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A Welcome Life Raft

As I write this month’s article, the news of the day tells me the American auto industry is toast, our jobless rate is soaring, the national debt is so large no one can even fathom the number, the Pakistan Government and their nuclear arsenal is growing increasingly unstable, the planet is at risk of global climate change, our own government thought it a good idea to buzz lower Manhattan and Jersey City with a large airliner and a few fighter jets - oh yes and we are all going to die from swine flu. On top of all that, the economy continues to languish and all our retirement plans are junk. Did I miss anything?

This constant state of fear and anxiety we live in never seems to let up. Just when you start to think the latest crisis is over, you get another one or two thrown at you. What, then, to do?

I think the best way to cope with life in the 21st Century is to manage or control the things you can and not worry about the things you cannot. So, what can we control? The fate of the Big Three car manufacturers is out of our hands, as is the national debt, world peace, climate change and the flight path of Air Force One.

We can, to some degree, limit our exposure to illnesses like the Swine Flu through simple tried and true methods such as washing your hands often, covering your mouth when you sneeze and avoiding areas of high exposure. We can likewise limit our exposure to economic catastrophe with other simple and proven methods such as diversifying your portfolio or avoiding investments with higher degrees of risk.
However sometimes, even if we are diligent, we find ourselves sniffling over a bowl of chicken soup or looking at a 401k statement agog, wondering: “What happened?” You will get over the flu in short order, but repairing your retirement plans may take a bit more doing. One of the basics for investing for retirement is to have a substantial percentage of your holdings in the equities market so that you can experience growth that will outpace inflation. The idea is that over decades you will participate in the highs and the lows and history tells us that, in the end, you will prosper and your retirement will be well-funded. One of the most important parts of this strategy, however, is to transfer your holdings incrementally from volatile investments like equities into more stable investments like highly-rated bonds as you approach your retirement years.

Herein lays the rub. When do you transfer what? How do you justify selling off investments that have been doing very well for you? While you are pondering these questions late into the night, the economy inexplicably tanks and your well funded retirement takes a quantum leap backward.

The real problem here is that the one thing that will fix this is the very thing people approaching retirement do not have: TIME. If you have 10 or 15 years until your expected retirement date, you will probably be okay in that the market will likely recover all it lost and then some. If your retirement date is sooner than that, you may have a problem. That joke of your 401k looking like a 201k is no laughing matter if you were expecting to live on that money in the not-too-distant future. What to do?

Most of us will simply have to defer retirement to a later date or pare back our plans somewhat (so much for the condo on the beach). However, a particularly unlucky few have a chance to get our money back and then some. Unlucky? How so? Retiring in comfort with a guaranteed income is easy; the hard part is having to get hit by a truck to do it.
Let’s take the case of “Fred Taylor”. Fred is a 53-year-old male who made his career working for a well known and respected insurance company. Fred diligently contributed into his 401k for the past 25 years. This time last year, Fred was looking over his 401k statement and thinking he could retire in comfort in about 10 years. Last Thanksgiving he was wondering if he will ever be able to retire at all. While he was pondering this situation, Fred suffered an injury at the hands of an inattentive truck driver. The parties decided to settle the case and Fred is in line to receive about $300,000 after fees liens and expenses.

Fred just got creamed by the stock market and a fast freight; how is he going to make something good out of all this? We threw him a financial life raft. We showed Fred that if he put $250,000 of his settlement proceeds into a structured settlement, we could fund a retirement plan that guarantees him $3,775 per month for 10 years certain or life whichever is longer, with payments beginning on his 65th birthday. This plan guarantees that Fred or his estate will receive $452,881 in tax-free benefits, and over a normal life expectancy he could expect to receive in excess of $588,000.

Fred got a lucky reprieve from the economic disaster that befell his 401k plan. Better yet - he was smart enough to take it.

Do you have any claimants rethinking their retirement plans? I’ll bet you know more of them than you think. If you believe this kind of retirement rescue plan might offer any appeal, consider “floating” one into your settlement discussions.

Or call me, Frank C. Kilcoyne, CSSC at 800-544-5533. I have plenty of life rafts to go around.