Guaranteed minimum withdrawal benefit (GMWB) products

GMWB products are a combination of investments and insurance. This is known as a variable annuityAnnuity A contract usually sold by life insurance companies that guarantees an income to you or your beneficiary at some time in the future. An annuity is a contract with a life insurance company. When you buy an annuity, you deposit a lump sum of money, and the insurance company agrees to pay you a guaranteed…+ read full definition. With GMWB products, you get a guaranteed minimum income from your savings each year – starting as early as age 50 for some products. They also provide the potential for investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition gains to help increase this income over time.


Fees for this product are steep – annual management fees can be significantly higher than for other types of investment funds. Penalties can decrease your guarantee if you make a withdrawal that exceeds the guaranteed amount.

How GMWB products work

GMWB products are offered by insurance companies and can have a variety of features. Here’s how a typical GMWB product might work:

1. You deposit a lump sum of money

In your pre-retirement years, say at age 55, you transfer money to the insurance companyInsurance company A company that sells insurance products. Some companies sell only life insurance. Some sell only property insurance. Others sell all types of insurance.+ read full definition, either from your non-registered or registered plan savings, to buy the GMWB product. You can also make additional deposits to the product. Like a traditional annuity, a GMWB product is based on a contractContract A binding written or verbal agreement that can be enforced by law.+ read full definition between you and the insurance company.

2. You choose the investments

The insurance company will provide you with a variety of investment funds to choose from. Insurance companies typically limit how much you can investInvest To use money for the purpose of making more money by making an investment. Often involves risk.+ read full definition in equitiesEquities Another word for investments in the stock market.+ read full definition. For example, the contract may limit you to investing 70% of your deposit amount in equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition funds. Or, the insurance company may only offer balanced funds with different mixes of stock, bond and money marketMoney market Low-risk investments that mature in less than three years and are very easy to turn into cash. This includes short-term GICs, bonds, and treasury bills.+ read full definition investments.

Ask if the contract can change

Depending on the terms of the contract, the insurance company may be able to make changes, such as increasing the fees they charge or increasing investment restrictions on new money that you invest. Before you buy, find out what can be changed and decide if you are comfortable with these terms.

3. Your income guarantee comes into effect

Once your money is deposited and invested, you are entitled to a guaranteed income, beginning at a specified age. A typical product guarantees that you can withdraw 4% of your investment amount each year for life, no matter how long you live or how well your investments perform.

For example, if you deposit and invest $100,000 at age 55, you will be entitled to income of $4,000 each year starting at age 65, guaranteed for life. While you can withdraw more than this guaranteed amount in a year, penalties apply to these “excess” withdrawals – and can reduce your future guaranteed income level.

4. You can increase your guaranteed income

A key feature of GMWB products is the ability to increase your income guarantee, especially in the years leading up to retirement.

This is done in 2 ways:

  1. By receiving an annual 5% bonus – The bonus is based on the amount used to calculate your lifetime income guarantee. It is applied in any year you haven’t taken a withdrawal. Bonus features vary by company, but are typically only paid in the first 15 years of the contract.
  2. By locking in market gains every 3 years – If your investments have gone up in value after 3 years, the amount used to calculate your income guarantee will be based on this value — and never drop below it. This reset feature continues even after you begin making withdrawals.

5. You start making guaranteed income withdrawals

At a specified age, typically around 65, you begin making annual income withdrawals. While these withdrawals decrease the market valueMarket value The value of an investment on the statement date. The market value tells you what your investment is worth as at a certain date. Example: If you had 100 units and the price was $2 on the statement date, their market value would be $200.+ read full definition of your investments, they do not change the amount used to calculate your annual income guarantee.

6. Your beneficiaries receive the market value

At your death, your beneficiaries receive the market value of your investments.


GMWB products are complex and can vary significantly among insurance companies. Understand all of the product features and fees before you buy.

7 key points

  1. Guaranteed income for life
  2. Potential to increase guarantee
  3. Protection against market declines
  4. Potential payment to beneficiaries​
  5. High fees
  6. Restrictions on investment optionsOptions An investment that gives you the right to buy or sell it at a set price by a set date. The buy right is termed a “call” option, and the sell right is termed a “put” option. You buy options on a stock exchange.+ read full definition
  7. Penalties for excess withdrawals
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