One big misconception of a guaranteed income funds

2011 has been another year of high market volatility. As a result, I am hearing more and more people talking about different ways to guarantee their capital and guarantee their returns.

With interest rates as low as they are buying an old fashion GIC is not very appealing to a lot of people. At 1, 2 or 3% returns, investors must really think about whether they can achive their retirement goals at these low rates.

Can you get a 5% guaranteed income?

This past month as I have been delivering our financial education programs, I have had a number of people suggest that they can get a 5% guarantee. After a little conversation, most of these people are referring to the Manulife Income Plus product which is really a segregated fund with a guarantee.

Let’s be very clear and up front . . . it guaranteed return of 5% is a huge misconception and needs to be addressed.

Income guarantee does not mean a capital guarantee

The 5% is not guaranteed return in cash equivalent to a GIC. Let’s check out Jack who is 65 and has $100,000 to invest and wants income. Under the Manulife Guaranteed Withdrawal Benefit, Jack would get $5000 per year income, but would not be guaranteed to get his $100,000 back. Part of the $5000 income could be repayment of your own capital back if the investments do not make at least 5% after fees.

In the case where the investments do not perform, the 5% income is more like an annuity or a pension. To put this in perspective, let’s say a 65 year old took $100,000 and invested in GICs at a guaranteed return of 3% but wanted to take out the same $5000 per year. This person would run out of money at age 94 (29 years).

In the case where the markets do perform better than 5%, then Jack wins but he would have won with or without the guarantee.

What if you don’t need income?

In another scenario, I had Amanda tell me that she is not taking income but her Manulife Income Plus portfolio is making her a guaranteed 5%.

It is really important that we distinguish the difference between guaranteed value and market value. Let’s say Amanda invested $100,000 and was not planning to take income. Let’s say the market value of her portfolio dropped 20% and was now worth $80,000, she did not make 5%. Her guaranteed value might have increased to $105,000 but if she needed money today after her portfolio fell, she would not get $105,000.

The Manulife Income Plus literature is very clear that “withdrawals proportionately reduce maturity and death benefit guarantees. Exceeding withdrawal thresholds and taking withdrawals prior to age 55 or prior to the Election of Life Withdrawal Amounts may have a negative impact on future income payments.

Buyer beware

In both cases, Jack and Amanda claimed they were mislead and their advisors did not explain this properly. If that’s the case, then these advisors should lose their license to sell these products.

However, in defence of the advisors, it’s possible they did explain it and Jack and Amanda did not get it. It’s possible that Jack and Amanda heard it differently or that they forgot. Many of these things happen quite often too.

The bottom line is these products are extremely complicated and not easy to understand. Even someone like me, who spends a lot more time than the average person looking personal finance and investing, finds it really complicated. As a result, remember these cliches:

If it’s too good to be true, it probably is
If you don’t understand how it works, don’t buy it
Make sure you read the fine print
And it’ better to lower the fees you pay, not increase the fees you pay (These products are quite expensive).

My disclaimer: I do not sell investment or insurance products so I do not profess to be an expert with this financial product or any other. If you do not feel you understand the Manulife Income Plus product, talk to your financial advisor or contact Manulife Financial directly.


  1. p.

    this is NOT…what i experienced at ALLL…

    We can take out money after 7yrs NO FEES WHATSOEVER from the advisor OR MANULIFE.

    DO NOT…believe everything written on the net.

    Just ask the right questions.

    There was no mention of reset values in this article
    which leads me to believe MR. YIH is not informed.

  2. Dman

    Sure you can take your money out but if the market is down there’s no guarantee isnt that what its all about

  3. Gale Franey

    My policy is GIF Select (Original) “Income Plus Series” with Manulife, that was signed in 2007. This type of policy was phased out for new customers in Oct, 2009 but ‘grandfathered’ for existing customers like myself who already had the policy. I did not withdraw a single penny up until my retirement in 2021 when I turned 65. My ‘guaranteed withdrawal balance’ is $196,370.81 and my guaranteed annual withdrawal amount is $10,909.49. However, the ‘market value’ is just $125,520.32. This year, 2023, I saw that Manulife deposited less than the promised ‘guaranteed’ amount … instead they have ignored my policy ‘guarantee’ and instead based my paymnets on government imposed ‘maximum’ based on the ‘market value’ instead of basing it on the “Guaranteed Withdrawal Balance” and the “Lifetime Withdrawal Amount” that is clearly stated on each and every Statement I’ve received for the past 15 years. I’ve fulfilled my end of the contract by never withdrawing even a single cent since I took out the policy in 2007 … yet Manulife is NOT honouring their end of the contract. I’m being run around in circles … they’ve suggested I sign a form (NN1575E) to ‘rectify’ the situation, but that form required me to ‘Void’ my current policy and advises me to consult ‘independent legal counsel’ and have my ‘beneficiary sign and approve’ the “amendment form”. Why would I have to “amend” and “Void” my perfectly legitimate policy in order to receive the Lifetime Withdrawal Amount I am legally entitled to?

    My financial advisor says he’s looking into it, but so far almost 2 weeks have passed with no results and when I ask who he is consulting at Manulife, he says this person is a Manulife ‘internal wholesaler’ who does not speak directly to customers. He’s not even been able to tell me whether British Columbia taxes are applicable (my policy originates in BC), but I’ve been living in Quebec for more than 8 years. When I ask Manulife directly, each person gives me a different answer. Needless to say, I’m extremely upset about this entire situation.

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