A new alternative approach to the use of "Segregated Funds" will suite investors who are concerned about the future of the Markets, and what their eventual income will be for their retirement years.
There is a provision for a minimum guaranteed withdrawal benefit on the money invested regardless of market ups & downs.
Your withdrawal income account is based on the investment base, plus a guaranteed 5% bonus every year until withdrawals start. You have the option of investing in the markets without the downside risk. If the underlying investments do better than the 5% annual bonus, your withdrawal base will be automatically reset every 3 years to the higher amount.
Lump sum investments
Lump sum investments can be invested into the fund using dollar cost averaging (DCA) which can gradually invest you in the markets.
This is an ideal way to take advantage of today’s market volatility. These funds also enjoy the benefits of bypassing probate fee; legal and executor fees; and can be passed on to a spouse without interruption of income or guarantees.
Investors can start taking income anytime but, from age 65 the income is guaranteed for life, with the potential that future income will increase every 3rd year if the market value of your investment funds has increased more than the previous guaranteed value. All in all a great way to keep up with inflation with your retirement planning!
In turbulent markets (as we witnessed September-October 2008) this option will likely appeal to many. There is a cost to the guarantee, ranging from a quarter, up to three quarters of a percent for the more aggressive investment funds. That said, it is a small price to pay for the comfort of knowing you aren’t suffering such losses as seen in the markets over 2008.
Should you be investing?
With markets having lost so much value, if one is not investing currently on a monthly basis, they may look back in 2 or 3 years and wish they had. Post September 2008 is likely to be the best buying opportunity we have seen in a long time.
Here's an idea
If you will be investing a lump sum into your RRSP next February, consider arranging an RRSP loan now, and invest it into the "Dollar Cost Averaging" fund (Money Market), and then have the money automatically moved monthly over into investment funds. This way if the market suffers more negative returns in the months to come, you purchase more shares and you win when the market recovers.
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