The Illogic of Annuity Trashers

The Illogic of Annuity Trashers

April 29, 2019 – Articles, commercials and opinions of those who trash annuities shouldn’t bother me as much they do.

But seeing the general public constantly bombarded with misleading information on the issue, I can’t help wondering how many people are swayed by them to their detriment.

And feeling angry about the disingenuous and self-serving prejudice.

People aren’t always conscious of it, but they often base their financial decisions on emotion rather than logic. Fearmongers who play to this behavioral science truism can sway the odds in their favor when it comes to issuing financial advice.

And the slant is very transparent when you take the time to logically dissect their rationale for advising against annuities.

For instance, allow me to pick apart some of the more obvious biases in “Why annuities are a bad idea for almost everyone” from the August 18 issue of MarketWatch (free subscription may be required):

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Ignore Medicare in Liability Settlements at Your Own Peril

April 5, 2019 – Since its passage in 1980, the Medicare Secondary Payer Act has been largely ignored by the personal injury litigation community. But like the person who continues to drive under the influence of alcohol rationalizing they’ve never been caught, it’s unwise to continue depending on luck to avoid adverse consequences of failure to comply with the law.

A Maryland law firm recently learned a valuable (and expensive) lesson on the imprudence of failure to consider Medicare’s interests when settling personal injury lawsuits.

According to a press release issued by the United States Department of Justice, District of Maryland, Meyers, Rodbell & Rosenbaum, P.A. entered into a $250,000 settlement with the government because they “failed to reimburse the United States for certain Medicare payments made to medical providers on behalf of a firm client.”

This announcement serves as a reminder to ALL law firms, plaintiff and defense alike, of the importance of taking Medicare’s interests into account when resolving lawsuits.

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Life Company Videos

 

April 2, 2019 – To help spread the good word about structured settlements, several of our life company partners have recently unveiled some professional videos designed to help clients better understand this dynamic claims resolution tool.

In no particular order, here are links to some of these videos designed to enlighten you:

About Structured Settlements – From Prudential Structured Settlements, this is a general information video focusing on the financial security that comes with structuring one’s settlement and describes how they work.

What Are the Rules & Requirements for a Non-Qualified Assignment? – From MetLife, this video features MetLife Structured Settlement Leadership describing the unique features of this product used for taxable settlements, and the requirements needed to implement them.

Why Do I Need a Structured Settlement? – From Pacific Life, this one’s been out for a little longer but worth re-sharing since it emphasizes the importance of making the right decision when one’s personal injury claim concludes.

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Financial Strength of Structured Settlement Markets

November 1, 2018 – The 2018 edition of “Understanding the Insurance Industry,” a supplement to the November issue of Best Review, identifies the Top 10 U.S. Life/Health Companies ranked by 2017 Capital and Surplus, along with other rankings.

Best Review is a publication of the A.M. Best Company, “the only global credit rating agency with a unique focus on the insurance industry.”

Five of the nine life companies we’re proud to represent and offering structured settlements either directly or through their affiliates, are included in this ranking and are listed below by rank and capital surplus statistics:

3rd – New York Life – $20,356,950,000

4th – Metropolitan Life & Affiliated Companies – $18,715,087,000

5th – Prudential of America Group – $18,007,199,000

7th – AIG Life & Retirement Group – $12,148,776,000

10th – Pacific Life Group – $9,312,882,000

Capital and Surplus equals a company’s assets minus its liabilities.

The life insurance industry is generally one of the most solvent of all industries due in large part to the actuarial predictability of outcomes of life insurance contracts. By insuring large numbers of people, incorrect mortality assumptions are more easily offset by those risks which exceed mortality expectations allowing the company to operate profitably while meeting its financial responsibilities to policyholders.

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Fixed Indexed Annuities On Fire

September 24, 2018 – If you still believe that guy on the radio castigating you to hate annuities, it might be worth seeing what the top industry research association’s statistics reveal about 2018 YTD fixed indexed annuities (FIAs).

Hint: They’re HOT!

Through the first half of 2018, $32.1 billion worth of fixed indexed annuity purchases were made according to LIMRA Secure Retirement Institute. That’s up 14 percent from 2017 and its $17.6 for the quarter is an alltime high.

Compared to the $30 trillion market capitalization of the U.S. stock market, this is a drop in the bucket. But for an idea hatched just 23 years ago, fixed indexed annuities are making some important strides as people seek a reasonable blend of security and return for their money.

Besides, unlike the stock market, FIAs never lose money.

Fixed indexed annuities offer investors a simple proposition: In exchange for money today, you receive two promises:

You will never lose money; and,

You will receive guaranteed future income FOR LIFE, the value of which will be determined by the investment experience of the selected index and the timing of your withdrawal.

Admittedly, the nuances of the various life market offerings and index choices can be daunting. But millions of individuals have benefited from the peace of mind that comes with guaranteed lifetime income without fear of market downturns.

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The Sultan of Annuities

September 17, 2018 – The Los Angeles Angels have been officially eliminated from the 2018 postseason.

Drat!

The year started with such promise, too. Not only do we have a perennial MVP candidate in Mike Trout, but this year brought some new excitement when the Angels signed Japanese phenom Shohei Ohtani, a young player who is making comparisons to Babe Ruth for his ability to hit AND pitch at the highest possible level in professional baseball – a feat nobody has been able to successfully accomplish in over 100 years.

George Herman “Babe” Ruth – the Sultan of Swat – was a larger-than-life celebrity who, during his era, had no equal in terms of popularity. Idolized by kids, frustrated by opposing teams, he lived life to the fullest known almost as much for his excess on the party circuit as he was for his prowess on the baseball diamond.

Despite this tendency toward extravagance, however, Babe was not a big risk taker when it came to money. Early in his career, he was introduced to the concept of annuities by a player on an opposing team and he was an immediate convert to the concept.

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Harvesting the Bull

August 23, 2018 – As the current stock market is busy toasting itself for the longest bull run in history, at least one chief investment officer is keeping his bubbly on ice while cautioning investors about a market he believes is on a “collision course with disaster.”

Guggenheim chief investment officer Scott Minerd sounded two dire warnings over the past four months:

April 4, 2018 – “Guggenheim investment chief sees a recession and a 40% plunge in stocks ahead.”

August 15, 2018 – “‘If there were ever a moment to harvest gains . . . it is August 2018,’ warns Guggenheim’s Minerd.”

Many of us not-so-fondly remember the last 40% drop in the stock market way back in 2009. Minerd wonders aloud if investors have become lulled into a false sense of complacency since then.

Recession? 40% plunge? Who’s got the stomach for that again?

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Dewayne Johnson v. Monsanto Company Tax Surprise

August 13, 2018 – The “Tax Cuts and Jobs Act” presumably did not factor into a San Francisco jury’s decision last week to award Dewayne Johnson $289.2 million in his lawsuit against Monsanto Company, et al. His case is potentially affected by it nonetheless.

In addition to $39.2 million in compensatory damages awarded to the former Benicia Unified School District groundskeeper who claimed years of exposure to the herbicide Roundup caused him to develop non-Hodgkin lymphoma, the jury tagged on $250 million in punitive damages against defendant Monsanto for failing to warn users about the dangers of their popular product.

With more than 4,000 people waiting in the wings to have their similarly-styled lawsuits heard, the implications of this verdict are far reaching. Even though an appeal is anticipated, the significance of this bellwether case cannot be understated.

Let’s assume for an unlikely moment the verdict is not appealed and no post-verdict settlement discussions occur. Despite the best intentions of the jury to properly compensate Mr. Johnson for his suffering and punish Monsanto for its maliciousness, the ultimate beneficiary of this outcome is, strangely enough, the U.S. taxpayers thanks to Congress’ recently passed legislation.

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Dear Congress: This is Wrong!

August 6, 2018 – When the Tax Cuts and Jobs Act, as it’s known, went into effect earlier this year, many hailed the legislation for simplifying things and saving the average taxpayer money.

Others protested the legislation disproportionately benefits the ultra-wealthy who didn’t need and weren’t asking to have their taxes reduced.

Whichever side of the debate you happen to fall on, one category of taxpayers stands out as being most unfairly and adversely impacted by this legislation:

People who hire legal counsel for nonphysical injury claims.

That’s because, whether intentional or inadvertent, Congress failed to consider one disastrous consequence of the new law:

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A Cure for the CD Blues

May 2, 2018 – Stored lovingly in the back of a closet in my house rests a box filled with vinyl record albums of (mostly) rock ‘n’ roll artists whose music I listened to growing up.

From The Allman Brothers Band to The Zombies, these Long Player, or LP, discs, once turntable-revolving staples of my high school, college and early professional career existence, now lie dormant, an undignified, coffined homage to my younger self.

Compact discs, or CDs, offering digitally enhanced sound, emerged in the 1980s and became the preferred medium for most of the music-listening public for several decades, easily outlasting 8-track tapes which had a brief run.

Now that streaming services have emerged, threatening to relegate CDs to the same passé status as the LPs they themselves supplanted a generation earlier, I am reluctantly making room in the closet for my CD collection even if I have yet to publish its obituary.

Non-Musical CDs

Certificates of Deposit (aka CDs – no relation to compact discs), offer investors a haven for funds they can afford to set aside for a period of time. Generally available at any FDIC-insured bank, they usually pay interest which is around 25 to 50 percent better than what’s available in a typical savings account, depending on the term.

Today’s available 3-year CD Rate = 2.80%

Individuals seeking the highest possible return with the lowest possible risk often choose CDs when they want to “live off the interest” and preserve their capital.

Even multi-million dollar trusts often have a CD component for the security portion of the assets under management.

What’s Better Than a CD?

No, not two CDs. Multi-Year Guaranteed Annuities. If you invest in CDs and never heard of MYGAs, you’ll want to learn about them. Especially if you are within a few years of or are already in retirement.

Today’s available 5-Year MYGA Rate = 3.80%

Multi-Year Guaranteed Annuities (MYGAs) work just like longer term CDs except you’re dealing with an insurance product (regulated by the state) instead of a bank offering (regulated by the Federal Government). You simply purchase a single premium fixed deferred annuity which guarantees a fixed rate of return through the maturity date.

The best part of MYGAs is that they pay roughly 33% more (5-year MYGAs) than bank CDs (which, remember, are already 25% to 50% better than savings rates).

Bonus MYGA Advantage: Whereas CD owners receive 1099-INTs each year for interest earned (unless held within a qualified retirement account), MYGA owners can roll funds over into the next year until maturity at which point all accumulated interest not previously withdrawn (along with original principal) becomes due and payable. Optionally, contracts can then automatically renew at prevailing rates or be rolled into another MYGA.

As with CDs, you forfeit some flexibility with MYGAs in exchange for the enhanced returns (penalties for early withdrawal are the same for both CDs and MYGAs) but by staggering maturity dates, some of the opportunity cost can be mitigated.

If your desire is to stash away some cash for a few years and get the best possible return with the least possible risk, MYGAs may be right for you.

Your ability to purchase a MYGA depends upon the source of your funds since different tax rules apply and not all funds will be eligible. Other factors to consider include age, suitability, minimum deposit requirements and risk tolerance but they’re certainly worth inquiring about if safety and principal protection are key objectives.

Just Put Those Old CDs On the Shelf

Whether funded using personal injury settlement proceeds or your retirement savings, MYGAs are an excellent choice for money that you can’t risk losing and won’t need until age 59½ or later. Often paying nearly a full percentage point more interest than CDs, it’s an easy choice for the CD-oriented crowd.

Within the broad range of structured settlement and retirement income options, Multi-Year Guaranteed Annuities can play a significant role as part of one’s overall financial plan for anyone desiring to safely set aside funds with specific target maturity dates of 3 to 10 years.

Now, if you’ll excuse me, I need to end this post because I feel this sudden urge to “. . . reminisce about the days of old with that old-time rock ‘n’ roll.”

(Even if I have to stream the music)

One final word of caution: DO NOT listen to those self-interested financial planners who say they hate annuities. Pull back the curtain to understand their feigned cynicism by reading one of my earlier blog posts: Great News for Annuities. You can thank me later when you didn’t lose any money.

CD photo courtesy of Giovanni Sades at FreeDigitalPhotos.net

Finn Financial Group