December 19, 2008, 6:00 am

What is Really Cool About Manulife Income Plus

by: The Financial Blogger    Category: Investment, Market and Risk
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Since I work in the industry, I have heard a lot of bad things about Manulife Income plus from its competitors and a lot of good things from its representative… Hum it sounds like any other innovative investment products. However, when I took a closer look at the whole strategy, I found that this type of mutual funds show a great advantage compared to any other funds if held in a RRSP account (tax sheltered account).



Instead of writing about what the product was designed for (i.e. safe withdrawal at retirement), I will explain how you can use Manulife Income Plus during your accumulation period. It’s basically like using peanut butter with chocolate and create Reese’s instead of putting the peanut butter on your toast in the morning… it’s simply amazing 😉

So how Manulife Income Plus, a retirement investment tool can help me out when I’m building my retirement account?

All right, let say that you are 40 and you want to retire at the age of 60. You have been a good little boy and been saving periodically. Since you always had a great asset diversification, you now have 300K invested in your RRSP account.

So if you decide to switch your investment to Manulife Income Plus and you wait at the age of 60 to withdraw your money, they guarantee you a “plan B” if the market crashes during that period.

So Manulife is offering a “virtual” bonus of 5% of your original amount for each year you stay with them. So after 20 years, you have “virtually doubled” your investment. Therefore, they will offer you a life income fund of 5% of 700K (the first 300K being your original capital and the other 300K being your “virtual bonus” offered by Manulife). Therefore, you have the possibility of making 35K for the rest of your life.

But there is something cooler than this!

Actually, every year, Manulife will look at the value of your portfolio and they will determine their “virtual bonus” on the bigger of 5% of your original capital or the value of your portfolio at the end of the year.

If you are lucky enough so your investment worth 400K in 5 years, they will add a bonus of 20K per year until you start withdrawing. If it ever goes down, you keep your 20K per year until it goes up again.

While that 5% is a nice bonus, you basically wish that you will never use it. Why? Because having 700K on 300K invested for 20 years is the same thing as investing in a GIC at 4.33%. However, you are better off with this investment solution guaranteeing you 4.33% yield than investing in another mutual fund and having no clue what you end result will become.

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Comments

I don’t think you get the income guaranteed for life at 60, you have to wait to 65.

Actually, what you have is an income based on 5% on a virtual amount (original capital plus 5% per year invested). There are no waiting period. i’ll write more about it 😉

Sounds like the PE4 from Primerica. In fact, it looks like a mirror image with a few notable exceptions.

There is a lifetime withdrawal guarantee in the PE4 (only for 40+ applicants) that allows immediate withdrawal of funds (or delayed) of 5% of the balance for life. Account value grows, so does the payments.

PE4 Does not have a forced annuitization. MIP Looks like it does with a contract maturity date.

PE4 Has an automatic quarterly rebalancer. Although the MIP said one could exchange without service fees, it said nothing of a rebalancer.

Looks like a good product all and all though. Since I don’t think the PE4 is available in Canada yet, who wants to bet they are trying to get the jump on us?

If I remember if you opt for the income portion before 65 it’s guaranteed fot 20 yrs if 65 than you get for life. A little confused about your calulation for the 400K exemple: from what i see the lock-in is available every three year if market is up so you would then get the 5% bonus on this new amount. I don’t think you get the 5% bonus on either the original value or market value at year end, on market value only if it has had the lock-in feature.

by: The Financial Blogger | December 19th, 2008 (3:43 pm)

JF,
The goal is to have the plan B of getting the 5% “virtual bonus” and get the life income when you are about to withdraw.

This is what I got from the company. I’ll made further researches since you are putting the seed of doubt in my mind 😉

[…] Financial Blogger actually found something positive about Manulife Income Plus. […]

You do realize that the MER’s are well over 3% (3.5-4.0%) so any upside from market increases will be dramatically dampened…

by: The Financial Blogger | February 6th, 2009 (7:07 am)

hummm,
I realized that the MER’s for this kind of product is quite high (there is no free lunch in finance 😉 ).

This is the price to pay to have security in the mutual fund universe 😉

by: Informed planner | March 1st, 2009 (2:51 pm)

Hello everyone,
If you’d like to emulate what would happen in a private pension plan, only you’re in control of the investment decisions, then this product is for you! Essentially every investor receives all the upside potential of the market, without any of the downside risk if held till age 65. It virtually wipes out things like timing risk, and the fear of outliving your money. The longer you leave your money in the income plus series of funds, the greater your income guarantee becomes, sounds like how a pension plan would work to me. Even if the accumulated value of your plan goes to ZERO, your lifetime income guarantee continues to pay out, forever. The small premium you pay in the increased MER and IP “fee” is a small price to pay for the security you’ll gain!
Since this product is geared towards a more conservative investor to start with, the maximum equity exposure a client can obtain is about 80%. Given where we are in the market cycle right now I’d say that one could grow the guarantee quite substantially over the next few years, having it reset every 3 years and you’ll capture all the rebounding effect in short order!
Keep in mind that the Guaranteed Minimum Withdrawal Benefit
GMWB can never go down from the previous re-set amount, in the Manulife product, Income Plus.

Canadians are flocking to these guarantees from the few companies offering this style of product, and Billions of $ have been transferred into these arrangements. I’m not surprised!

IP:

How about a product that allows all the upside with a +5% on the down side? Guaranteed so long as the product is kept for at least 1 year? (Minimal guarantee of amount invested)

Lock ins done every year instead of every 3. Auto rebalancing of funds every quarter (without a sales charge), allows for moving between funds without a sales charge. Protects the client with a cap of 50% of liquid assets in the account. 65% with approval.

And the best part, does not annuitize unless the client specifically asks for it. NO FORCED ANNUITIZATION AT ANY TIME.

Granted, I don’t know if this is offered in Canada.

by: Informed planner | March 2nd, 2009 (11:20 am)

AHHH, now you’re getting it…….always ask for more than you know you’ll get, right? Sounds like you’re in it for the short term and this product is geared towards a long term financial plan.
The things you are asking for are all there it seems, but only if you stick with the plan.

It would be impossible for any company to reserve against the future value of these guarantees, as required in Canada, if they were only short term promises. Principal deposits are in fact guaranteed, you just have to hold it long enough, or on death the principal is secure even if the market value of your account
is down. If you choose portfolio funds, they are also autore-balanced by the manager without “sales charge”.
Furthermore, you can always move between the income plus series of funds without “sales charges”

Not sure what you mean by, “protects the client with a cap……..

This product does not force you to “annuitize” at any time.
If held as an RRSP, the conversion to a RRIF at 71 still allows for a reset of the guarantee where the market is strong, even though you are taking RIF(required) income from the plan.

Finally, you are guaranteed the greater of RIF minimum or the 5% without affecting the guarantee of income for life.

If someone starts the Manulife Income plus at age 71 does he have to wait 20 years for the guarantee? What is his overall downside in using this product?

@Robert,

at the age of 71, you don’t have many downside… unless you withdraw your funds at one point. However, if you use the Manulife Plus as a “pension”. However, one must consider his heirs at one point as well 😉