I read an article criticizing Manulife's Income Plus product. The
big criticism of Manulife's Income Plus was the Management Expense
Ratios. Really? I had to chuckle! When there is no other contention
against guarantees critics fall back on the MER argument. Manulife's
Income Plus does have higher MERS than mutual funds. There is good
reason for that.
Over the past forty years the TSX has experienced a major drop greater than 25% every 7.2 years on average.
These market drops average 36.6% before they turned back upward.
The recovery time to reach a zero return on average is much longer than a year. The Manulife Income Plus guarantees a minimum annual increase regardless of how the markets perform or don't perform.
The other comment was about automatic resets every three years inside the Manulife Income Plus. This is true, but there was no mention in the article that knowledgeable advisers usually do manual resets when the invested funds raise beyond Manulife's Income Plus guarantees. These resets capture the growth by resetting the base for the guaranteed increases to use the higher market value balance.
To demonstrate how it works let's view one of my own cases. I had attempted to get a prospect to switch in 2007 to avoid the systemic flaw in the markets that was sure to cause a devastating drop in 2008 or 2009. They hesitated, and hesitated and finally signed the papers to transfer their RRSP money from two banks and an investment group into the Manulife Income Plus. By the time the other firms got around to transferring their money to the Income Plus the crash of October 2008 had already happened. These people saw their $330,000 drop to about $208,000.
The 2008 drop in markets cost them $120,000 but they had lower MERS!... Who wants lower MERS without guarantees?... How many years would you have to save about ¾ of 1% to cover that loss?
Within the Manulife's Income Plus their $208,000 did increase to about $260,000 in less than a year. That is when we moved their no load funds out of the Income Plus to a chequing account and then re-invested their $260,000 so they now have a guaranteed annual increase of 5% per year based on the $260,000 balance.
It took a couple of entries and using no load funds to do this but the client now gets 6.3% Guaranteed increase when calculated on their original deposit of $206,000. Cheap MERs don't buy you those advantages. Is there a good reason for higher MERs? I think so, for the right situation and managed by a conscientious adviser they make way more sense than going on the cheap.
This isn't to say the products with higher MERs are warranted in all cases - not at all. Higher MERs are probably not suitable for over half the people investing money. But for those who have accumulated a reasonable sum they should be considered as part of an appropriate solution. Paying slightly more for MERs to buy lifetime income guarantees may be worth way more than the cost.
Manulife Income Plus has since lowered their annual guarantees on new purchases but has stayed in the market. All other insurers, that I am aware of, have stopped selling guaranteed minimum lifetime income products.
The reason is that they were so popular that selling companies realized they were taking on too much risk. The insurance companies could not cover their risk going forward if they continued to sell these products with lifetime income guarantees even with the higher MERs. These guarantees were way too a deal for the clients to continue selling them. The new version of the Manulife Income Plus is an excellent deal and should be considered by people with money for part of their retirement planning.
If the MER is all you look at while investing you might be somewhat like the teenager in a country song which says something like this; 'when you're seventeen it's hard to see past Friday night'. Investments tend to best serve the average investor over the long term when they increase every year.
Short sighted investing isn't wise for most people. They look at a 50% gain as fantastic. Then if they experience a 33.3% loss it doesn't seem so bad compared to the 50% gain. But do they do the math? One hundred dollars which gains 50% becomes one hundred and fifty. One hundred and fifty dollars that looses 33.3% becomes one hundred dollars. That takes two years to get a zero return. Your sock will do that good.
Retirement planning and investing is not an 'either or' choice. Good luck with your investment strategy. There are many funds with low MER low load or no load funds as well as Manulife's Income Plus which may charge a bit higher management expense ratio but could provide a more stable, GUARANTEED lifetime income. That would be very difficult to match for the rest of your life using funds with cheaper management costs. Cheaper MERs serve younger investors best because typically they don't have as much to lose. Also if young people do take a loss it may not have the same serious impact that an investor nearing or in retirement would suffer.
For more information on any products or how to safely and smartly arrange your assets for a worry free retirement don't overlook asset allocation. One size does not fit all.
Gordon Hughes cfp
Over the past forty years the TSX has experienced a major drop greater than 25% every 7.2 years on average.
These market drops average 36.6% before they turned back upward.
The recovery time to reach a zero return on average is much longer than a year. The Manulife Income Plus guarantees a minimum annual increase regardless of how the markets perform or don't perform.
The other comment was about automatic resets every three years inside the Manulife Income Plus. This is true, but there was no mention in the article that knowledgeable advisers usually do manual resets when the invested funds raise beyond Manulife's Income Plus guarantees. These resets capture the growth by resetting the base for the guaranteed increases to use the higher market value balance.
To demonstrate how it works let's view one of my own cases. I had attempted to get a prospect to switch in 2007 to avoid the systemic flaw in the markets that was sure to cause a devastating drop in 2008 or 2009. They hesitated, and hesitated and finally signed the papers to transfer their RRSP money from two banks and an investment group into the Manulife Income Plus. By the time the other firms got around to transferring their money to the Income Plus the crash of October 2008 had already happened. These people saw their $330,000 drop to about $208,000.
The 2008 drop in markets cost them $120,000 but they had lower MERS!... Who wants lower MERS without guarantees?... How many years would you have to save about ¾ of 1% to cover that loss?
Within the Manulife's Income Plus their $208,000 did increase to about $260,000 in less than a year. That is when we moved their no load funds out of the Income Plus to a chequing account and then re-invested their $260,000 so they now have a guaranteed annual increase of 5% per year based on the $260,000 balance.
It took a couple of entries and using no load funds to do this but the client now gets 6.3% Guaranteed increase when calculated on their original deposit of $206,000. Cheap MERs don't buy you those advantages. Is there a good reason for higher MERs? I think so, for the right situation and managed by a conscientious adviser they make way more sense than going on the cheap.
This isn't to say the products with higher MERs are warranted in all cases - not at all. Higher MERs are probably not suitable for over half the people investing money. But for those who have accumulated a reasonable sum they should be considered as part of an appropriate solution. Paying slightly more for MERs to buy lifetime income guarantees may be worth way more than the cost.
Manulife Income Plus has since lowered their annual guarantees on new purchases but has stayed in the market. All other insurers, that I am aware of, have stopped selling guaranteed minimum lifetime income products.
The reason is that they were so popular that selling companies realized they were taking on too much risk. The insurance companies could not cover their risk going forward if they continued to sell these products with lifetime income guarantees even with the higher MERs. These guarantees were way too a deal for the clients to continue selling them. The new version of the Manulife Income Plus is an excellent deal and should be considered by people with money for part of their retirement planning.
If the MER is all you look at while investing you might be somewhat like the teenager in a country song which says something like this; 'when you're seventeen it's hard to see past Friday night'. Investments tend to best serve the average investor over the long term when they increase every year.
Short sighted investing isn't wise for most people. They look at a 50% gain as fantastic. Then if they experience a 33.3% loss it doesn't seem so bad compared to the 50% gain. But do they do the math? One hundred dollars which gains 50% becomes one hundred and fifty. One hundred and fifty dollars that looses 33.3% becomes one hundred dollars. That takes two years to get a zero return. Your sock will do that good.
Retirement planning and investing is not an 'either or' choice. Good luck with your investment strategy. There are many funds with low MER low load or no load funds as well as Manulife's Income Plus which may charge a bit higher management expense ratio but could provide a more stable, GUARANTEED lifetime income. That would be very difficult to match for the rest of your life using funds with cheaper management costs. Cheaper MERs serve younger investors best because typically they don't have as much to lose. Also if young people do take a loss it may not have the same serious impact that an investor nearing or in retirement would suffer.
For more information on any products or how to safely and smartly arrange your assets for a worry free retirement don't overlook asset allocation. One size does not fit all.
Gordon Hughes cfp
Smart Choice Life Inc. was created to serve the ever growing
number of people who use the internet as a convenient and less intrusive
way to shop for financial security.
We offer a quick and easy way to get your own quote for life insurance. Our experience and track record with investments is noted by our clients on our home page. We would love to have your business and work hard to earn that privilege.
Visit us at http://smartchoicelife.com/ or read more blog articles at http://smartchoicelife.com/e-books/blog/
We offer a quick and easy way to get your own quote for life insurance. Our experience and track record with investments is noted by our clients on our home page. We would love to have your business and work hard to earn that privilege.
Visit us at http://smartchoicelife.com/ or read more blog articles at http://smartchoicelife.com/e-books/blog/
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