What is Sun Life’s new decumulation product?

A Canadian retiree’s fundamental resolution with this Solar Life product is the age they need the funds to final till (the maturity age). They will select from 85, 90, 95 or 100 (or choose a couple of with a mixture of ages); however they’ll additionally begin drawing down as early as age 50. Solar Life recalculates the consumer funds yearly, in the beginning of every yr, primarily based on the account’s steadiness. That has the agency trying on the complete quantity invested, cost frequency, variety of years remaining earlier than the chosen maturity age, estimated annual charge of return (anticipated return is 5.5% however a conservative 4.5% charge is used within the calculations) and any annual relevant regulatory minimums and maximums.

Birenbaum says holders of MyRetirementIncome can prepare transfers to their financial institution accounts wherever from biweekly to yearly. Whereas the cost quantity isn’t assured, they’ll anticipate what Solar Life calls a “regular earnings” to maturity age, so the cost isn’t anticipated to vary a lot from yr to yr. If the consumer’s circumstances change, they’ll alter the maturity date or cost frequency at any time. Whereas not out there inside registered retirement savings plans (RRSPs), most different account varieties are accommodated, together with registered retirement earnings funds (RRIFs), life earnings funds (LIFs), tax-free savings accounts (TFSAs) and open (taxable) accounts.

Emphasis on simplicity and suppleness

In a phone interview, Eric Monteiro, Solar Life’s senior vice chairman of group retirement providers, mentioned, in MyRetirementIncome’s preliminary implementation, most investments might be in RRIFs. He expects that many will use it as one portion of a retirement portfolio, though some might use it 100%. Preliminary suggestions from Canadian advisors, consultants and plan sponsors has been constructive, he says, particularly about its flexibility and consistency. 

As mentioned above, in contrast to life annuities, the return will not be assured, however Monteiro says “that’s the one query mark.” Solar Life appeared on the aggressive panorama and determined to deal with simplicity and suppleness, “exactly as a result of these others didn’t take off as anticipated.” The all-in price administration expense ratio (MER) is 2.09% for as much as $300,000 in belongings, however then it falls to 1.58% past that. Monteiro says the price is “consistent with different actively managed merchandise.”

Birenbaum lists the professionals to be simplicity and accessibility, with restricted enter wanted from purchasers, who “merely resolve the age to which” they need funds to final. The residual steadiness isn’t misplaced at demise however passes onto a named beneficiary or property. Yearly, the goal withdrawal quantity is calculated primarily based on present market worth and time to life expectancy, so drawdowns will be as sustainable as potential. That is useful if the investor turns into unable to competently handle investments in previous age and doesn’t have a trusted power of attorney to help them. 

As for cons, Birenbaum says that it’s at present out there solely to current Solar Life Group Retirement Plan members. “A single fund is probably not optimum for such an enormous vary of consumer wants, threat tolerance and time horizons.” In her expertise, “purchasers are inclined to underestimate life expectancy” leaving them uncovered to longevity threat. To her, Solar Life’s strategy appears overly simplistic: you “can’t change a complete monetary plan when it comes to estimating sustainable degree of annual attracts with this product.” 

In brief, there may be “a excessive value for Solar Life doing a little bit of math on behalf of purchasers… It is a means for Solar Life to retain group RRSP financial savings when their prospects retire … to place small accounts on automated pilot supported by a name centre, and in the end, a chatbot. For a retiree with no different investments, it’s a easy option to provoke a retirement earnings.”

Nonetheless, “anybody with an awesome wealth advisor who offers planning in addition to funding administration can do higher than this product,” Birenbaum says. “For these with out advisors, a easy low-cost balanced fund or ETF in a reduction brokerage will save the consumer greater than 1% a yr in charges in change for doing slightly annual math.”