Accountable Update

Guaranteed Annuities and other Three-Legged Chickens

One of my first Accountable Update posts was about Three-Legged Chickens. I was reminded of this recently as one of my clients dealt with a complicated Guaranteed Minimum Withdrawal Benefit (GMWB) variable deferred annuity that a “friend” sold him for his IRA several years ago.

As is usually the case with products like this, it sounded too good to be true when it was sold to him. He could invest in the stock market but have a guaranteed minimum return of 7%. If only it were so simple.

Long story short, after over a decade, the value of the underlying funds were not much more, if any, than his original investment. After a few years, he decided to transfer the account somewhere else, but had been discouraged from moving it due to surrender penalties that were as high as 7% of his account balance. While market conditions and fund selection contributed to the dismal performance, the fact that he was paying over 2% in annual fees was the primary culprit.

We ultimately found a solution for him after carefully reading his annuity contract. The insurance company now sends him a check each year for the rest of his life and we deposit that into his IRA within 60 days of the distribution so it can continue to grow tax deferred. If you want to hear all of the details, or if you have a similar product and feel stuck, get in touch to discuss.

If you are considering any new investments, especially those touting guarantees, let me tell you a story about a chicken…

What is the "Point"?

Where were you on November 14, 1972? I don’t recall much, as I was only 4 years old, but I do have a memory of it. We had one black & white TV in our home that was always tuned to Walter Cronkite at 5:30 PM on the local CBS affiliate (it was one of only four choices if you counted PBS).

My earliest memories are of watching Apollo rocket launches and splashdowns on that TV. While I don’t remember exactly why I was paying such close attention on this day, I suspect that my mom had mentioned that they may show the astronauts or the rocket pad at Cape Kennedy, as the Apollo 17 mission was scheduled around that time. While this tactic may have kept me out of her hair while she was cooking dinner, it also led to me to asking questions. A LOT of questions.

“What is Vietnam,” I would ask?

“A country,” would be the reply.

“What is a Watergate?”

“A hotel.”

But sometimes, the answer would just be, “Ask your father when he gets home.”

On this day, Mr. Cronkite had led the news with a headline that announced that the Dow Jones Industrial Average had just exceeded 1,000 points for the first time in history.

“Mom, what is the Dow?”

“It is where you can invest in companies,” she said.

“What does it mean to be at 1,000 points?’

“Ask your father.”

Long Term Care Is No Holiday

You’ve seen the commercial.

A surgeon removes his mask as he is finishing an operation when a nurse observes, “You’re not Dr. Stewart!?”

To which he replies, “No, but I did stay at a Holiday Inn Express last night.”

In a financial planning version of life imitating art, there was a story (Exhibit 1) widely reported this week about Terry Robison, a Houston man that posted his plan on Facebook for how he is going to live out his old age in a Holiday Inn instead of a nursing home.