The Finn Blog

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 and frustrating 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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Football Annuities

August 25, 2018 – With college football upon us and the NFL’s 2018 season right around the corner, this is the perfect time to discuss fixed indexed annuities.

Hunh?

OK, so maybe I’m stretching a bit but as this year’s first kick-off approaches, it occurs to me there’s a perfect parallel between something that happens on the gridiron and the popular retirement income option that people spent $32.1 billion on so far in 2018 alone.

Here’s hoping my analogy helps the unconvinced better appreciate the value of indexed annuities.

First: What Is a Fixed Indexed Annuity?

An oversimplified explanation goes something like this:

A fixed indexed annuity (FIA) is an insurance product whereby an individual trades a lump sum of money today (or periodic deposits over time) in exchange for the promise of tax-deferred, guaranteed lifetime income, certain income, or a lump sum at some point in the future.

The money earns interest credits based on the direction of one or more indexes selected (S&P 500 is a common one) from a variety of strategies available depending on the risk tolerance of the individual.

The design of the FIA is such that if the market index increases, so does your account balance up to the maximum permitted by the contract.

The trade-off for having a cap on your upside potential is the floor which prevents your account from ever losing money.

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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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Yanny or Laurel Justice

May 18, 2018 – Have you caught wind of this Yanny/Laurel thing yet?

There are few things that can cause you to question your own sanity more than being positively convinced of something that others are equally convinced is untrue.

I listen to this clip and hear Yanny. Absolutely, 100%, no doubt about it.

But according to more than 50% of the people who voted for Laurel, I’m wrong.

How can this be?

“Tomato, tomahto, potato, potahto, let’s call the whole thing off.”

– Ira Gershwin –

This isn’t some difference in regional dialect conversation we’re having. This gets to the very essence of how wildly our senses can vary when responding to the exact same stimuli.

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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

New Structured Settlement Video

April 11, 2018 – Courtesy of our friends at Pacific Life, we’re happy share with you today a new educational video designed to help plaintiffs answer a few very basic questions they’re likely to ask themselves when in the process of resolving their personal injury claim:

At two minutes nineteen seconds, the video is an easy watch and hits all the high notes about why this proven settlement option has remained so popular since its inception decades ago.

We appreciate when our life company business partners provide materials to help us help our clients better understand the value of the important services we provide.

Pacific Life is among the many excellent companies we proudly represent, and we are grateful to them for providing this important service to the public.

But what else would you expect from a company that has been honoring its financial commitments for 150 years? Thanks Pac Life!

Enjoy the video.

Sparring With Bears

April 6, 2018 – With today’s close of the Dow Jones Industrial Average ending the day down 572.46 points (2.34%), some market forecasters are speculating that we may, after a prolonged run up of equity values, finally be dipping our toes into bearish waters.

Of course, it’s always important to take these forecasts with a grain of salt since nobody can accurately predict the future. Markets go up. Markets go down. Rinse and repeat.

What’s helpful, though, is to remember your money’s exposure to loss when bears start jabbing:

Bear markets usually last about 15 months

During which time stocks usually decline about 32%

Clients of ours often come into large sums of money following the resolution of a personal injury lawsuit. Many have had their ability to earn a living compromised. Many face long and costly rehabilitation and care costs. Some are dealing with the death of a loved one who may have been the family’s sole breadwinner.

Whatever their circumstances, all our clients have one thing in common:

Their risk tolerance for loss is usually less than that of the typical investor.

Structured Settlement Payees Outlast Bears

Our clients who are lucky enough to structure portions of their settlements never need worry about a bear sending them to the canvas. When choosing guaranteed tax advantaged future income, it doesn’t matter what direction the market takes. This adds an unmatched level of security to their lives which makes adjusting to their new, post-settlement reality that much easier.

To help put the impact of a bear market into perspective, consider the real-life implications for someone netting $1,000,000 from a personal injury lawsuit:

As of today, the market is down 10.1% from its all-time high;

If a person’s investment experience mirrored the DJIA since then;

They would only have $899,000 today.

How would you feel if you lost $101,000 in ten weeks?

Balance and Timing

Our general advice to clients anticipating large personal injury settlement dollars is simple: Structure some, keep some, set some aside for a rainy day.

The structured settlement provides the foundation of most of our clients’ financial plans. This is the money they will live off. Their safety net. The money they can count on if everything else fails.

We tell them to keep some in reserve for immediate and anticipated short term needs.

Depending on their risk tolerance, we tell them to not worry too much and take a little bit of a risk with their money. Much will depend on their time horizon and the severity of their injuries, but most people will do well to put some of their money into the market since time usually works in their favor. Just not more than they can afford to lose.

Bulls and bears come and go but structured settlements just keep on paying. For this reason, structured settlements remain a preferred settlement alternative for guaranteed future income and give clients peace of mind.

You might even call them bear necessities?

Boxing bears courtesy of vectorolie at FreeDigitalPhotos.net

Christmas Magic

December 15, 2017 – Sometimes Christmas magic arrives unexpectedly.

Take this Christmas card I just received from a client our firm helped nearly two years ago:

“Dan,

Not sure if you remember us or not. However, just wanted to say THANK YOU for everything. Since our last meeting, we have purchased a house in (redacted), as well as added an additional family member (smiley face). I’m glad we counted for 3 kids (in designing the structured settlement). We are so grateful for your kindness & support. I hope you and your family have a blessed & Very Merry Christmas!

Take care,

(name redacted)”

When I first met this lovely young couple to discuss their personal injury settlement options, we performed a pretty comprehensive needs-and-wants analysis to ensure we charted the best possible path for their financial future. Ultimately, we designed a structured settlement plan that contemplated them making tax deductible mortgage payments (for a house they had yet to purchase) with tax-free guaranteed income. In addition, we established college funds for their current and contemplated children.

From the sounds of this note, things worked out exactly as planned.

I love when that happens!

At this festive time of year, receiving thoughtful, affirming words of appreciation from someone I helped along the way fills my heart with joy and the spirit of Christmas. I am grateful that my life’s work connects me with so many wonderful people in their time of need and am so appreciative that I can help make their futures, many of which will last long after I’m gone, a little more secure.

Wishing you and yours all the best this holiday season and hoping 2018 brings health, happiness and much success in your personal and professional lives.

Expect magic!

 

Finn Financial Group