The Three Risks You Must Avoid

There are many financial risks that investors want to protect themselves from (inflation risk, interest rate risk, market risk, etc).

But there are three risks that most investors don't take into account and I believe not doing so can quickly get them into trouble.

I call them control risk, access risk and flexibility risk. Let me explain.

When I refer to control risk, I'm talking about your ability to exert control over your money.

Since you are the one that will have to reduce your standard of living if something happens to your nest egg, it's vital that you retain control over it.

problem with annuities, life insurance and other packaged products is that you immediately lose control over your money.

You are ceding control to someone else.

They are the ones in the position of power because they get to decide what is done with your money.

They use contracts that specifically limit your control and give it to them.

Why would you ever want to surrender control over the most important financial asset you will ever have?

It doesn't make sense!

Investment Politics - Jobs, The Economy and Social Security (3)

Annuity providers would be assigned a fair share of the huge Social Security Retirement Income Account (SSRIA) participant pool; every dollar contributed would be invested.

All providers would use the same mortality tables and base interest rate guarantees in their calculations and would be precluded from any form of advertising. Companies would be required to focus 100% of their efforts on the SSRIA.

Annuity providers would be allowed a .5% investment management fee so long as the Annuity Investment Portfolio generated no less than the 3.5% income level needed to fund a guaranteed 3% contractual cash value growth rate. 50% of any excess realized income would be added to retirement accounts in the form of dividends.

The remaining 50% would be apportioned between three separately managed accounts for: retirement benefit support contingencies (20%), universal health care and disability benefits for annuitants (50%), and post retirement death benefits (10%).

Half of the remaining 20% would become "surplus". The balance would accrue equally to the employees of the insurance company--- the mail room staff receiving the same dollar amount as the CEO.

These changes would produce: a whole new sub-industry of jobs, increase disposable income, reduce the Federal budget deficit, provide universal retirement benefit eligibility, stabilize the market for plain vanilla corporate and government debt securities, reduce corporate expenses and product price levels, and subsidize health care for senior citizens. Annuity providers would have significant incentives to minimize costs, but their investment portfolios would be closely supervised to prevent excessive risk.

Politicians at all levels just love for us to hate big business, and have no compunctions about taxing and regulating employers in every manner imaginable.

The impact is higher prices, lower job creation rates, and the need to move many operations to lower cost environments. Many small businesses simply refuse to hire additional employees. Regulatory procedures and company defense measures add billions to the costs of goods and services.

Social Security benefits are grossly inadequate yet we continue to tax all forms of retirement benefits. Politicians ignore the simple solutions to these problems and none seem to care about Social Security reform.


It's just too big an issue to be so shockingly ignored, but the last politician with any courage--- well, I can't remember who that was either


By Steve Selengut

Investment Politics - Jobs, The Economy and Social Security (2)

Employer matching contributions would be eliminated and participant contributions would be cut to a mandatory 3% of total compensation (including deferred comp, stock options, etc.).

Both changes would be phased into the system by participant age group over a five-year period, youngest first. The five age groups would be 13-year periods starting at zero to thirteen (obviously for voluntary accounts) and ending with ages fifty-two through sixty-five.

Phase one would involve qualifying providers, assignment of workers, issuance of contracts, elimination of employer matching contributions, and elimination of income taxes on social security payments. Employers would be required to appoint at least one person to coordinate the transition.

Contributions to the annuity contracts would begin upon issue; the Social Security Administration (SSA) would have five years to move credits to participants, starting with the youngest group, and would be responsible for shortfalls to retirees for five years.

Under the new system, there would be no penalties for early retirement, but tax free annuity payments would begin at age sixty-five whether or not the person continued to work.

Participants could voluntarily establish retirement accounts for non-working spouses and children, and could elect to deduct an additional 1% of salary for each account.

A new Federal Administration for Social Security (ASS) will select, qualify, and monitor provider companies and their investment portfolios to assure that only high quality, income-generating securities are used to fund benefits.

Companies showing a surplus would be able to invest up to 25% of the surplus in stocks that qualify for the Investment Grade Value Stock Index (IGVSI). Only fixed life annuities would be available, but there would be 50% of cash value, family-only, death benefits up until the time of retirement.

After age 65, the death benefit would be reduced 10% per year for four years. There would be no loans, withdrawal privileges, etc.

The ASS would be represented on provider company boards, would monitor annual audits of firm financial statements, and would supervise the selection of all non-company directors (60% of the board).

Each provider company would be encouraged to use non-market value portfolio assessment techniques, such as The Working Capital Model, to monitor income portfolios.

Retiree associations would also be represented on company boards of directors, and board member compensation would be capped at a reasonable number, plus 45% of ASS related expenses.