retirement income: the future of distribution trends, opportunities and challenges
DESCRIPTION
Retirement Income: The Future of Distribution Trends, Opportunities and Challenges. A LIMRA Retirement Markets Presentation. Agenda. This presentation is a benefit of LIMRA membership. No part may be shared with other organizations or reproduced in any form without LIMRA's written permission. - PowerPoint PPT PresentationTRANSCRIPT
Retirement Income:The Future of Distribution
Trends, Opportunities and ChallengesA LIMRA Retirement Markets Presentation
Paul S. HenryManaging Director, Retirement Clients & Products
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Agenda
Retirement Income Market State of Retirees and Pre-Retirees Industry Response The Future of Distribution
Page 2
This presentation is a benefit of LIMRA membership. No part may be shared with other organizations or reproduced in any form without LIMRA's written
permission.
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.0
1.0
2.0
3.0
4.0
5.0
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
47%
69% Non-retireesRetireesPercent retired
41.3 million retirees
Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement
Number of Retirees by Age
Over 30 million Americans approaching “Income Phase”
33 million pre-retirees age 55+97 million pre-retirees age 40+
Millions Percent of Retired
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Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement
Number of Projected Retirees by Age
0.0
500,000.0
1,000,000.0
1,500,000.0
2,000,000.0
2,500,000.0
3,000,000.0
3,500,000.0Millions
41.3 mil-lion 2009
65.6 mil-lion 2025
80.6 mil-lion 2040
The “Income Market” likely to increase 50% by 2025
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20%
25%
30%
35%
40%
27%
22%
37%Age 61 to 70
Age 71 & up
Percent Receiving Employment Based Pension
Source: EBRI estimates of data from the Current Population Survey, Department of Labor, 2010
More Americans entering retirement Without Pensions
Median Annual Pension is $12,000
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Assets will be Re-allocated as HH’s transition to retirement
Financial Assets by Age and Retirement Status
Source: LIMRA analysis of 2007 Survey of Consumer Finances, Federal Reserve Board, 2009.
<25 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-79 80-84 85-89 90-94 95+$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5 No one in HH retired
Partially retired HH
All in HH retired
$ trillions
$15.5T
$3.9T
$6.5T
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Rollover market to exceed $600 billion in 3 years
Sources: Investment Company Institute, The IRA Investor Profile: Traditional IRA Investors’ Rollover Activity, 2007 and 2008 (2010) and LIMRA analysis of Internal Revenue Service, Statistics of Income Bulletins and Bureau of Economic Analysis, NIPA Table 6.11, “Table
6.11D. Employer Contributions for Employee Pension and Insurance Funds by Industry and by Type, years 2001–2007. Figures based on total IRA inflows resulting from rollovers. Includes some IRA-to-IRA rollovers.
IRA Rollovers (in billions)
2 2 2 2 2 2 2
$122
$226 $205
$282
$339
$452
$602
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State of Pre-retirees & Retirees
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Consistent Need for Income to Cover “Basics”
<$50k $50k-$74.9k $75k-$99.9k $100k+
55% 51% 50% 49%
15%13% 13% 12%
15% 19% 17% 20%
11% 11% 14% 13%
5% 6% 6% 7%
Charities/inheritance Saving for future & emergencies Discretionary expenses Health & long-term care
Basic living expenses
Percent of Retirement Expenses by Household Income
Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, 2009. Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets.
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Middle/Affluent Lack Guaranteed Income Sources
<$50k $50k-$74.9k
$75k - $99.9k
$100k+
61%
34%22% 15%
18%
30%32%
21%
79%
64%54%
36%
Other Earnings
Source: LIMRA analysis of U.S. Census Bureau’s Current Population Survey, March 2009 Supplement. Analysis based upon fully retired households.
Percent of Essential Expenses by
Household Income
<$50k $50k-$74.9k
$75k-$99.9k
$100k+
55% 51% 50% 49%
15%13% 13% 12%
70% 64% 63% 61%
Charities/inheritanceSaving for future & emergencies
Guaranteed Income Sources by
Household Income
Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, 2009. Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets.
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Most Important Source of Retirement Income
Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, 2009. Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets.
Note: Other sources include savings in Mutual Fund/Brokerage, Annuities, Equity in home, Real estate/rental income, inheritance and salary and wages.
Paradigm Shift in Expectations
Co. Pension Plan Savings in Employer Plan & IRA
Social Security Other sources
35%
23%
14%
25%25%
37%
9%
26%
Retirees Experience
Pre-retirees Expectations
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0–2 >2–5 >5–10 >10–20 >20–30 >30
$15$24
$44
$76
$140$146
$18$25
$43
$74
$135
$17350s 60s
Job Tenure (years)
Age group
Average 401(k) account balance for plan participants in their 50s and 60s = $77,650
Source: VanDerhei, Jack, Sarah Holden, and Luis Alonso, “401(k) Plan Asset Allocation, Account Balances, and Loans,” Employee Benefits Research Institute (EBRI) Issue Brief No. 335, October 2009.
Challenge: Low Savings
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Average 401(k) Balance by Age and Tenure($ in thousands)
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Challenge: Manage Timing, Markets & Inflation
Value of PortfolioRetirement age 62, $500,000 initial portfolio 4.05%
initial withdrawals1966-1975
62636465666768697071727374757677787980818283848586878889909192$0
$500,000
$1,000,000
$1,500,000
$2,000,000
1966
1967
1968
1969
19701971 1972
1973
1974 1975
Portfolio value
Note: The portfolio has an asset allocation of 42.5% large company stocks, 17.5% small company stocks, and 40% intermediate-term government bonds and is rebalanced annually. The initial withdrawal amount was $20, 250 or 4.05% of beginning assets; thereafter adjusted based on prior year’s inflation rate.
Age
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5-10 years away 3-4 years away 0-2 years away 0-2 years 3-5 years
65%
58%
51%
38%34%35%
42%
49%
62%66%
1-20 years 20 or more yearsIn Retirement
Longevity Expectations
Source: Retirement Income Trade-offs, Implications for Product Development, LIMRA, 2009. Survey based on 1,188 pre-retirees and retirees aged 55 to 75 with at least $100,000 in household current investable assets.
Challenge: Outliving Assets
From Retirement
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Pre-retirees Retirees
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Challenge: Working Longer
Timing of Retirement
Source: Will Retirement Last a Lifetime?, LIMRA, Society of Actuaries, and InFRE, 2009. Survey based on 1,524 retirees aged 55 to 75 with at least $100,000 in household investable assets.
When planned38%Later
6%
Involuntary24%
Voluntary32%
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Value of investments will drop by 25% or more
Become widowed
Lose their current job
Become disabled and no longer able to work
Employer will eliminate pension
19%
12%
12%
9%
9%
39%
32%
23%
27%
17%
Better than 50-50 chance50-50 chance
Percent of pre-retirees
Source: LIMRA survey of 1,000 pre-retirees, February 2010.
Challenge: The Unexpected
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<$25K $25K-$49.9K $50K-$99.9K $100K+
14%
24%
29%
44%
Household Income
Only 30% of pre-retirees consider themselves to be very prepared for retirement
Source: LIMRA survey of 1,000 pre-retirees, February 2010.Note: Retirement preparedness measured on a 10-point scale. “Very prepared” based on values 8-10.
No wonder: Pre-Retirees Feel “Unprepared”
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“Very Prepared” by Household Income Level
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Industry Response to Opportunity:
Product Manufacturers
Distributors
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U.S. Individual Annuity Sales
1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12
36.729.2
23.6 21.1 19.3 21.8 21.4 19.4 20.0 21.3 20.3 18.9 18.0
31.0
32.1
31.9 33.0 32.235.2 34.6 38.5 39.5 40.6 39.8
38.0 36.8
$67.7
$61.3$55.5 $54.1
$51.5$57.0 $56.0 $57.9 $59.5 $61.9 $60.1
$56.9 $54.8
Variable Fixed
19Source: LIMRA, U.S. Individual Annuities survey.
Dol
lars
in B
illio
ns
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Demand for Income Benefit Driving VA Sales
Q1 2012 VA New SalesIn Billions
Source: LIMRA, Variable Annuity Guaranteed Living Benefit Election Tracking Survey.
GLB Not Available
5%GLB Not Elected10%
GLB Elected90%
VA GLB Election RatesWhen Any GLB Available
1Q '09
2Q '09
3Q '09
4Q '09
1Q '10
2Q '10
3Q '10
4Q '10
1Q '11
2Q '11
3Q '11
4Q '11
1Q '12
29% 25%15% 17% 17% 17% 18% 16% 17% 22% 27% 26% 23%
55% 59%69% 64% 64% 64% 65% 65% 65% 61% 57% 59% 63%
90% 89% 89% 87% 87% 88% 89% 87% 88% 88% 88% 90% 90%
Hybrid GLB GMWB GMAB GMIB GLWB
20
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Fixed Deferred Annuity Sales
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12
7.2 8.2 7.5 7.0 7.0 8.2 8.7 8.2 7.1 8.1 8.7 8.3 8.1
7.0 3.52.4 1.5 1.3
1.6 1.8 1.41.4 1.4 1.2 1.2 1.3
19.0
14.1
10.69.5 7.9
8.4 7.46.6 8.5 8.3 6.9 6.2 5.8
$33.2
$25.8
$20.5$18.0
$16.2$18.2$17.9
$16.2$17.0$17.8$16.8$15.7$15.2
Book value
Market value adjusted
Indexed
Source: LIMRA, U.S. Individual Annuities survey.
Dol
lars
in B
illio
ns
21
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Indexed GLB election rates
Source: LIMRA, Indexed Annuity Guaranteed Lifetime Withdrawal Benefit Elections Survey.
Industry Indexed Annuity GWLB Election Rates
GLB Not
Available16%
GLB Available -
GLB Not Elected
35%
GLB
Avail-
able -
GLB
Elected65%
22
Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012
67%
62%
64%
70%
65%
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0%
20%
40%
60%
IRA Non-Qualified Overall
Age of Owner
Percentage of owners taking withdrawals Age 70
Source: Guaranteed Living Benefit Utilization Study – 2009 Data, LIMRA 2011Based on 1,278,547 contracts issued in respective years and still in force at the end of 2009.
Older GLB clients are taking income
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Immediate Annuity Sales
1Q 09 2Q 09 3Q 09 4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12
1.9 2.0 1.8 1.8 1.72.1 2.0 1.8 1.8
2.2 2.21.9 1.8
1.6 1.41.3 1.3 1.4
1.5 1.51.4 1.2
1.3 1.31.3
1.0
$3.5 $3.4$3.1 $3.1 $3.1
$3.6 $3.5$3.2
$3.0
$3.5 $3.5$3.2
$2.8
Structured Settlements Fixed immediate Variable immediate
Source: LIMRA, U.S. Individual Annuities survey.
Dol
lars
in B
illio
ns
24Amounts less than $0.5 billion not shown
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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q1 2012
322 351 421 478 497 520 519 511 556 620 659 675 683
972 904 8151,016 1,136 1,231
1,397 1,5171,151
1,3891,561 1,593 1,708
$1,294 $1,255 $1,236
$1,494$1,633
$1,751$1,916
$2,028
$1,707
$2,009
$2,220 $2,268$2,391
Variable Fixed
Source: LIMRA, U.S. Individual Annuities survey. 25
Deferred annuity assets have reached high
Dol
lars
in B
illio
ns
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2011 (ac-tual)
2012 2013 2014 2015
80 80 86 88 91
158 157 160 165 171
$238 $237 $246 $253 $262
Fixed Variable
Dol
lars
in B
illio
ns
Annuity Sales To grow 2% over next 4 years
CAGR
2%
2%
3%
Source: LIMRA, U.S. Individual Annuities survey. 26
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SPIA sales to reach $13b; 10 Days of Rollovers
Source: LIMRA
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E 2013E 2014E 2015E
$3.0$3.6
$4.8 $4.8$5.3 $5.3
$6.1$6.5
$7.9 $7.5 $7.6
$8.4
$9.4
$10.6
$11.8$13.0Fixed Immediate Annuity Sales & Forecast
($ Billions)
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The Future of Distribution?
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Q1 2012 Fixed Annuity Sales by Distribution Channel
Source: US Individual Annuities, LIMRA
$3.2
$3.1
$0.4 $0.7
$8.5
$1.0 $1.0
BanksCareerDirectIndep. B-DIndependentOtherFull Service Nat. B-D
Dollars in Billions
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Banks/Career Agents lead Fixed-Rate Deferred Sales
2007 2008 2009 2010 2011 Q1 20120%
20%
40%
60%
80%
100%
44% 46% 42% 39% 41% 34%
19% 19% 23% 26% 26% 31%
21% 16% 14% 18% 15% 17%
7% 9% 10% 8% 9% 8%6% 6% 8% 5% 5% 5%2% 4% 3% 4% 4% 5%
Banks Career Independent Agents Full Service Nat'l B-DIndependent B-D Direct
30Source: LIMRA, U.S. Individual Annuities survey.
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Career followed closely by Nat’l B/D in Fixed Immediate
2007 2008 2009 2010 2011 Q1 20120%
20%
40%
60%
80%
100%
26% 32% 34% 32% 31% 29%
12% 10%15% 19% 22% 23%
35% 33% 19% 21% 19% 20%
8% 9% 14% 14% 15% 14%6% 9% 10% 8% 8% 8%5% 5% 6% 5% 4% 4%
Career Full Service Nat'l B-D Independent AgentsBanks Independent B-D Direct
Does not include sales reported through “Other Systems”
31Source: LIMRA, U.S. Individual Annuities survey.
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Independent Agents Dominate Indexed Annuity Sales
2007 2008 2009 2010 2011 Q1 '120%
20%
40%
60%
80%
100%
4% 4% 7% 7% 6% 6%5% 6% 6% 6% 5% 5%
89% 88% 84% 86% 86% 86%
Independent B-D Full Service Nat'l B-D Banks CareerIndependent Agnts Direct
32Source: LIMRA, U.S. Individual Annuities survey.
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Advisors are “under-engaged” as clients enter retirement
How Advisors Help Retirees
Source: Will Retirement Assets Last a Lifetime?, LIMRA, Society of Actuaries, and InFRE, 2009. Survey based on 1,524 retirees aged 55 to 75 with at least $100,000 in household investable assets.
80%
48%35%
56%
34%
Percent indicating advisor helps with
Investment related Retirement planning related
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0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30$0
$50,000
$100,000
$150,000
$200,000
$250,000 0% SPIA, 100% managed portfolio
10% SPIA, 90% managed portfolio
20% SPIA, 80% managed portfolio
30% SPIA , 70% managed portfolio
40% SPIA, 60% managed portfolio
# of Years in Retirement
Portfolio Assets
Retiree Portfolio Longevity with Immediate Annuity
Source: Liquidity and the Value of Annuitization, LIMRA, 2009. Illustration of 1969 to 1998, the worst 30-year period out of 53 possible scenarios since 1926. The portfolio has an asset allocation of 42.5% large company stocks, 17.5% small company stocks and 40% intermediate-term government bonds and is rebalanced annually. An annual payout rate of 6.30% was based on actual single-life immediate annuity quotes with inflation adjustments for a hypothetical 65-year-old male in January 2009. The initial withdrawal amount was 4.5% of beginning assets; thereafter annual withdrawals were adjusted based on the prior year’s inflation rate. The hypothetical portfolio had a 50-basis-point charge assessed annually (following the withdrawals and the investment growth or loss.
Many advisor lack information on role of income products
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Buyer preferences based on age and source of money
Non-Quali-fied
Qualified
10%
7%
18%
41%
12%
24%
16%
15%
45%
13%
Age in years <60 60-69 70-74 75-79 80 & above
60% of buyers are age 75 & older
72% of buyers are age 74 or less
Percentage of SPIA Buyers by Age
Source: Guaranteed Income Annuities, LIMRA 2010. The study is based on 55,311 immediate contracts issued in 2008 and 2009.
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$400
$450
$500
$550
$600
$650
Life Only Guarantee period - 5 years
GP - 10 years
GP - 15 years
GP - 20 years
Cash refundInstallment refund
COLA
CPI (U)
Source: Based on CANNEX top quotes on $100,000 for a 65 year old male as of 12/07/2010
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FeaturesLess More
Features in Lifetime Income AnnuitiesMonthly payout
Buyers Weigh Trade-off’s
GP – 20+ years
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Clients look for decision-making help when “triggers” occur
Retirement Decision Points
Source: LIMRA, The Retirement Income Reference Book 2009
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Confidential and proprietary information – for institutional use only.
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Clients seek support across a broad spectrum of issues
• Lifestyle budgeting
• Asset allocation
• Social Security timing
• Medicare eligibility and enrollment
• Minimizing taxes
• Long term care
• Survivor income
• Estate Planning
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Distribution Hierarchy
Leveraging Contract-Level Data
• Optimize rep productivity by channel, region, firm size
• Track your market share against competitors at the local level
• Use regional results as benchmarks for performance
• Determine channel penetration and areas for growth
Customer
Sales rep Firm 1 Firm Carrier
Contract # NPN EIN NAIC #
LIMRA’s COMPASS: DATA REPORTING INITIATIVE
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Collaboration is the best kept secret to success
238
338
213
Lower support
Multi-Advisor/Rep
Higher support
Likelihood of Success (Top Quartile among all Financial Advisors (Indexed to 100)
100
Solo
* Note 1. Based on rep with 250 clients, and Note 2. Success means top quartile performance of all financial services advisors
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Guaranteed income solutions must be backed by a highly-rated, financially-strong insurer
Guaranteed income solutions would be more attractive if the guarantees were backed by a federal agency (similar to the FDIC)
Guaranteed income solutions provide benefits beyond what could be accomplished through use of non-guaranteed income solutions
Guaranteed income solutions should be used to cover non-discretionary expenses in retirement
Guaranteed income solutions are too complicated to explain to clients
77%
63%
56%
48%
28%
81%
67%
40%
38%
35%
Guaranteed Income Solution Attitudes
2009
2011
Percent Agree**Percentages based on individuals who "strongly" or "somewhat" agreed with the statement. Source:
Advisor Perspectives on Retirement Planning, LIMRA, 2012.
Education is being directed to the financial professional
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Guaranteed income solutions are often well-received by clients
Guaranteed income solutions require significant training and support from product manufacturers
Guaranteed income solutions are integrated in tools that you use
I do not recommend VAs with GLBs because they are too costly
I do not recommend income annuities (SPIAs) because the assets leave the firm and it hurts profitability and assets under management
63%
60%
58%
30%
21%
7%
10%
11%
32%
41%
Guaranteed Income Solution Attitudes*
Agree Disagree
*Percentages based on individuals who "strongly"/"somewhat" agreed or "strongly"/"somewhat" disagreed with the statement. "Neither agree nor disagree" excluded from chart. Source: Advisor Perspectives on
Retirement Planning, LIMRA, 2012.
More than 6 in 10 advisors believe guaranteed income solutions are well-received by clients
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Using Social Media to Project & Protect our Message
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A Mobile Application that Engages & Educateswww.ready-2-retire.me/PaulHenry
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Execution is Key
Targeting Training Tools Testing
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Distribution of the Future?
» Pre-retirees will be more engaged, better informed and prepared to make decisions – new technologies will create consumers who are motivated to seek out solutions
» The retirement income discussion will permeate the relationship product manufactures, service providers and advisors have with DC Plan participants
» Most pre-retirees will continue to fear making a mistake with their single largest financial asset – they will seek out products they can understand and advisors/firms they can trust
» Successful Advisors will embrace the role of product allocators, and deliver a broader array of services to retirees
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Thank you.
Paul S. Henry: 860-285-7878; [email protected]