Frank C. Kilcoyne, CSSC

Storm Warnings!


What happened to all that wonderful weather we were enjoying in late summer? Sunny days with warm breezes? Those long, languid afternoons? I turned on the Weather Channel this morning and here come the hurricanes. I clicked over to CNN and the financial markets are hitting potholes, the Middle East is once again in flames, and the Presidential debates have begun. I can’t decide which worries me the most!

My point in raising these events is that, while the media blares this stuff at us 24/7, not much of it is actually new. In fact each of these particular threats seems to come around right on schedule, if you think about it. That means you can prepare for them. But how many of us actually do that?

As I write this newsletter today, the day’s headlines include:

“Strongest Storm in History”
CNBC Website, October 23, 2015 (1)

“Large Money Managers Suffer Brutal Quarter”
Kirsten Grind, The Wall Street Journal, October 23, 2015 (2)

“Palestinians Set Their Rage to Violent Beat”
Jodi Rudoren and Rami Nazzal, The New York Times, October 23, 2015 (3)

Even though I just pointed out how “regular” these threats are in terms of frequency, let me pivot slightly and ask how many of you have been directly harmed by these large-scale events? And how likely are you to be directly harmed in the future by events of this kind? My point is that some threats are real and close; others theoretical and remote.

There is little we can do to affect the outcome of geopolitical events half a world away. Surely nothing we can do will change the course or destructive power of a hurricane. And our inability to control the volatility of financial markets is no great surprise. Regardless of how fair the weather gets, another storm will be just over the horizon. What to do?
The best way to deal with storms of any kind is to prepare for them. But since you never know when one is coming, your preparations must be in place at all times.

I’ll leave politics and the weather to each of you but, on the money front, proper preparation means making sure your source of funds for food, shelter, and medical care is secure. If, after securing those, you have surplus funds and the temerity to take on some risk, then step right up and take your chances. But never, ever bet the rent money. Never.

Just like the rest of you, I watched the value of my 401(K) bounce around like a ping pong ball over the last few months. On July 2 the Dow Jones industrial average was 17,730, from there it went to a high of 18,120, then down to15,666 and currently it stands at 17,646. This kind of ride is not for the faint of heart, if you needed to make a withdrawal anywhere along the way you could have locked in some serious losses. Financial risk is real.

With all the volatility in the world, one of the very few things that remain constant are the benefits generated by a time-tested structured settlement. Earlier this summer, I had the privilege of putting together a plan for Mr. Jones, a 46-year-old gentleman who was injured as a result of someone else’s negligence. A portion of Mr. Jones’ settlement plan will deliver $1,865 per month guaranteed for the next 30 years or for the rest of his life, whichever is longer. Mr. Jones or his estate will receive no less than $671,000 over the next 30 years; yet, if he lives a normal life expectancy, he will receive in excess of $826,000.

These payments are guaranteed to Mr. Jones come hell or high water. From time to time, economic events arise to test these guarantees, but time and again they pass with flying colors. Most recently, when the Great Recession hit in 2008, structured settlements cut through the storm like a battleship: checks arrived every month, right on schedule. This is what I call being prepared for the next storm.

What kind of summer would Mr. Jones have had if he had not structured a portion of his settlement? The plan I describe above cost $502,508. Had he invested these funds in a Dow Jones index fund (and not made any withdrawals) his portfolio would have dropped to $434,453 and then fought back to $489,363 where he would still be $13,145 in the hole.

I do not mean to suggest that stocks are a bad investment. If you have enough time, the opportunity for growth is indisputable. But that market can leap and fall with such severity that it’s no place to put money needed to cover daily living expenses.

No matter what happens in the world, Mr. Jones will never be more than 30 days away from another tax-free $1,865. That’s a base income he can depend on, no matter how hard the winds blow.

If you fail to heed storm warnings and take appropriate steps to prepare, you can find yourself way too “up close and personal” with serious destructive forces. Not a good place to be.

Do you have a case where a structured settlement might help an injured claimant prepare for future storms?

Call me, Frank C. Kilcoyne, CSSC at 800-544-5533. I am here to help.

 

(1) http://video.cnbc.com/gallery/?video=3000437851
(2) http://www.wsj.com/articles/large-money-managers-suffer-bruising-quarter-1445543763
(3) http://nyti.ms/1S023hi