions you can ... - Warren...
Manulife Annuities: Income solutions you can count on
Retired Canadians are:
Living longerIn some cases, spending as much time in retirement as working Enjoying a healthier and more active retirement than their parents
Longevity Risk
Source: Annuity 2000 Mortality Table, Society of Actuaries. For illustrative purposes only.
The probability of a healthy 65 year old living until…
Age Single female Single maleAt least one member of a
couple
70 96% 93% 99%
80 81% 71% 94%
90 44% 33% 63%
95 23% 16% 36%
Retired Canadians are:
Worried about market fluctuationsA market downturn can have a negative impact on retirement incomeImpact can be especially painful if the downturn occurs just before or after retirement
Retired Canadians are:
Losing access to Defined Benefit Pension PlansDefined Benefit Pension plans are being offered by fewer Canadian companies Fewer Canadians have access to guaranteed retirement income from their company pensionInvestment risk is being transferred to the employee from the companyIncreasingly responsible for generating their own retirement income
In the current investment environment
Generating reliable retirement income is not easy:Markets are volatileInterest rates are lowTax rates on interest income are highDividend yields are low
Let’s consider an annuity
Guaranteed income – for life or a chosen period of time Higher income rate – you can receive guaranteed income at a higher rate than many other guaranteed income products offer Tax advantages – for non-registered funds, partial tax deferral is available for your incomeOptional protection for your spouse – income can be based on two lives to guarantee future income for you and your spouse
Let’s consider an annuity…
Payment guarantees – ensure a specific amount is paid to you or your beneficiaries, no matter what happensSimplicity – a single lump-sum investment can provide security and peace of mind while reducing ongoing investment decisionsConfidence – you’ll rest assured knowing that your income source will not be exposed to volatile financial markets
What is an annuity?
In exchange for a lump sum investment, an insurer makes guaranteed regular income payments to an investorPayments can continue for a choice of
One or two lifetimes (Single Life or Joint and Survivor Annuity)A specified period of time
Payments contain both interest and a return of principal
How is annuity income determined?
Income is determined at the time of purchase and based on several factors, including:
Amount of money investedAge and sexInterest rates at time of purchaseType of annuity (e.g. Life or Term Certain)Length of time annuity payments are to be guaranteedIncome deferral – time period between purchase date and when the income starts
Attractive income
Generally, the older the investor is at time of purchase, the higher the income
Age at Purchase
Premium/Investment(A)
Annual Income*(B)
Income as % of Premium
(B)/(A)
65 $100,000 $6,368.64 6.4%
70 $100,000 $7,315.44 7.3%
75 $100,000 $8,730.48 8.7%
80 $100,000 $11,001.60 11.0%
Male $100,000 Single Life, non-registered prescribed annuity, 3-year payment guarantee at April 25, 2012.*Annual Income represents sum of 12 monthly payments. For illustrative purposes only.
Attractive After-Tax income
Annuities generate substantially more after-tax guaranteed income from your investment
Portfolio Make up Investment Amount
Pre-tax Annual Income
After Tax Annual Income
After Tax Income %
5 year GIC @ 2.50% $100,000 $2,500 $1,500 1.5%IncomePlus (age 65 @ 4%) $100,000 $4,000 $3,840 3.8%Manulife PensionBuilder (age 65 @ 4.5%) $100,000 $4,500 $4,230 4.2%
Annuity (male age 65) $100,000 $6,368 $5,780 5.8%Annuity (male age 75) $100,000 $8,730 $8,730 8.7%
.
For illustrative purposes only. Assumed 40% marginal tax rate. GIC assumes only interest is withdrawn and the interest rate is 2.5%. IncomePlus assumes average tax efficiency of 90%, an annual rate of return of 5%, and a withdrawal rate of 4% with year-end allocations.Manulife PensionBuilder assumes an average tax efficiency of 85%, an annual rate of return of 2.5%, and a withdrawal rate of 4.50% with year-end allocations.Life Annuity quotes are effective as at April 25, 2012, based on a male aged 65 with a three-year payment guarantee and monthly payments with prescribed taxation.
Choosing the right annuity
Your particular income needs will help determine the annuity that is right for you:
Guaranteed retirement income for lifeIncome for a specific time period
Guaranteed retirement income for life
Single Life Annuity:Can provide income that lasts for the rest of your life
Joint and Survivor Annuity:Can provide income that lasts for your life and will continue to your spouse after you die
Income for a specific period of time
Term Certain Annuities:Provide a guaranteed income for a pre-selected period of timeIncome can help pay for obligations within a time period
Gradual inheritance transfer
An Annuity Settlement Option: Gradually transfers investment inheritances to a beneficiaryAvoids lump sum payout to a beneficiary who may not be able to manage it Can be added to a number of Manulife Financial’s products, such as the Manulife Investments Guaranteed Interest Contract, segregated fund contracts, or life insurance policies
Payment guarantees
Ensure a minimum amount of income is paid from your annuity investment to you or your beneficiaries*, no matter what happensTwo types:
Manulife Principal Protected AnnuityTM
Guarantee period
*A death benefit payable to beneficiaries as a lump sum (commuted value) will result in less than the full value being received.
Payment guarantees – principal protection
Manulife Principal Protected AnnuityTM
Ensures money invested is always paid backBeneficiaries receive a lump sum equal to the difference between the original premium paid and the total payments receivedTax efficient for non-registered contracts
Payments made to annuitant
Lump sum paid to beneficiary
Annuitant* dies
Principal
*Or last surviving annuitant in the case of a Joint and Survivor Annuity
Payment guarantees – Guarantee Period
Ensures payments continue for a specified period of timeIf the investor dies before the end of the guarantee period, payments continue to the beneficiary*Can guarantee more or less than the original principalPeriods from 0 to 30 years**The longer the guarantee period, the lower the income
*A death benefit payable to beneficiaries as a lump sum (commuted value) will result in less than the full value being received **Restrictions may apply.
Payments made to annuitant
Payments made to beneficiary
Annuitant dies
End guarantee period
Taxation of annuities
Registered/Pension FundsFor annuities purchased with Registered or Pension funds, all income is 100% taxable
Non-registeredFor annuities purchased with non-registered funds, only the interest portion is taxable
Taxation of non-registered annuities
“Non-Prescribed” taxation The interest element is taxed as it accrues (earned)Taxation will be higher in the early years of the annuity and decrease over the life of the contractAll contracts qualify
“Prescribed” taxationThe taxable portion of each payment remains level Provides an element of tax deferralA contract must qualify
Tax Advantages
Prescribed taxation:Provides an element of tax deferral, with less tax being paid in the early years of the contractLevel taxation keeps the income more predictable and consistentTax efficient for most investors; some life annuities at older ages can be tax-free
Potential for increased government benefitsLower taxable income reduces potential claw backs of government benefits and improves tax credit eligibility
Consider an annuity…
An attractive income generating investment:Guaranteed incomeHigher income rate than many other guaranteed income products offerOptional protection for your spousePayment guarantees Tax advantagesSimplicityConfidence
Thank you
Important Information
The information in this presentation is for general information only and should not be considered investment or tax advice to any party. Individuals should seek the advice of professionals to ensure that any action taken with respect to this information is appropriate to their specific situation.
The Manufacturers Life Insurance Company (Manulife Financial) is the issuer of all Manulife Annuities and of the GIF Select IncomePlus and Manulife PensionBuilder insurance contracts and is the guarantor of any guarantee provisions therein. The Manulife Principal Protected Annuity, IncomePlus, Manulife PensionBuilder, Manulife, Manulife Investments, the Manulife Investments For Your Future logo, the Block Design, the Four Cubes Design, and Strong Reliable Trustworthy Forward-thinking are trademarks of The Manufacturers Life Insurance Company, and are used by it, and by its affiliates under license.