Center for Retirement Research at Boston College

Among the growing body of academic research focusing on retirement vulnerability, a Special Project of the Center for Retirement Research at Boston College provides additional insights into one of the challenges facing all of us who worry about living comfortably during retirement.

Running out of money.

This project, called the National Retirement Risk Index (NRRI) measures the share of retirees “at risk” of being unable to maintain their pre-retirement standard of living during their golden years.

In its October, 2010 Fact Sheet entitled The NRRI and Annuities, the project compares and analyzes three common strategies for converting one’s nest egg into cash flows necessary to live comfortably during retirement:

The Annuitization Approach:  Use life savings to buy an annuity which guarantees income for life

The 4% Draw Down Approach:  Invest life savings, earn interest or dividends and “draw down” 4% of the balance each year until gone

The Interest Approach:  Live off whatever interest one’s life savings can generate

The good news is that all three options still leave most people in fairly decent shape.

But by not annuitizing, some retirees increase their risk of running out of money by as much as 36% over some of the other approaches.

IRONY:  Those in the highest income brackets are at significantly greater risk of having to cut back during retirement than their lower income counterparts by not annuitizing.

In reality, a combination of all three of these strategies makes a lot of sense for most people.

But anyone who fails to consider annuitizing at least some of their nest egg is not paying enough attention to the new three r’s.

And we all remember what happened to kids in school who didn’t pay attention to the original three r’s.

Life/Health Industry Admitted Assets Increased 7.1% in 2010

Admitted assets for the top 200 writers of life/health insurance increased approximately $404 billion during 2010 according the most recent edition of Best’s Review.

Structured Settlement Markets Shine

Eight of the twelve life markets active in the structured settlement industry saw their admitted assets increase an average of 10%, more than 40% better than their industry peers.

BONUS Statistic:  Combined, these twelve life markets, with admitted assets in excess of $1.9 trillion, constitute approximately  36% of ALL the admitted assets for the entire U. S. life/health industry.

Safety, Security and Lots of Money

These data reassure clients who choose structured settlements that their faith in this alternative-to-cash is well founded.  Likewise, attorneys who structure their fees can also feel secure in knowing their hard-earned fees are backed by companies with lots of commas on the asset side of their ledgers.

Congratulations to our structured settlement life industry partners for serving as a beacon of hope amid a sea of financial gloom during this post-Great Recession period.  (Rankings in parentheses)

MetLife (1), Prudential (2), John Hancock/Manulife (3), American General/SunAmerica (4), New York Life (7), Pacific Life (15), Allstate (21), Symetra (38), Mutual of Omaha (43), USAA Life (48), Liberty Life Assurance Company of Boston (56) and Berkshire Hathaway (63)

We wish all these excellent life markets continued “struccess” and look forward to continuing to partner with them as we help our clients secure their financial futures.

The Annuity Puzzle

Why does human nature permit an individual to choose Option A over Option B even when overwhelming evidence assures even the most casual observer that Option B is the superior choice?

Ever chosen unwisely when dating?  Marrying?  Buying a car, a house or a stock?  Ever fail to follow a doctor’s advice?  Ever skip taking vitamins you know are good for you?

As a follow-up to our last newsletter, A Paycheck for Life, which focused on the value of income annuities as part of an overall retirement plan, the New York Times recently featured an article that delved even deeper into this particular quandary.

Entitled The Annuity Puzzle, the article contrasts the retirement choices of two twin retirees with identical net worth.

One retiree has a pension that provides lifetime monthly income.  He is very happy with his situation and has the peace of mind knowing he can never outlive his money.

The other retiree, whose money accumulated in a 401(k) over the years, could easily buy the same happiness and peace of mind by purchasing an annuity to meet his lifetime income needs.  But he balks.  As a result, he is less happy and has less peace of mind than his sibling.

Hence the article’s title, The Annuity Puzzle.

Much the same way people refuse to take vitamins even when they admit to their many benefits, fewer people buy annuities than could benefit from them.

This particular theme is one we continue to study and feel similar perplexity over.  In October of 2009, we wrote about the value of life annuities in our newsletter/blog entitled Live Longer – Buy Annuities which features an interesting mix of scholarly research and coincidental statistics leading readers to the conclusion that annuities are good for you.

In fact, the more we study the always-emerging academic research on this topic, the more we become convinced that the happiest retirees are going to be those who can sleep well at night knowing they’ve secured their future with life annuities.

So take your financial vitamins!  You’ll sleep better at night and, if statistics are accurate, you’ll live longer as a result.

Recalled DePuy Hip Problem Growing in Ireland

Two recent articles further illustrate the far-reaching nature of the DePuy Hip Recall. 

The Irish Independent recently featured an article which claims 113 Irish patients have already endured two hip surgeries due to the faulty hips while as many as 3,500 might be next in line to suffer.

Further north, the Belfast Telegraph adds another 200 patients to the potential problem list with a partial article which promises a first person account of the suffering.

Worldwide, it is estimated that over 93,000 patients are potentially affected by the recall.   Johnson & Johnson, DePuy’s parent company, has tentatively set aside nearly one billion dollars to handle the lawsuits stemming from the defective device.

Our firm continues to monitor this matter with great personal interest.

GAO Report Emphasizes Annuities as a Smart Choice for Retirement Security

Last month, the United States Government Accountability Office (GAO), in its Report to the Chairman, Special Committee on Aging, U. S. Senate, made an extremely strong case for annuities in retirement planning.

Entitled Retirement Income: Ensuring Income throughout Retirement Requires Difficult Choices, this report was prepared in response to a Request for Information (RFI) published jointly by the Department of Treasury and Department of Labor early last year (75 FR 5253) as part of the government’s broad effort to promote retirement security.

The report could not have been more straightforward about its findings.  The opening sentence bluntly states:

“Financial experts GAO interviewed typically recommended that retirees systematically draw down their savings and convert a portion of their savings into an income annuity to cover necessary expenses, or opt for the annuity provided by an employer-sponsored DB pension instead of a lump sum withdrawal.” 

The authors go on to provide compelling evidence that income annuities help retirees avoid the following risks everyone faces when they retire:

• Risk of underperforming assets
• Risk of outliving one’s assets (Longevity risk)
• Risk of inflation diminishing one’s purchasing power (when an inflation-adjusted annuity is purchased)

Not surprisingly, the American Council of Life Insurers (ACLI) welcomed the findings and agreed with the conclusions.

                “This report demonstrates that for many people, annuities represent more than a choice – they are a necessity.”

Dirk Kempthorne,
President & CEO
American Council of Life Insurers

Annuity vs. “Draw Down” Strategy

Financial planners frequently recommend a “draw down” strategy for meeting one’s financial needs during retirement.

This strategy requires a retiree to allocate assets across various investments designed to earn a certain rate of return and then systematically withdraw enough each year to live on in hopes that rates of return, financial needs, portfolio balance and life expectancy will all align properly to ensure the retiree has enough money until death.

In effect, they self-insure their longevity risk.

This recommendation often makes a great deal of sense and can be part of an effective strategy but it requires some guesswork, particularly as it pertains to life expectancy.

The risk of living too long (and ending up broke) is very real given everyone’s increasing life expectancy, also referenced in the study.

In one of the most overlooked explanations on the case for life annuities, the study’s authors conclude, ” . . . it is more efficient to pool the risk of outliving one’s assets than to self-insure . . .”

That’s what insurance is.  That’s what annuities do.

A lot of people buying a lot of annuities ensures that those who do live “too long” will have the money they need when they need it.

Essentially it guarantees them a “paycheck for life.”

July 2, 2011 – While the legal system in the United States and many other countries permit patients to sue for damages caused by alleged defective medical devices, those in New Zealand are limited due to that country’s “no fault” system.

Today’s New Zealand Herald carries a story about the dilemma this presents for patients who received the recently recalled DePuy ASR artificial hip. 

Ten years ago, New Zealand established the Accident Compensation Corporation (ACC), a “no fault” system of insurance coverage funded by a combination of payroll and employee levies, gas and vehicle licensing fees and government assistance. 

Patients experiencing problems with their DePuy ASR surgeries are being told they cannot clear the ACC threshold sufficient to receive compensation for general damages, commonly called “pain and suffering.”

The outcome of this worldwide recall, and its impact on patients globally, is being watched by our firm very closely.

June 25, 2011 – In the Health section of today’s edition of the New York Times, columnist Barry Meier points out that Americans’ “impulse to covet the new and improved” may be at the root of the DePuy Hip Recall.  (“In Medicine, New Isn’t Always Improved”)

While stopping far short of blaming the patients themselves for problems caused by DePuy metal-on-metal artificial hips, the article examines how medical improvements can be marketed as a panacea when data suggest their application should be limited to a certain class of patients.

Further, in this rush to have the “latest and greatest” technology, earlier studies questioning the effectiveness, and pointing out risks, are often ignored.

Readers will likely be shocked to learn that the Food and Drug Administration did NOT require clinical trials for most metal-on-metal hip implant devices.  The DePuy hip recall, however, has prompted changes within the FDA on this and other issues.

The surgeon I chose to perform my bilateral hip replacement surgery in 2010, Dr. Lawrence Dorr, is credited in the article for first calling public attention to the problem when some of his patients began to complain and required replacement operations.

Since the DePuy Hip Recall was initiated about nine months before my surgery in 2010, I feel fortunate at this point to have dodged a major catastrophic bullet in my own life.

The DePuy ASR Hip Recall continues to be a very serious matter in which our firm has a very personal interest.  We will persist in monitoring developments in this matter closely.

Just a brief alert to make sure everyone sets their DVRs to HBO this coming Monday, June 27 for the premiere of:

Hot Coffee is the award winning, critically acclaimed documentary that tells the inside story of Stella Liebeck, the woman who unfairly became a national symbol of legal system frivolity when she was awarded $2.9 million stemming from a lawsuit against McDonald’s for injuries she sustained when scalding coffee spilled in her lap.

Few realize that all but $130,000 of Ms. Liebeck’s award was for punitive damages and can’t comprehend the rationale behind such a verdict.  This film helps put this topic, plus so much more, in perspective for the viewer.

A selection of the 2011 Sundance Film Festival and other prestigious venues, Hot Coffee tells the stories, from the perspective many have never considered, of four ordinary Americans “fighting for justice in a system stacked against them.”

Please drop me a line after watching this film to let me know what you think.  I’ll be curious to know if it changes anyone’s opinion about our justice system and the need for tort reform.

A Career of Endorsing Structured Settlements

“For the almost 40 years I’ve been practicing,
structured settlements have played an integral role
in the positive outcome of many cases I have settled.”
– William T. “Bill” Robinson III, Esq. –

Last month, members of the National Structured Settlements Trade Association were treated to a keynote address from the incoming president of the American Bar Association, William T. “Bill” Robinson III at its annual meeting in La Jolla, California.

Mr. Robinson has been included among the “Best Lawyers in America” every year since 1997 and is a founding board member of the Appellate Judges Education Institute.

During his lunchtime speech, Mr. Robinson expressed his strong support for structured settlements as a negotiation tool and as a benefit that adds “real and lasting value” for plaintiffs.

He went on to share the story of a client he represented that settled a medical negligence case via a structured settlement. His client, a young woman who was dying of cancer as a result of the misreading of a tissue slide, settled with a structure designed to provide for her two young sons after her passing. “She settled with peace of mind. She died satisfied she had done the best for her boys.”

Mr. Robinson also praised the professionalism of the structured settlement industry and extolled the value of interjecting the topic early in the settlement process.

In addition to his strong support for structured settlements, he also explained the problems confronting our justice system as a result of, among other things, the delays in the judicial appointment process.

The legal community is privileged to have a leader of Bill Robinson’s experience and passion serving as the ABA’s next president. The structured settlement industry is proud to know this esteemed body has chosen such a strong advocate of structured settlements to lead it.

Best wishes for continued Struccess!

Seems people have a penchant for going “Back to the Future.”

“Old” ideas get a fresh coat of paint and are recycled for the next generation who embrace them as their own.

Just think of all the successful TV shows that focus on a particular historical period in time but are produced a decade or more after the actual era:

• The Roy Rogers Show
• The Untouchables
• Happy Days
• That 70’s Show
• Mad Men

Whether drawn by nostalgia or simply a re-evaluation of something that once was taken for granted, our gravitation toward these and similar shows teaches us much about our values.

Not unlike the the young worker in post-Great Recession America when it comes to retirement security as it turns out.

According to Charles Wallace, writing for Daily Finance in his article “Why Young Workers Want a Good Old-Fashioned Pension,” a recent Towers Watson survey revealed that young workers value certainty more than was previously believed.

” . . . the percentage of young workers who cited their pension
plan as a reason for staying with their current employer
jumped from 28% two years ago to 43% now.”

Charles Wallace,
Daily Finance

Pensions, once a staple in corporate America that lured so many young people to a particular employer were shunned in recent years as employees sought self-directed riches in the pension-replacement retirement vehicle, the 401(k), which came to dominate the employer retirement landscape.

But the statistics on defined contribution plans like 401(k)s reveal that they have been an overall poor substitute for pensions. The average 401(k) balance is only about $60,000 according to the Center for Economic Policy and Research.

In addition, according to the Employee Benefit Research Institute (EBRI), the share of employees in a traditional defined benefit pension plan has fallen from 62% in 1979 to just 7% in 2009.

The Towers Watson survey suggests this trend may have bottomed out and may soon be on the rise again.

The world seems to have become far less certain these past few years. It’s little wonder then that people are again longing for some good old-fashioned security.

Speaking of which, we can help!

In addition to our core business of providing structured settlement products and services to a broad spectrum of clients across the country, our firm regularly assists clients looking for other types of highly secure, guaranteed cash flows. We can help you with:

• 401(k) and IRA conversions to annuities:
• “Pensionizing” your nest egg;
• Structuring Attorney Fees;
• Structuring Sales of Appreciated Assets;
• Structuring Realtor and Business Broker Commissions;
• Annuitizing Savings;
• Structuring Celebrity Endorsements

For additional information on all we offer relative to retirement security beyond structured settlements, please check out some of our archived blogs and newsletters on these topics.

Wishing you continued success, thank you for the opportunity to be of service. Please call anytime we can help.