Here are the terms you need to know to make your introduction to understanding Product Allocation easier. Watch the videos you see above or learn more by accessing our glossary.

Further to this being the process of investing in different asset classes and more important in the context of today’s retirement challenges, is that Asset Allocation on its own may no longer be enough for retirees. It’s not only the asset classes that are important, but also the products holding those classes. As investors near retirement, they may require both Asset Allocation and Product Allocation strategies to maximize their retirement income sustainability.

This is the difference between how much is spent in retirement and the amount left in the estate value at the time a retiree passes on. The rate of return on the investments in a portfolio plays a large part in this calculation. For further details about EDB, reference the video on the subject in this section.

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This is the measure of how well a product supports a particular retirement risk or client preference (Retirement Preferences defined below). The GPA ranges from zero to five, five being good at a given preference and zero being very poor. The higher it scores in a particular preference, the greater the GPA. For further details about GPA, reference the video on the subject in this section.

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This is a broad description for products having the guarantee features of an Immediate Annuity and the growth potential of a Systematic Withdrawal Plan (SWP). They include Guaranteed Minimum Income Benefit (GMIB) plans or, in Canada, Guaranteed Minimum Withdrawal Benefit (GMWB) plans.

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A GMWB is a benefit within an insurance product that ensures a guaranteed minimum income level. More advanced versions can provide guaranteed income for life to manage longevity risk. This benefit also helps protect an investor against sequence of returns risk -- the risk of market volatility impacting retirement savings around the time an investor retires, when there's not enough time to recover losses.

Products featuring a GMWB have the potential to keep up with inflation by offering resets to lock in market gains. The basis of the product is a segregated fund contract; hence, it provides a death benefit guarantee. GMWBs are referred to as variable annuities in the United States and are included in the product category of Guaranteed Living Income Benefits (GLIB).

Sometimes referred to as a Single Premium Immediate Annuity (or SPIA), this is an investment that, in exchange for a lump sum payment to a financial institution, will provide regular income payments, comprised of both interest and principal, back to the investor.

The long-term tendency of money to lose purchasing power. The future cost of goods and services increases, thereby eroding the value of assets. This can drastically affect retirement savings if those savings are not growing at a rate higher than the rate of inflation.

The lifespan of an individual. Canadians are living longer than ever before -- the likelihood of a healthy, married 65-year-old living to age 90 is now approximately 63%. Many people underestimate how long they could live and as a result, they risk outliving their savings. Longevity risk is a key concern for retirees.

The performance of the investment markets whereby investment values decrease or increase. More importantly, however, in the context of today’s retirement challenges, is that market volatility combined with drawing income during retirement can mean an investor runs out of money more quickly than anticipated. For further details, please refer to "Sequence of Returns" below.

This concept applies to Immediate Annuities. The investment return earned on money invested on behalf of a group of annuitants is supplemented by "mortality credits”, which are comprised by the capital and interest lost by a deceased annuitant and gained by the surviving annuitants. For further details about Mortality Credits, reference the video on the subject in this section.

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Product allocation involves allocating investments amongst a basket of products in specific proportions, tapping into the protections and guarantees associated with those products, in order to cover the various challenges clients face in retirement. For further information, please see the Product Allocation section on this site.

The personal choices an investor needs to cover off to a degree (depending on how important each of them is to the individual) in retirement via their investment choices. These preferences include:

Liquidity - the need for access to cash

Estate – leaving a legacy or bequest to heirs

Behavioural responses - the need to prevent market timing and emotional investing

The window of time five to 10 years before and after retirement. This is the most critical phase for an investor's retirement nest egg.

A down-turn in the markets during the five to 10 years before retirement has the potential to reduce savings to a level that won't provide sufficient income. What's more, there may not be enough time for the markets to help pre-retirees recover their losses before they finish work.

If the same market decline occurs during the five to 10 years after commencing retirement, the impact can be significantly more detrimental to a client's retirement plans. Not only are the markets not generating the necessary returns, but savings are being depleted much more quickly as income is being withdrawn.

A percentage measurement of how likely a mix of investment products will provide desired lifetime retirement income. The closer to 100% an investor is, the more likely their income stream will be sustainable throughout their retirement. For further details about RSQ, reference the video on the subject in this section.

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During retirement, this is the interplay between an investor's rate of withdrawal and the order of the investment returns they receive, which can have a dramatic impact on a portfolio’s ability to last. Specifically, a market downturn just before retirement, when there's not enough time to recover losses, or just after retirement, when income is being drawn, can mean that an investor runs out of money. The sequence of returns has less of an impact on the portfolio of a long-term investor who is accumulating assets ahead of retirement.

See Immediate Annuity, above.

An option by which an investor can draw income from investments in mutual funds, segregated funds, GICs, stocks, and bonds. As part of a Product Allocation strategy, a SWP helps ensure a retiree has the degree of liquidity they require.

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