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Undiscovered Country

No, this month’s edition is not a review of a Star Trek movie nor is it a discussion of Shakespeare’s Hamlet, Act III Scene I but it does look into that most terrifying of places: the future. As turbulent as the present times feel, I have been asking clients, attorneys and claimants what they believe the future holds. Their responses have been nearly unanimous; almost everyone is looking forward with trepidation and fear.

I understand why people are afraid. Every day we are bombarded with bad news: first the economy goes into the tank, then they tell us it’s getting better - but unemployment is still high - and gas is fast approaching four dollars a gallon. The world seems to be spinning out of control and every time we get a glimmer of daylight - BAM - some new disaster hits us in the face. Does anyone else keep hearing the lyrics to Billy Joel’s “We Didn’t Start the Fire” playing in their head?

Once fear sets in, displacing it can be very difficult. The only true way I know to combat fear is with understanding. I don’t have answers for how to deal with natural disasters or political unrest, but I do understand how to combat the fear of losing what one has.

Addressing this fear is a key issue when proposing structured settlements today. Some people seem so frightened, it seems they might literally take their settlements in cash and stuff it into a mattress or bury it in the back yard. One client described people’s feelings as “a general mistrust of the economy and our financial institutions”. That seemed to sum it up pretty well.

The people we deal with every day have been injured, and that alone is scary stuff (I know injuries because I have scars of my own to prove it). But these same people are then expected to suddenly know what to do with the single largest single sum of money they will ever have to handle. As with the injury itself, this is utterly uncharted territory for most people. With news shows repeatedly broadcasting riches-to-rags stories, there seems to be no safe haven anymore. You risk losing all your money no matter what you do.

For people who feel this way, I try to slow things down a little bit to settle their thinking. Often I’ll simply ask: “Look, are you planning to spend that whole amount tomorrow?” Most answer “No”, and once they’ve done that, we can begin to break their money-handling challenges down into more manageable chunks. (For those who answer “yes” there is nothing to do but wish them well and try to score an invitation to what should be a fearsome party.)

I understand these fears. In today’s atmosphere, people not only feel afraid of losing their money but also tremendous pressure to do the “right thing” with that money - whatever that is.

If it ever existed, the “one right thing” to do is nearly impossible to identify right now. Some of the most reliable financial strategies of the past fifty years seem to have quit working in sudden and horrible ways.

• Invest in real estate! “They’re not making any more of it right?” They may not be making any more of it, but there sure seems to be an awful lot available for sale nowadays - and at prices nobody is happy about.

• Buy as much house as you can at a floating rate with no money down! Well, that plan didn’t work out well for borrowers OR the banks who loaned the money; many needed bailouts to survive.

• [Insert 401(k) joke here] Actually, I don’t tell 401(k) jokes any longer because people don’t find them funny anymore.

Perhaps the key here is de-loading the claimant’s decision. Help the person understand that this is not about having to do THE right thing with the money but perhaps just A right thing…with part of it.

Do you realize that we are able to provide a guaranteed taxable equivalent return of around 6.5% today for many claimants on long term plans? The interest rate will naturally vary with duration of plan and level of tax in the claimant’s home state but that is a real number that surprises people. Compare that to .30% (that’s right, point three oh) on so-called “Jumbo” CDs, and it starts to look like a mighty attractive number.

How is this possible? Simple: the press reports over and over again that Ben Bernanke and the Federal Reserve Bank are “forcing down interest rates”. But what they don’t report mention is that this is for durations of ten years and less. The Fed’s activities have actually driven UP longer term rates – like the instruments used to back structured settlements. Our rates have been quietly improving for the past six months.

If there were ever a population who deserved an effective 30% boost to income, it’s the poor folks who have been badly hurt due to someone else’s negligence. And if there were ever a time when people hunger for added return without added risk, it is now.

Go ahead and test it. Stop down by your own bank to see how much they are offering on CDs and money market funds. Then think about whether you yourself wouldn’t like a base guaranteed effective rate of 6% on a portion of your own long term funds. If it sounds good to you, think how it may sound to a frightened and vulnerable claimant.

Do you have any claimants who need secure long term income at an attractive rate? Call Frank C. Kilcoyne, CSSC at 800. 544. 5533, I am here to help.