May 15, 2010 Edition
Bend over backwards for your clients!


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DEEP WATER HORIZON SPILL - Insured losses from "The Spill" from the explosion, collateral damage to the environment and impacted businesses is expected to total around $1.4 billion. The most expensive oil spill in U.S. history was the Exxon Valdez incident in 1989 in which cleanup costs alone totaled $2.5 billion. One point, we just talked to a marine boat rental business in Orange Beach, AL. Business is off significantly and as he put it, "We do not have an oil problem, we have a media problem." He is correct. No oil to be seen, but significant number of visitors yet to be seen.

FINANCIAL REFORM BILL - It wasn't too long ago that passage of meaningful financial reform was in question.  Now we may see the Senate pass this week a 1,400 page bill to overhaul the nation's financial regulations.  If you're interested, here are some articles dealing with this important legislation:
 SUPER SNOOPER BILL – The Senate financial reform bill creates two new agencies to track how you spend your money...the Office of Financial Research and the Consumer Financial Protection Bureau. The data are supposed to be "scrubbed" of individual identifiers, but the law "is extremely vague and empowering of the regulators. You as a consumer will have no opportunity to opt out. They'll be collecting, anyway, and you won't even know."

FANNIE AND FREDDIE NEED MORE - Having lost $11.5 billion in the first quarter of 2010 (marking the 12th consecutive quarterly loss), Fannie Mae has requested an additional $8.4 billion from the government in an effort to stay afloat.  However, they were able to pay a $1.5 billion dividend to the Treasury for stock the government took over in September 2008. This follows just four days after Freddie Mac asked for emergency funds of about $10.6 billion, after having posted an $8 billion quarterly loss.

WAR ON WALL STREET – According to the Wall Street Journal, federal prosecutors are conducting a preliminary criminal probe into whether several Wall Street banks misled investors about their roles in mortgage-backed deals. Banks reportedly being investigated are not only Goldman and Morgan Stanley, but also JPMorgan, Citigroup, Deutsche Bank and UBS.

SOCIAL SECURITY FIX EASY - A report from the CBO in March estimated that starting this year, Social Security will for the first time take in less revenue than it must pay out in benefits. That is almost four years ahead of previous predictions. While a Social Security fix would cure only a small part of the country's long-term fiscal shortfall, it could pay big dividends in terms of U.S. standing internationally, deficit hawks say. "It would be a confidence builder with our foreign lenders." Solutions available are increasing the retirement age, "progressive indexing," which would not affect the promised benefits for lower income workers but would lower future benefits for middle- and high- income workers, and raising the payroll tax.

AMERICAN POWER ACT – The global warming act has now been introduced in the Senate as the American Power Bill. "Foreign capitals will be watching Congress, as the fate of an international pact to battle global warming hangs largely on Washington's actions." We doubt that it will have any impact on the international efforts because Europe is too broke to consider it further and China and India are too business savvy to even try it.

AMERICAN POWER ACT, TOO - Here is the deal, allowing U.S. companies to continue polluting if they buy credits by having trees planted by a foreign company would be laughable. Further as the president said, "Under my plan of a cap and trade system, electricity rates would necessarily skyrocket."  How can increasing our cost of energy be of any value to our country?
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PIIGS – Many believe the debt problems in Greece will hit all the PIIGS in Europe (Portugal, Ireland, Italy, Greece and Spain). Speculation is that the collapse of the European Union itself could ensue.

GREECE AND THE UAW - Greek civil servants were allowed to retire as early as age 53 with full benefits. Ditto, the United Auto Workers members. Coincidence?

SPANISH STRIKE - Spain's two largest unions are threatening a general strike to protest austerity measures aimed at reducing the country's deficit back to EU guidelines and calming markets. That is not going to be helpful.
 
EUROUPEAN CRISIS IN A NUTSHELL – "The problem with socialism is you eventually run out of other peoples' money." Margaret Thatcher. However, if things do unravel, you can expect politicians and union leaders to blame free enterprise.

"CRISIS TAX" - Following similar moves by Spain, Greece and Ireland, Portugal introduced tough new austerity measures including a "crisis tax" on wages and big companies as part of a plan to cut its budget deficit by more than half in under two years.

LOST DECADE – The DOW is currently hovering around 10,500...that is where it was 10 years ago.

TRILLION DOLLAR GAMBLE - The euro soared after the EU announced the trillion dollar financial rescue package earlier, but was back near 14-month lows within days...essentially where it was before rumors of the bold EU move swept the market. Though the package has helped ease concerns of a wave of imminent debt defaults, currency traders are realizing the underlying problem has not gone away. How are the highly indebted countries going to get their public finances under control? BTW, the U.S. taxpayer will be footing about $50 billion via its percentage obligation to the IMF.

GOLD AT NEW HIGH – Gold prices have hit an all-time high (up 28% since the beginning of the year) as "gold bugs" began buying coins amid fears over the potential inflationary impact of the European Central Bank's decision to buy eurozone government bonds to tackle the region's debt crisis. There's no mistaking what's in this. As an aside, the well-heeled in the Gulf can now buy gold ingots and coins from a vending machine in Abu Dhabi's Emirates Palace Hotel.  Here are five reasons why gold keeps breaking records.  

RECORD DEFICT - The government has now posted 19 consecutive monthly budget deficits, the longest string of shortfalls on record. The U.S. full-year deficit this year is projected at $1.5 trillion on top of a $1.4 trillion shortfall last year.

U.S. DEBT – The IMF reports that U.S. government debt now stands at 92.6% of projected 2010 gross domestic product, meaning that the U.S. now has a heavier debt burden than several of the overleveraged aforementioned PIIGS.  Portugal is at 85.9% of its GDP; Ireland at 78.8%; Italy at 118.6%, Greece at 124.1%, Spain at 66.9%. This prompts a new acronym: "PIGS IS US." However, the U.S. has advantages over the PIIGS in that our economy is far more diversified, and the Treasury finances much of its debt domestically, making us less vulnerable to the whims of foreign investors.

DISIBILITY INCOME AWARENESS MONTH - May is Disability Insurance Awareness Month. According to LIMRA, "despite the fact that more than 70% of American households rely on two incomes to make ends meet, only 26% of Americans have any type of disability insurance" and only 18% of those surveyed could remember being approached about buying disability insurance. Do your part to correct this situation by sending The Virtual Assistant's Preparing for Disability: A Disability Income Review to clients and prospects.  

GOVERNMENT CAN WORK - According to the American Customer Satisfaction Index (ACSI), the Social Security Administration's online services have been recognized as the "best in government" and exceed top private sector sites in customer satisfaction.  Click here to view all of Social Security's online services.  

WOUNDED WARRIORS - President Obama has signed the Caregivers and Veterans Omnibus Health Services Act into law.  The bill is intended to provide a variety of support services and benefits to individuals who provide home care for seriously disabled military veterans.  Learn more...   

HEALTHY RETIREES HAVE HIGHER HEALTH COSTS – A Pru-sponsored Boston College study says healthy retirees live longer than sick retirees, and that means they face higher total projected health care costs. Expected present value of lifetime health care costs for a couple turning 65 with one or both spouses suffering from a chronic disease is $220,000, including insurance premiums and the cost of nursing home care. Couples free of chronic disease at age 65 can expect $260,000 in costs.

TAX MATTERS - Kiplinger reports that Congressional taxwriters are back at work!  Expect to see a bill that revives a host of expired tax breaks, such as the college tuition deduction and direct tax free IRA payouts to charity, together with some tax breaks for smaller businesses.  Don't be surprised if the tax breaks are paid for by a big tax hike on investment managers and others who are paid with a percentage of the profits.  Instead of being taxed at capital gains rates, their income would be subject to ordinary income rates.  On the estate tax, Kiplinger predicts "something" will be passed retroactively to January 1, 2010.  Still to be ironed out are the maximum estate tax rate and the exemption amount.  Plus there is the issue of whether a retroactive reinstatement in constitutional.  One solution may be to give estates a choice for 2010:  use 2009 estate tax rules or take advantage of the one-year repeal of the tax.  While the latter may appear to be a "no brainer," the loss of the unlimited step-up in basis may make use of 2009 rules more appealing for some estates.

LIFE SETTLEMENTS REBOUND - The Amrita Life Settlement Index rose about 29% in April, as activity climbed to 417 from 324 in March. Additionally, settlement providers reported a larger supply of policies entering the secondary market, but increased competition among buyers for life insurance policies.  

STRANGER-ORIGINATED ANNUITIES OPPOSED - Both NAIFA and LISA (Life Insurance Settlement Association) have come out in opposition to stranger-originated annuity transactions and are asking regulators and insurers to do more to eliminate them.     

RETIREMENT NEEDS NOT MET – According to a Hewitt study, four-out-of-five Americans are expected to fall short of meeting all of their financial needs in retirement. Further, employees will need 15.7 times their final pay when factoring in inflation and postretirement medical costs.  With luck, Social Security will provide 4.7 of it, leaving employees responsible for making up the remaining 11 times final pay. 

RETIREMENT NEED RULE OF THUMB – The Hewitt study above could provide a good "rule of thumb." "Without Social Security you will need to accumulate about 16 times your final pay. With Social Security, you will need about 11 times." Of course, any defined benefit pensions would need to be factored in and we believe the retirement calculators from The Virtual Assistant do a much more accurate job of predicting the financial need in retirement.  Here's a sample.

HIGH COST OF HIGH RISK POOLS- Currently 200,000 people are covered at the state level, at a cost of $2 billion. The new Health Reform legislation requires these pools to cover two million more people between now and 2014, when the rest of the Health Reform legislation rules kicks in. The cost has been budgeted at $5 billion, but realistic expectations are $40 billion or more.

RETIREMENT PLANNING AND ADVISORS – LIMRA reports that retirement income planning is taking on more prominence in advisors' practices. If you want some comprehensive yet effective retirement calculators, check out The Virtual Assistant for more calculators like this example.  

NEW CRITICAL ILLNESS PLAYER - Guardian is now offering critical illness insurance through employers with as few as 2 employees. The policy pays up to $50,000 for covered illnesses and an optional hospital rider can pay as much as $500 per day for up to 10 days for illnesses not covered by the underlying policy.

ANNUITY STAR RISES – A LIMRA survey of advisors report that clients are showing more interest in guaranteed income annuities.  However, the word "guarantee" itself creates skepticism from some clients, who doubt that insurers can make good on their guarantees.

FUTURE ANNUITY PRODUCTS AND PROSPECTS – Conning reports that inflation-indexed annuities tied to the consumer price index hold particular promise for U.S. insurers and currently account for about 25% of annuity sales in the UK. Lincoln National is cited as one of the few U.S. carriers offering an inflation-indexed annuity. Check out the enormous effect inflation has on retirement planning (see below).  Additionally, watch for more medically underwritten "enhanced" or "impaired" annuities that increase the payout as life expectancy decreases. There are about 157 million consumers in generations X and Y, compared with just 81 million baby boomers and "advisors and insurers will have to figure out how to reach to prospects in their 20s, 30s and early 40s with products and marketing strategies that appeal to people who are increasingly accustomed to transacting business online. How will they win over these new savers to help them plan for retirement?"

RETIREMENT PLANS AND INFLATION – To see the enormous impact of inflation on retirement plans, check out page 3 (Retirement Analysis in Today's Dollars) versus page 4 (Retirement Analysis in Future Dollars) of the VSA Retirement Calculator.

FEE-BASED ANNUITIES - Investment News reports that some major life insurers are launching fee-based annuities "in an attempt to appeal to dually registered advisers."  The move is prompted by fee-based advisers becoming "more receptive to products that provide a guaranteed income stream."  
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