Bank of Montreal (TSX:BMO) Tuesday announced the launch what it says is an industry-first product that provides Canadians aged 55 and over with guaranteed cash flow for life.

With Canadians living longer, retirement can easily last 25 to 30 years, leading many to worry about the possibility of outliving their retirement savings.

The bank says its BMO Lifetime Cash Flow product helps address this concern by introducing a guaranteed lifetime cash flow component that provides continuous payments for the remainder of the product holder’s life — while protecting against market volatility.

“With access to employer sponsored pension plans becoming less common, there is a real need for Canadians to re-think where their retirement income will come from,” said Caroline Dabu, vice president, head of retirement market group, BMO Financial Group. “Having an income plan in place is essential to ensuring a comfortable retirement that’s free of worry. BMO Lifetime Cash Flow allows Canadians to include a safety net as part of their plan, ensuring a secure and stable cash flow for the rest of their lives.”

How the product works

BMO Lifetime Cash Flow is a bank deposit backed by the BMO and is fully protected against market volatility. The BMO Lifetime Cash Flow Deposit Notes are not insured by the Canada Deposit Insurance Corp.

The initial deposit (minimum $5,000) provides exposure to a portfolio of BMO Mutual Funds and is rebalanced annually to a progressively more conservative mix of funds over time.

After 10 years the product holder receives guaranteed cash payments equal to 6% per year that are payable monthly based on the initial deposit. This return of capital continues for the next 15 years.

The deposit holder then continues to receive 6% interest income (based on the amount of the initial deposit) paid by the Bank of Montreal on an annual basis, regardless of market conditions. This continues for the rest of the individual’s life or as long as they hold the product.

The remaining portfolio value will be transferred to the estate upon death, providing the client with the opportunity to leave a legacy.

A recent BMO survey conducted by Harris Decima found that 90% of Canadians believe it is important to have a guaranteed source of income during retirement, with half of respondents expressing concern over having enough money to get them through retirement.

BMO recommends that every Canadian have at least one source of retirement income that is guaranteed, and which ideally makes up at least 30% of their overall cash flow.

IE