The main decision for a Canadian retiree with this Sun Life product is the age they want the money to last until (maturity years). They can choose from 85, 90, 95 or 100 (or choose a few by age combination); but they can also start to decline in their 50s. Sun Life recalculates client payments annually, at the beginning of each year, based on the account balance. That has the company looking at the total amount invested, the frequency of payments, the number of years remaining before the chosen maturity years, the rate of annual return (the expected return is 5.5% but a conservative rate of 4.5% is used in the calculations) and any time of the year. effective control minimum and maximum.
Birenbaum says MyRetirementIncome owners can schedule transfers to their bank accounts anywhere from biweekly to annually. Although the amount of the payment is not guaranteed, they can expect what Sun Life calls a “fixed income” through the years of maturity, so the payment is not expected to change much from year to year. If the client's circumstances change, they can change the maturity date or payment frequency at any time. Although not available within registered retirement savings plans (RRSPs), most other types of accounts are covered, including registered retirement income funds (RRIFs), life income funds (LIFs), tax-free savings accounts ( TFSA) and open (taxable) accounts.
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Emphasis on simplicity and flexibility
In a phone interview, Eric Monteiro, Sun Life's senior vice president of group retirement services, said that, in the initial launch of MyRetirementIncome, most of the investments will be in RRIFs. He expects that many will use it as part of a retirement fund, although others may use it 100%. Initial feedback from Canadian consultants, advisors and sponsors of the program has been positive, he says, especially regarding its flexibility and adaptability.
As mentioned above, unlike life annuities, returns are not guaranteed, but Monteiro says “that's the only question mark.” Sun Life looked at the competitive landscape and decided to focus on flexibility and flexibility, “because the others didn't go as expected.” The average gross income management expense (MER) is 2.09% up to $300,000 in assets, but drops to 1.58% above that. Monteiro says the fee is “in line with other actively managed products.”
Birenbaum cites the advantages of simplicity and accessibility, with limited investment required for customers, who “simply decide the age” they want the money to stay. The residual balance is not forfeited on death but passes to a named beneficiary or estate. Each year, the target withdrawal amount is calculated based on the current market value and life expectancy, so the drawdown can be as sustainable as possible. This is useful if the investor is unable to properly manage investments in old age and does not have a trusted power of attorney to assist him.
As for the downside, Birenbaum says it's currently only available to existing Sun Life Group Retirement Plan members. “A single fund may not be suitable for such a wide range of client needs, risk tolerance and timing.” In his experience, “customers tend to underestimate life expectancy” which leaves them exposed to longevity risk. To him, Sun Life's approach seems very simple: “you can't replace a complete financial plan in terms of measuring the ongoing rate of annual withdrawals with this product.”
In short, there is a “high cost for Sun Life to do a few calculations on behalf of customers… This is Sun Life's way of maintaining group RRSP savings when its customers retire … putting small accounts on automated phone-assisted dialing. center, and finally, a chatbot. For a retiree who has no other investments, it's an easy way to start a retirement income.”
However, “anyone with a large wealth advisor who provides planning and investment management can do better than this product,” says Birenbaum. “For those without advisors, a simple low-cost mutual fund or a discount brokerage ETF will save a client more than 1% a year in fees if they exchange by doing less annual calculations.”
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