Definition of Risk: Risk is the potential harm that may arise from some present process or from some future event

Risk too big or too important
Should be transferred to a risk bearer
A risk bearer is an insurance company

Using annuities to offset risk is a very natural evolution. What are the real risks we face as our financial situation changes?

Here are the risks facing our prospects.

Inflation: I have always considered inflation as the biggest problem facing our prospects. How do they protect themselves on a fixed income basis against the rising cost of living? Since 1975 the rate of annual inflation has been 4.4%. Since 1960 the inflation rate is over 4.30%. Look at the cost of a home since 1975, an automobile, gasoline…health cost. Worry over future purchasing power is a major concern for our target market. Remember, inflation can be active, dormant and at anytime can re-ignite!

Lack of Diversification: Our seniors should be diversified to allow movement of different segments our economy. Available options are balanced mutual funds (some inflation protection), bank CD’s (short term money), bank savings accounts, annuities (long term money), and US Treasuries. Never put all your money in one place!

Income Taxes: A huge risk is allowing warehoused funds to be taxed even though the funds are not used for income. Always defer the tax liability until the funds are needed. Always know the net after tax return for your invested funds. As an example if the rate of return is 4% and the tax rate is 25% then the net after tax rate of return would be 3%.

Social Security: Will social security be there when we need it? Will the benefits be cut? Will the benefits provide for any basic need? What would inflation really do to the purchasing power of social security? How will the system be able to afford the long term commitments to it aging baby boomer population? Remember, social security was never intended to be a major source of retirement income!

Living Too Long!: We are all living much longer than we thought. Hallmark Card Company expects to sell 70,000 centurions (age 100) birthday cards by 2010. BY 2030 there is expected to be 332,000 age 100 senior in the United States. How are going to be able to retire with this much longer than expected life expectancy? Old statistics showed we had 45 years to accumulate enough money to live in retirement for 10 years but no longer. Now we have the same 45 years to save enough money for 20-30-40 more years. Long term reoccurring income is very important and essential to our financial planning.
Annuities provide for long term income. We are able to pass to a risk bearer the responsibility of this income stream. Selling the concept of risk to our prospects is important but only to the fact that there are many ways to manage risk without exposure to loss.

Annuities are insurance company products and insurance companies are risk bearers.

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