Retiring baby boomers have shown a remarkable lack of interest in the investment industry’s attempts to help them solve what could be their biggest money challenge.
Turning retirement savings into sustainable, tax-efficient income requires you to set a mix of stocks and bonds, select investment products and then decide how much you can withdraw annually without running out of money. Might you want some help with that?
The investment industry has some products focused on generating retirement income, including Sun Life Financial’s new MyRetirement Income. Open your mind to them when looking for help in turning a lifetime’s retirement savings into reliable income. If you judge by asset levels, incumbent products in this niche are not getting their due attention. The same applies to annuities, which were covered last week.
MyRetirement Income is designed for people who are part of workplace defined-contribution pension plans administered by Sun Life, which has a 36-per-cent market share in DC plan assets. If the product gains some traction, Sun Life will look at making it widely available.
DC plans are more savings vehicles than pensions because it’s up to you to turn what you’ve accumulated into retirement income. MyRetirement Income handles this pivot for you by turning your savings into income paid monthly until you reach a preselected target age – say, 90 or 95. At that point, you are left with a zero balance.
You can add money to MyRetirement Income or make a withdrawal at any time. Your investments are held in a conservatively structured fund product in Sun Life’s Granite series. The estimated management expense ratio is 2.09 per cent for accounts up to $299,999 and 1.58 per cent for those of $300,000 and up.
That is a hefty cost in comparison with the Vanguard Retirement Income ETF Portfolio (VRIF-T), with an MER of just 0.32 per cent. Another income generator is the Purpose Longevity Pension Fund, which is set up like a mutual fund and has MERs of as much as 1.24 per cent or so, depending on the variant you buy. The most widely held version has an MER of 0.73 per cent.
VRIF uses a portfolio of more bonds than stocks to generate monthly income currently yielding about 4 per cent at the current unit price. The asset level in this fund is $287-million, which after four years in the market seems underwhelming.
The Purpose Longevity Pension Fund is designed to provide a pension-like investing experience for people who want to supplement their Canada Pension Plan retirement benefits and Old Age Security. Like MyRetirement Income, the Longevity fund adds alternative investments to a portfolio tilted to bonds over stocks.
An investment in the Longevity fund produces income for life at a rate that is expected to average 7.4 per cent for a 65-year-old over a 20-year period. Since it was launched in the spring of 2021, the fund has accumulated $15-million. Innovative products like this take time to achieve visibility and acceptance, but that’s a modest number.
If you buy at age 65, MyRetirement Income sets a starting income rate of 7.4 per cent for the age 85 maturity option, 6.5 per cent for age 90, 5.9 per cent for age 95 and 5.5 per cent for age 100. The value of owning this product is having the Sun Life team manage your investments and tweak income payments to produce income reliably paid into your chequing account.
You could do this yourself, but it’s work. Dividend stocks can be tricky – just look at what BCE Inc. or Algonquin Power & Utilities Corp. shares have done in the past five years. As for bonds, they got hammered in 2021 and 2022. Meanwhile, yields on guaranteed investment certificates have gone from fantastic to just OK, with more room to drop.
Some retirees do stellar work looking after their investments. But tasks that are mentally stimulating and enjoyable at age 65 could be a burden at 85. Maybe you start investing your retirement savings, then shift to an income-generating product later.
Sun Life says about 1.7 million people are eligible for MyRetirement Income – they’re either current members of DC pensions administered by the company or former members who retain their pension investments.
Some will pass on MyRetirement Income based on cost or a preference to manage their own money. But for those who want help making the big shift in retirement to creating sustainable income, it’s a notable new addition to an investing category that is too often overlooked.
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