Reprinted from our March 5, 2014 newsletter:
Structured Settlements Changing Lives
Looking for proof that structured settlements change lives?
Then please take a few minutes to watch this short video of Robin, a woman whose touching first person account of her journey following the untimely death of her husband underscores why so many people – claims associates, attorneys, mediators, judges, Members of Congress, disability advocacy groups, etc. – passionately endorse the use of structured settlements as a means of resolving personal injury claims:
[Click HERE] for link to video
Two years ago, Prudential Structured Settlements reached out to select industry leaders from across the country to form the Structured Solutions Leadership Council in an effort to help them, as a provider of structured settlement annuities, better understand the challenges our industry faced.
I am honored to have been invited to serve as one of the charter members of the Council and am extremely proud to have played a small role in helping this video move from concept to reality.
While a wealth of exceptional written material about structured settlements exists, there was consensus among the Leadership Council that the industry could benefit from actual “day in the life” video testimonials from structured settlement recipients themselves who could explain how they personally benefited from choosing a structured settlement in ways pamphlets and magazine articles never could.
It had been more than a decade since I received a very heartfelt letter from a young widow, whose structured settlement I helped implement, thanking me for my “sensitivity to (her) broken heart” and for orchestrating something that would “provide financially for (her) family in the years to come” even though structured settlements “seemed too good to be true.”
So when considering potential candidates for this initiative, Robin was the first person who came to mind because I knew her story was so compelling.
Nothing can prepare a person for the unexpected death of a family member or the aftermath of any ensuing claim following such a shocking loss. Such turmoil can embitter even the strongest among us.
But those facing similar grief now have a kindred spirit in Robin and her story can serve as a beacon of hope amid their own sea of wariness, fear and uncertainty. We applaud her bravery for being willing to share such a personal experience.
Thanks also to Prudential Structured Settlements for its vision and support of the structured settlements, claims and legal communities. Along with the many other excellent life markets we are proud to represent, Prudential’s exceptional leadership on this particular initiative deserves special accolades.
Thank you for the opportunity to be of service and best wishes for continued success.
Enjoy the video!
February 28, 2014 - For years, many “experts” in the financial advice-giving business have cautioned clients to shy away from annuities when it comes time to getting serious about retirement planning.
Setting aside the possibility that this bias against annuities may have more to do with lack of education or a personal financial self-interest that lies elsewhere than a true dislike of annuities, one is left to wonder:
Why can’t annuities and traditional investing coexist?
Well, it turns out they can. And we believe they should.
Which makes “Breaking the 4% rule,” a white paper unveiled a few months ago by J.P Morgan Asset Management, so special.
Here are a few reasons why you may wish to take this paper very seriously:
It represents a break from the past – For many years, economic conditions and the mean age of Americans supported the 4% withdrawal approach to retirement planning. But with baby boomers heading for the exits en masse over the coming decade and economic confidence iffy, strategies must adapt.
Its focus on Decumulation, not Accumulation – The mindset required for successful nest egg building is fundamentally different than the one needed when it comes time to preserve and draw down the retirement funds acquired over a career.
It actually embraces annuities – Honest! Well, “embraces” may be a bit strong since you actually have to look for it. “Recognizes the importance of” may have been a better choice of words. But it is there and its inclusion speaks volumes.
We’re actually OK with the fact that the importance of annuities as part of one’s overall financial plan wasn’t placed front and center in this particular paper. It was, after all, produced by J.P. Morgan Asset Management (emphasis added).
“. . . retirees with little or no lifetime income have a greater risk of poorer outcomes later in retirement than retirees with higher levels of lifetime income.”
But the J.P Morgan Dynamic Retirement Income Withdrawal Strategy which serves as the cornerstone of their paper, specifically considers lifetime income as one of their five key factors in achieving optimum retirement success.
“Greater lifetime income, from sources such as Social Security, pensions and lifetime annuities allows retirees to increase both their withdrawal rates and equity allocations.”
While the paper is a good read, we’re guessing most of you are less interested in analyzing formulae better suited for the set of Good Will Hunting than you are hearing about the highlights.
“Wealthier retirees should be more conservative in their asset allocation, with larger fixed income allocations.”
So we took the liberty of interspersing some of our favorite passages between the paragraphs above even if some of the conclusions seem a bit obvious.
A baby step maybe.
But J.P. Morgan’s apparent acceptance of the important role lifetime annuities, along with Social Security and pensions, play in addressing the longevity risk everyone faces, could signal a changing attitude toward this proven retirement security blanket.
We hope so. Because we really think these doggone annuity things are the cat’s pajamas and deserve a place in everyone’s retirement strategy conversation.
(NOTE: The Finn Financial Group does not provide investment advice and is not affiliated with J.P. Morgan)
February 9, 2014 – I don’t remember when I actually heard my first Beatles song but I distinctly remember the anticipation leading up to their February 9, 1964 debut on “The Ed Sullivan Show.”
I was eight years old and hadn’t been this excited since the year before when I learned that cigar-smoking chimpanzees were going to be featured at the Canfield Fair.
This was at least ten times more exciting than even that!
It seemed everyone in my second grade class, and all my friends in the neighborhood, were asking the same question that first week of February, 1964. “Are you going to watch The Beatles on Ed Sullivan?”
It’s important to keep in mind that up until about a month or two before that first show, hardly anyone had even heard of The Beatles here in the States. Heck, it had only been a year since they recorded their first album. But their rise was swift and would gain momentum in front of our very eyes that evening. Yet incredible mystery surrounded their arrival to say the least.
My best friend Kenny knew a thing or two about music. His family owned a dance studio so the arts featured prominently in his young life and that of his brothers and sister who lived next door. My friends David and Jimmy knew music, too. They both played the organ. But so did Mr. Beil and the music they produced, while pleasant, never caused girls to scream or faint.
But what did I know about music? There were no instruments in our house and, up until then, the records that got the most play time on my portable record player were “The Ballad of Davy Crockett” and “Tie Me Kangaroo Down, Sport.” Those little, yellow 78 rpm babies if you can believe it.
But The Beatles were still as much a curiosity on that first visit as they were a cultural phenomenon. What would they look like? What would they sound like? Do they really wear wigs? Why do they spell beetles like that?
So the hour finally arrived and the family gathered in front of the Philco television console which had been left on during dinner to ensure it was sufficiently warmed up for the big event.
I knew they were going to go first. My dad and older brother scoffed at this idea assuring me that only a crazy person would open the show with the headline attraction. But they didn’t know Ed. When The Beatles were introduced a few minutes after 8 o’clock and launched straight into “All My Loving,” I felt a rare sense of vindication.
So here they were and we watched, mesmerized even if we all experienced the show differently.
My dad, who liked Frank Sinatra, Nat King Cole and Herb Albert and the Tijuana Brass, tolerated the performance. “Well whaddaya know. So that’s The Beatles,” he uttered sarcastically unable or unwilling to conceal his sense of bemusement.
My mom, partial to Louis Armstrong and Connie Francis, smiled and giggled the same way she did when Ed Sullivan interacted with Topo Gigio. But she admitted she liked them! Thought they were cute.
My brother Mike was emotionless, studying their every move. Now Mike knew music. He had Bob Dylan 45s and was always at the forefront of every musical trend. He even knew all The Beatles’ names before they were displayed on the TV set. He grew weary of me asking, “Who’s that?” every time there was a close up of each Beatle. But he knew the answer.
As for me, I was spellbound. But it was a cross between fascination and disbelief. I loved the sound, the excitement, the energy. But I couldn’t figure out that hair. Were they wearing wigs or weren’t they? I spent the entire show trying to reconcile this. George’s seemed especially curious.
It would be months, if not longer, before the world accepted they were not wearing wigs.
Males just didn’t wear their hair like that. Long hair was for girls. The Beatles hairstyles made about as much sense as if the wall would have started eating a bowl of Grape Nuts. Boys wore crew cuts, flat tops or Princetons (which I usually favored), not long hair.
But it all changed after that evening. The next day, I said good-bye to the Butch Wax and the Alberto VO5 and combed my hair straight down as soon as I got on the school bus. A girl in class even told me she liked my hair because it looked like The Beatles.
Over the next several years, these four peculiar looking young men from another country would go on to influence music and all popular culture in ways even they likely couldn’t have imagined.
And those of us who were alive that day were probably watching Ed Sullivan and probably have a shared experience we can all relate to.
And you know that can’t be bad.
(Yeah, yeah, yeah)
Posted: February 9, 2014 | by Dan Finn | Category: Blog | Comments Off
February 7, 2014 – You don’t have to look too hard to find stories about people who are worse off because they completely undervalued the concept of planning for the future.
People who choose today at the expense of tomorrow.
I’m talking about people who opt for a lump sum of cash instead of the periodic payment options available to them when they win the lottery, trigger their pension benefits or settle a personal injury claim.
For many, the allure of “having their money and having it now” is too powerful and they forfeit the overwhelming advantages that accompany guaranteed future income.
” . . . 70% of all people who suddenly receive large amounts of money will lose that money within a few years.”
Today, we have another one to add to our list of sources of lump sum misery courtesy of CNN/Money:
” . . . many borrowers have run into problems because they took their payment as a lump sum and spent the cash too freely.”
” Homeowners who choose the lump sum option could see their payouts reduced by 10% to 18% . . . “
” Monthly payments usually work out better anyway, especially for those who live longer.”
Although Fred Thompson, Henry Winkler, and a host of other well-known paid endorsers are convincing when touting the benefits of reverse mortgages, the article does a good job highlighting the risks that remain.
Especially with lump sums.
Our firm does not offer reverse mortgages so we will refrain from advising on them other than to say make sure you understand what you’re getting into if you or someone you know is considering one.
We will, however, go out on a very sturdy limb reinforced by mountains of evidence to suggest that anyone choosing a reverse mortgage will be better off if they choose the lifetime income option instead of a lump sum.
This Week We’re Celebrating:
What’s that you say? Didn’t know such a holiday existed?
Don’t feel too bad. According to Google (and every other source I could think to consult), it doesn’t.
That’s why I invented it last year.
Full Disclosure: I’m from a family of insurance professionals. Add up the claims service of my dad, brother, wife, step-daughter, a couple family godparents and myself, we have dedicated more than 150 years to the insurance industry.
Even if Hallmark never designs a new card to honor the occasion and I’m the only one who ever celebrates it, I plan to set aside this week for the remainder of my career to pay homage to the fine men and women who toil in the claims departments of America each and every day of the year.
And I’m making it a week because it deserves to be more than a measly day given all they have to deal with throughout the year. I know. I’ve been there.
Why do this? A couple of reasons:
They Make The World Go ‘Round
Take a moment to think about all the people, in addition to those for whom insurance coverage is provided, whose lives are enriched because of the work claims representatives perform:
- Contractors who repair physical damage,
- Doctors who treat those with physical injuries,
- Attorneys who represent clients involved in the settlement process,
- Shareholders, Mediators, Car Dealers, Manufacturers,
- Consultants, and Vendors of every stripe imaginable.
It’s impossible to quantify exactly how much economic activity is generated simply because claims professionals do their job. Suffice it to say that it’s probably . . . “a lot!“
The Job Requires Skill In Multiple Disciplines
A claims professional is the quintessential “Jack of All Trades.” At various times, they wear multiple hats which can make it hard to differentiate them from numerous other professionals such as:
Banker – Counselor – Pastor – Lawyer – Appraiser – Mathematician – Researcher – Investigator – Mediator – Politician – Time Management Specialist – Physicist -Philosopher – Educator – Statistician – Communications Expert – Interpreter – Etc.
Claims departments frequently draw from a talent pool which contains people from a wide variety of interests and college majors which results in a broad background of experience.
In fact, many smart plaintiff law firms and other businesses often hire ex-claims professionals because they value their skills and training so highly.
It’s a Noble Profession That Helps People
Claims professionals serve as the conduit between a suffered loss and recovery.
Unfortunately, money is the only medium available that can help restore an individual to their pre-accident condition following a covered loss. And quantifying intangible damages is an impossible task at best. Consider:
- What value can you really ever put on the life of a child who’s been killed?
- How can money replace the memories of a home destroyed by fire?
These are among the many challenges claims professionals confront each and every day. And they do so in spite of the fact that they often garner about as much as respect as an offensive right guard on a football team for their efforts.
Theirs is NOT an easy job by any stretch of the imagination.
But ask any person who’s ever been aided by a Catastrophe Duty Claims Professional how appreciative they were when the insurance representative showed up, check in hand, to help appraise and pay for their loss.
Ask anyone’s who has ever accepted a structured settlement when settling a physical injury claim how glad they were to receive guaranteed future income that is 100% income tax-free.
There are countless other examples of appreciation people feel each and every day for claims service even if it’s very rarely expressed as often as it should be.
So here’s to you, Claims Professionals. This week we pause to salute you by saying simply
for doing what you do.
We hope you are as proud of your contribution to society as we are of the the service you provide that helps so many.
Best wishes to all of you for continued success in your careers and your life!
January 21, 2014 – We’re used to reading about Warren Buffett’s sensible, folksy investing philosophy that has made him one of the world’s all-time most successful – and richest – financiers.
And we’re not talking about the few dollars or bragging rights most of us risk when we fill out our NCAA “March Madness” Basketball Tournament brackets. That wouldn’t make the news.
What did make the news today is the fact that Mr. Buffett’s company is backing the Quicken Loans Billion Dollar prize to anyone submitting a flawless bracket.
Lump Sum or Annual Payments?
Let’s imagine for a moment you submit a bracket and beat the approximate 1-in-9.2 quintillion (or, 1 billion times 9.2 billion) odds and actually pick all winners.
You now have a choice between:
A) $500 million cash lump sum present value of $1 billion; or,
B) $25 million a year guaranteed for 40 years?
Which would you choose?
On a weekly basis, our firm comes in contact with people facing the same choice when deciding how to accept their personal injury settlement proceeds.
Although the dollars involved have far fewer zeroes than the billion being discussed here, the choice is similar and the questions they ask themselves are the same:
Do I want/need all this cash up front?
Or will guaranteed future payments make me happier?
If I choose cash, do I possess the financial and emotional acumen to make smart choices going forward?
Structured settlements have been helping secure peoples’ futures for more than 30 years. Offering safety, peace of mind and a decided tax advantage not available to the general public, those who are offered a structured settlement should think long and hard before choosing all cash instead.
Stories abound about “lottery millionaires” choosing a lump sum of cash over the security of guaranteed future payments only to end up broke in a very short period of time. In fact, we just wrote about The Real Gamble a few days ago.
So unless your name also happens to be Buffett, we’d strongly urge you to choose the annual payments if you win this particular prize.
And while we don’t know what kind of premium Berkshire Hathaway is charging Quicken Loans to reinsure this contest, it could be a sucker’s bet of epic proportions given its low probability of every paying off.
Regardless, whatever amount of money Mr. Buffett receives for exposing less than 1% of his personal net worth (99% of which he’s pledged to give to charity anyway), we have a hunch he’ll do just fine either way.
Our money’s on Buffett just the same.
January 16, 2014 – There’s no shortage of stories about people blowing large sums of money in a short period of time with little or nothing to show for it.
Professional athletes. Rock stars. Movie stars. Everyday people.
While the high profile celebrity-types (who people generally don’t feel sorry for) are the ones who usually make the papers, sometimes it takes an extreme case with criminal implications to illustrate the underlying risks that accompany windfall sums of money.
And when the person is poor and disabled, we get angry.
Take the story of Malcolm Ramsey, a mentally incompetent St. Petersburg, Florida man living in an assisted living facility on government aid. Winner of a $500 per week for life lottery prize, Ramsey chose the lump sum over the cash flow and managed to spend $170,000 – more than half of his after-tax net – within a few weeks.
This story did make the paper because so many unconscionable circumstances surround it. Special thanks to my friend, colleague and lottery winnings expert Don McNay for calling my attention to this sad story.
But many less sad stories that don’t make the papers still involve the same ugly truths about windfall sums of money highlighted by this article:
“Friends” and relatives always seem to show up with their hands out
With so many consumer goods available for purchase, it’s virtually impossible to spend any amount of money too fast
There’s no substitute for professional guidance from someone who understands the problems windfall sums of money can cause
Several times a week, I am involved in situations where people have a choice between receiving a large sum of cash or guaranteed future cash flows tailored to their individual needs.
So many times they choose cash.
While there are seemingly many good reasons to choose cash, statistics from the National Endowment for Financial Education remind us:
“It is estimated that 70% of all people who suddenly receive large amounts of money will lose that money within a few years.”
Lottery winners who chose $500 a week for life over cash can’t either.
Given Malcolm Ramsey’s legal capacity issues, it’s hard to lay any fault at his feet.
But hopefully everyone else sees the irony in this story: Windfall cash is the real gamble.
Posted: January 16, 2014 | by Dan Finn | Category: Blog | Comments Off
January 8, 2014 – Most people who accept structured settlements when settling their personal, physical injury claims are not repeat customers.
After all, most people never file significant injury claims in the first place let alone doing so on multiple occasions.
And since our involvement with a client typically ends once a policy is issued (we don’t go around stalking them after the fact to try to undo their contract), we rarely ever even hear from those we’ve helped along the way.
But on a semi-regular basis we do receive calls from people who have misplaced their policies or have moved and simply need to alert the life company of their new address.
Today was one of those days.
She had previously settled with the at-fault party for cash and was getting ready to settle her under-insured motorists claim with her own carrier.
Gena’s mom told her she had received enough money from the first settlement and didn’t need any more money at her age so was thrilled when the claims representative offered her daughter a structured settlement.
Court approval was not required since Gena was already 18 but the mom thought it was a good idea anyway.
I took this opportunity to ask Gena how she felt, all these years later, about structuring her settlement.
Almost as if scripted by the National Structured Settlements Trade Association (which it wasn’t), Gena showed no hesitation in telling me how glad she was that her mom “encouraged” her to structure her settlement.
She proudly told me how she had used the structured settlement proceeds to help pay off her college loans and now, at age 32, was going to use some of her money to help furnish a house she had recently purchased.
“I was very irresponsible at that age. 18-year olds don’t need that kind of money. I would have just spent it all anyway on vacations or whatever. I was much better off waiting.”
That settlement occurred half my career ago and hearing this personal account of a structured settlement having such a positive impact on a young person’s life reinforced why I am so proud of what I do for a living.
And for all those insurance carriers and claims representatives who ever doubted the ancillary benefits of offering structured settlements, it turns out Gena had such a favorable impression of her mom’s auto insurer that she now chooses to insure her own car with the same company.
Tough to beat that kind of PR.
Although most of the industry statistics about people spending their money too rapidly as a reason for structuring are only anecdotal, calls like today’s only make such claims easier to believe.
For the record, I have yet to have anyone ever call me to say they regretted structuring their settlement.
So maybe the commercial got it wrong. Maybe not everybody wants their money and wants it now.
Waiting seemed to work out just fine for Gena.
January 7, 2014 – Some seemingly sensible retirement planning ideas just don’t hold water when scrutinized.
Take Jane Bryant Quinn’s article, “Don’t Be Too Cautious,” appearing in this month’s AARP Bulletin for instance.
While the underlying premise of her article – allocating one’s retirement funds into a series of “buckets” designed to maximize retirement cash flow while protecting against loss – is well-intentioned, it leaves the reader with a false sense of the very security retirement is supposed to provide in the first place.
The web version of the article even carries the unfortunate and misleading headline “Securing Income for Life.”
In other words, her bucket has a hole in it.
Stocks and Risk
While stocks historically increase the value of one’s portfolio over long periods of time, they cannot be relied upon to deliver certainty, especially when it comes to timing their conversion to cash flow.
One of the more irresponsible passages surfaces in paragraph eight:
“By the time your bond bucket runs low, your bucket of stocks will have grown in value, maybe by a lot.”
Maybe your bucket of stocks will contain shares of companies managed by the same guys who ran Enron into the ground.
Maybe you won’t mind eating at soup kitchens or moving in with your kids if your stock bucket leaks.
Besides, how does Ms. Quinn know what stocks will or won’t do? Or when?
The article is filled with similar assumptions that stocks “will” increase at just the right time and this recommended bucket approach “could” make your retirement “potentially” greener “if” certain things come to pass.
But words like could, potentially and if are not synonyms for security.
Ms. Quinn knows this and should have done the 50-plus crowd a better service by apprising them of the inherent risks of her strategy.
Sure, it might work out but who wants to take chances with money they can ill afford to lose?
Just add a fourth bucket
Perhaps if she simply added a fourth bucket to the mix, one for annuities, she could legitimately classify this as a true “Securing Income for Life” strategy.
After all, outside of pensions and Social Security, life annuities are the only way to guarantee you will never run out of money.
Even the wisdom of the long-touted 4% draw down strategy she hangs her hat on throughout the article is being called into question as this Wall Street Journal article, “Say Goodbye to the 4% rule,” from last March illustrates.
We don’t disagree that Ms. Quinn’s suggestion has some potential.
We aren’t against incorporating stocks into one’s overall retirement strategy.
We just firmly believe that annuities have earned the right to be included in ANY conversation about assuring lifetime security in retirement and were disappointed such a respected author would omit them from an article in a periodical wielding such powerful influence.
January 6, 2014 – Structured settlements were created to specifically help address the long term financial needs of those settling personal, physical injury claims.
Because injury settlement proceeds represent neither savings nor investment dollars, comparing their returns to other “investments” can be a dangerous method of evaluating their imporatance to someone who can’t risk losing money.
This helps explain why structured settlements have remained an extremely popular cash settlement alternative for decades even though rates fluctuate.
After all, what’s not to like about something that is:
100% income tax-free (principal and interest);
tailored to one’s unique set of circumstances;
safe, secure and guaranteed by highly rated companies?
Yet, even though they are not investments per se, like the kids in the AT&T commercial who intuitively understand that “more is better,” everybody prefers higher payouts to lower ones, everything else being equal.
For this reason, we’re happy to report that a recent financial barrier was eclipsed as America was gearing up to change calendars in late December.
The 10-years Treasury closed above the psychologically important 3.0% threshold for the first time in more than two-and-a-half years.
While investors don’t cheer when bond rates rise, those looking for long-term financial security do.
What’s this got to do with structured settlements?
As one of our life company partners communicated on Friday:
“Higher rates will make our structured settlement products even more attractive as we begin the new year.”
So if you’ve been on the sidelines for the past few years assuming that “structured settlement rates are too low,” make this the year you resolve to jump back in.
Whether you are a claims representative or plaintiff attorney negotiating an injury settlement, DON’T ASSUME rates are “too low” for you to consider.
Incorporating a structured settlement into an overall claim resolution is a proven strategy that can add much value to the settlement process and much security to the injured person.
Best wishes for a healthful and prosperous 2014!