Why Manulife IncomePlus is Not for the Average Retiree


Why Guaranteed Retirement Income Benefits is Not for the Average InvestorRecently, “guaranteed retirement income” products like Manulife Income Plus and Sunwise Elite Plus have exploded in the Canadian market. Manulife IncomePlus generated almost $3.4 billion in assets for Manulife Financial, Canada’s largest insurer between 2006-2008, and it is worth a closer look.

What are guaranteed retirement income investments like IncomePlus?

What happens with products like IncomePlus is that you have a retirement portfolio that guarantees a minimum annual flow of income for life (starting at age 65) and a guarantee against losing your investment money. Once you invest $50,000 or more, IncomePlus guarantees that you can withdraw 5% of that investment annually for life. The investment pool is “adjusted” every three years to reflect increases in market value. Sounds tempting? The catch is that any financial product that offers a guarantee comes with high fees that erode your returns.

What are the fees associated with IncomePlus and why are they so high?

IncomePlus is built on a foundation of Manulife’s segregated funds, which are mutual funds with various insurance guarantees attached. Segregated funds charge a higher fee than mutual funds (although this is often justified due to the insurance component), but IncomePlus also charges additional “guarantee” fees. According to personal finance columnist Rob Carrick, the “total fee load can be as much as 3 to 3.5% for some funds. By comparison, the largest Canadian balanced funds these days have MERs that are at least a full percentage point lower.”

There are two main problems with IncomePlus:

1.      The guarantees against market losses are mostly a waste of money for any investor who has a time horizon longer than 10 years, because the 10 year return almost always is higher than 0% except for very aggressive portfolios.

2.      In addition, the 25 segregated fund choices for IncomePlus are predominantly conservative choices with bond, balanced and asset allocation funds, but no pure equity funds. Paying higher fees for a guarantee would only have been justified if there were higher levels of risk and reward, but not for these conservative options.

IncomePlus can be appealing to investors who are extremely risk averse and invest only in GICs, as the return for IncomePlus might be higher – but not if interest rates go up meaningfully. But for the common investor, this product is not appealing. It deters investors from getting significant gains (due to the fees) and the forced conservative investment options. While this might not be a concern during a year of poor market returns, you will very likely do much better for the long run by avoiding these high fees.

A much better approach is to generate income from a well-balanced portfolio, combined with tax and estate planning for a much lower fee. To learn more about Canadian Retirement Income Investments, click for our free guide below.

For help finding better alternatives to Manulife Income Plus, please contact me at 1-888-816-8927 x221 or by email at

Ted Rechtshaffen MBA, CFP
TriDelta Financial

A Critique of the “Sequence of Investment Returns”

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Products like the Manulife Income Plus or Sunwise Elite Plus sell their solutions based on the concept of sequence of returns. The idea is that the sequence of your investment returns in a significant determinant of whether you outlive your money in retirement.

The math here works because by drawing out your savings each year, you are declining your overall asset base. So both good and bad returns in the earlier part of your retirement have a bigger impact. While the math is all true, the solution isn’t to pay high fees for a guaranteed income product.

But there is something significantly wrong with this concept.

The investment reality misses a key principle.

What is missing is the fundamental fact that after a year or period of poor investment performance, the market will overcompensate with stronger-than-average returns to get back to its “normal” level. What this means is that as long as you stick to your investment discipline, you will get better investment performance after poor performance, and it will then carry you back on target.

A Critique of the Sequence of Investment Returns

The most recent example has been 2008, 2009 and 2010. Based on the sequence of returns research, if your first year of retirement was in 2008, then you lost out on the sequence of returns. The investment industry says instead, you should invest a lump sum amount in a guaranteed product with high fees that will get charged every year of your retirement instead.

What actually happened is that after the TSX total return index returned -34 per cent in 2008, it has averaged 25 per cent returns over 2009 and 2010. Of course, if you invested in a guaranteed withdrawal benefit product, you wouldn’t have been able to invest in anything more risky than a balanced portfolio and you would have missed much of the strong returns of the past two years.

What the real message should be is: Don’t pull your money out of the market after it falls 20 per cent. Better yet, if you have other investments, it might be time to add to your stock position once the market drops 20 per cent.

The key to investment growth is to have some long-term discipline. When it comes to the sequence of returns affecting your retirement income, remember that even after a rough winter, spring always comes.