Selling life insurance to raise cash can be risky
Q: Is a viatical settlement a good way to get some money?
A: A viatical settlement is when an investor buys a terminally ill person’s life insurance policy.
If someone is expected to live only three more years and needs cash to pay for medical bills or anything else, he might sell his life insurance policy. If it’s set to pay $100,000 on his death, the buyer might pay, say, $66,000 for it. It sounds like a win-win plan, as the seller gets a big lump sum while still alive and the buyer can expect to receive $100,000 in about three years — roughly a 15 percent annual return.
But it’s not quite that simple. There are typically fees involved, and the sick person might live for many years, reducing the investment’s ultimate return. A cure or new treatment might even have him outliving the buyer.
There have been many instances of fraud with these settlements, but they’ve become more regulated and are legal in most states. Learn more about them at sec.gov/answers/ viaticalsettle.htm and at the viatical.org and lisa.org industry websites.
Fool’s school: 4 things to know about retirement
Many of us look forward to retirement as the reward for a lifetime of hard work. While the post-work years can truly be golden for those who plan for them, many retirees are caught off guard by their new life. Here are some things you should know before you leave the working world for good.
1. Required minimum distributions (RMDs) can seriously raise your costs: Once you reach age 70½, you’re typically required to take money out of your traditional IRA and your traditional 401(k) plan each year. While those distributions start relatively small, they increase as a percentage of your account balance each year. Withdrawals from these accounts are taxable, and the increase in your taxable income may expose your Social Security benefits to taxation, too, while possibly increasing your Medicare Part B premiums.
2. It gets harder to wait out a bad market once you retire: While you’re working and adding money to your retirement accounts, your salary covers your costs of living. That makes it easier to power through a nasty bear market and wait for the recovery. Retirees are more vulnerable to market downturns, so aim to have at least a five-year buffer of bonds and cash to see you through bad spells.
3. Other than healthrelated costs, your expenses may actually go down in retirement: Many older Americans have paid off their mortgages, and their adult children are self-sufficient. While early retirement may feature frequent travel, older retirees tend to stay put more and thus spend less.
4. Depression is a widespread issue among retirees. When you leave the workplace, you lose the regular socialization that goes with it, along with the daily mental and physical activity. The deaths of aging friends and family members are also a contributing factor. Caring for family members, doing charitable volunteer work or even working a low-stress job can keep you active and provide you with purpose, stimulation and social support.
Name that company
I trace my roots to a yarn company in Boston in 1923. I became a major rayon producer and made parachutes in World War II. Today, based in Providence, Rhode Island, and with a market value near $16 billion, I’m a global conglomerate specializing in aircraft, defense, industrial and finance businesses. My brands include Bell Helicopter, Cessna, Beechcraft, Hawker, Jacobsen, Kautex, Lycoming, E-Z-GO, Greenlee, Arctic Cat and TRU Simulation + Training. Who am I?
Last week’s trivia answer
I trace my roots to the 1946 founding of a telecommunications engineering company in Tokyo. My Trinitron was a huge success, but my Betamax was not. I launched my Walkman in 1979 and the world’s first CD player in 1982. Who am I? (Answer: Sony)