Month: October 2014

Today’s my dad’s birthday. He passed away many years ago and he was born many years before that. I don’t think of him every day, but on days like today, his birthday, or next Wednesday, the anniversary of his death, I do remember him, fondly.

I told you last month that I encountered my Dad’s ghost while out driving around. My dad didn’t hear too well and he didn’t hear the clicking sound when his turn signal was on, so he sometimes drove around doing what comedian Jerry Seinfeld once described as a perpetual left.

I found another manifestation of his ghost. Here it is.

It’s not my dad’s favorite car, but it is very much like it, a 1941 Oldsmobile coupe. I saw this black one at a recent car show. My dad owned one of these; his was blue. He loved it too. In fact, when it died, he kept it parked at the side of the house for a couple of years, hoping to figure out a way to get it back on the road.

Have you seen the TV commercials about converting your structured settlement to cash? J. G. Wentworth is probably the heaviest advertiser in this business, it certainly is where I live, but it’s not the only company doing it. Peachtree is another, but it’s not the only one either.

If you don’t know what a structured settlement is, you probably don’t have one. So, I’ll explain. Let’s say you’re hurt in a car accident, you sue and an insurance company agrees to pay you money. To quote Doctor Evil, let’s say the amount is “One Million Dollars.” Only, let’s say they get to pay it not in a lump sum, but over an agreed period of time, perhaps 20 years. That arrangement would be similar to the way a top lottery prize is paid, only you have a better chance of being in a car crash than you do of winning Powerball or Mega Millions, so pay attention.

Why would you agree to that and why would the insurance company? Well, you might agree because you’d get more money in the long run. That may or may not be a good thing. We can discuss that farther down the page. You might also agree if it saved you money on taxes. In the first place, some settlements of this kind aren’t taxable and in the second place the calculation is more complicated than you think, so it could appear to save you money on taxes without really doing so. I could discuss that too, but I’m not an actuary and I only want to bore some, not all, of the people who read this. Last, and the reason most individuals would like a structured settlement is because you fear you would squander the money if you got it all at once. Squandering a large sum of money can be fun, but if you got the money and need it to pay for long-term medical treatment, that isn’t the time to do it. In that circumstance, a long-term settlement is probably the best thing for you.

The insurance company likes it because it costs them less money. There are formulae to calculate the present value of a future stream of income, or you can beat it to death with a spreadsheet. But if the insurance company could earn 5 percent on its money and put $1,000,000 aside, it could pay you $50,000 a year for 20 years and at the end of that time, it would still have the million dollars. To pay you that money, again assuming a 5 percent rate of return, it would only have to put aside around $625,000 to pay you over 20 years and have nothing left. But that’s not even how the insurance companies think. If they put aside $625,000 for you and the other $375,000 for themselves, again at a 5 percent rate of return, at the end of 20 years, you would have $50,000 a year for 20 years, there would be nothing left of the $625,000 set aside for generating that income because in addition to the interest, the insurance company would pay the rest of the money to you out of the principal in that account. What about the other $375,000? Thanks for asking. At the end of 20 years, that would be worth almost $948,000! Your mom was wrong about what you should be when you grow up. You should have been an insurance company.

Okay, so how do these companies that convert structured settlements to cash work and how do they make any money? I mean, they’re in business to make money, aren’t they? Yes, they are. And there’s nothing wrong with what they’re doing as long as you understand what you’re doing when you do business with them. In the example I gave above, they buy the $50,000 annual income stream, or what’s left of it, for less than $625,000, or what’s left of that. The difference between what they pay you and what the insurance company put aside to pay them is their gross profit.

If you want a lot of money up front instead of a structured settlement, I suggest you take a lump sum payment instead of an annuity, even if the lump sum appears to be less money. After all, you can invest the money too. But if you’ve already opted for a payout over time, and your circumstances change, your job is to get the highest price you can for that income stream. So, go into this kind of transaction with your eyes open and go in understanding the math, or accompanied by someone who does.

In the car blog, Curbside Classics, someone started a thread of stories about running out of gas. I contributed a couple, but here’s another. We didn’t have a lot of money when I was growing up and my parents sacrificed a lot for the kids, including sending me to private school from 3rd to 6th grades. They were generous to us, at least as generous as their means allowed if not more so.

One way my dad was generous was he let me drive his car pretty much whenever I wanted to as long as he didn’t need it for work. During the school year, he even paid for the gas I used. As I said, we didn’t have a lot of money, so when the gas gauge on our old Plymouth (is there any other kind of Plymouth but an old one?) broke, it stayed broken.

If your gauge is broken, the simplest way to handle it is to fill up every 200 miles. Most cars have a cruising range greater than 200 miles. In fact, I believe that unless you had a ’72 Buick Electra and only drove it a mile at a time in the winter, that would work. Personal experience tells me a ’72 Buick driven under those circumstances has a cruising range of approximately 52 miles on a full 26-gallon tank. I hope I don’t have to explain how I know that.

Once, I was going someplace and when I got behind the oblate circle that was the steering wheel of that Plymouth, I thought it needed gas. Dad insisted it was fine. I think he was kind of low on cash, but I didn’t push it. I got in and drove about two blocks before it ran out. If I had gas money, the Blue Cloud (it was red, but it burned oil, a lot of oil actually) still would not have made it to the nearest station.

I’m sure I was as callow as any teenager who ever walked or drove the face of the earth. But after my first year in college, I couldn’t afford a second, so I got a job in a wholesale bakery. That was hot, hard work, but it was unionized and the starting wage for someone with very few skills was quite good. The overtime was good too. I worked something like 15 or 16 months that year.

I was single, living with my parents for free and not supporting my own car. My folks wanted me to save money to go back to school and I did that. I banked at least half of every paycheck I received. But I tried to show some appreciation too. My dad was still paying for the car insurance, but I don’t think he put another dime in that car during my year in the bakery. I bought him a battery, a carburetor, a four tires. I also put a speaker in the package shelf so I could blast my tunes from the AM radio. I don’t think Dad ever needed to put gas or oil in the Blue Cloud for a year.

Other than the bank and the Blue Cloud, what else did I spend money on that year? I met this super-cute, super-nice high school senior. She wasn’t a saint yet because she hadn’t put up with me long enough, but her name was and still is Karen.

I don’t know if or when you discovered that you couldn’t access this blog. I found out on September 20th. Since then, if I tried to access the site, I got a blank page, but now, I’m back. Not only back, but I’m delighted to see that I didn’t lose any content.

I’d like to thank a lady named Leofe at my ISP’s help desk for helping get me get the blog back up. I couldn’t have done it without her. I’ve never talked to anyone with that name before but this lady certainly knew her stuff and was very pleasant about it. If I have any future tech problems, I’ll be sure to use phone support because email support didn’t work very well for me although I’m sure those people tried too.

I’m no tech genius but as far as I can understand it, the theme being used on the website became incompatible with some software update and once that happened, no more website. So, I put up a new theme. I’m not entirely satisfied with the layout yet. I’d like to return to the picture of a raven, but it won’t fit on this theme. In the near future, there may be subtle or comprehensive changes in the existing layout.

But, I am back and I will resume posting about my off-kilter view of the universe later this week.