Page 241 - A Canuck's Guide to Financial Literacy 2020

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GMWB Plans

For individuals looking for a stream of income, they may add a Guaranteed Minimum
Withdrawal Benefit (GMWB) rider to their segregated fund contract. These guaranteed
plans are referred to as a Guaranteed Minimum Withdrawal Benefit (GMWB) Plan or
Guaranteed Lifetime Withdrawal Benefit (GLWB) Plan. The stream of income can be for
lifetime or for a specific period of time.

Guaranteed Income

In a similar nature of segregated fund contracts, these income benefit plans also provide a
maturity and death benefit guarantee. The difference between the two plans is determined
by the period of income that they provide. Be aware that not all insurance company are able
to offer segregated fund contracts that provide a stream of income.

Accumulation Phase

Guaranteed Minimum Withdrawal Benefit (GMWB) plans and Guaranteed Lifetime
Withdrawal Benefit (GLWB) plans are based on an initial deposit or constant deposits by an
investor into a segregated fund contract. Theses plans have two types of phases, a savings
phase and a payout phase.

The savings phase is also referred to the period of accumulation. At this phase, investors
get a credit or bonus for every year where a withdrawal from the contract is not made. The
credit is based on a percentage of the initial deposit. The amount of deposits and the annual
credits which could be 5%-10%, form the base of which the minimum withdrawal amount is
based.

It's important that no withdrawals happen during the accumulation phase as it could reduce
the value of the guaranteed minimum withdrawal amount.

Payout Phase

The payout phase is when the withdrawals begin. At this phase, the guaranteed minimum
withdrawals begin based on the amount that was saved during the accumulation phase.
The value of the segregated fund contract would decline as withdrawals are received but
the annual income guarantee is unchanged. The annual income stays the same regardless
of poor market performance.

If withdrawals exceed the guaranteed income payment, penalties and fees could occur.
Withdrawals reduce any future guaranteed income payments.

Payout Phase Resets

Typically, the payout value may be reset every three years. Resets would be recommended
if the segregated fund contract has increased in value as the guaranteed minimum would be