Not so hypothetical question...

[Omega]

Hire an attorney to fight the disability denial. They often deny it until you get an attorney involved.

I actually suggested that more than a year ago, but for some reason he was hesitant. He thought his doctors would be able to help him, but that is not the case. It's crazy to me that you would need a lawyer for disability with the kind of issues he has. My ex has been diagnosed with a fatal blood and bone cancer. He is in a brace permanently, can't drive, can barely walk, and he was denied disability. Disgraceful.

 

[skyking1]

+1 on the lawyer. It is really the only way. DW's cousin got SSDI, but she has RA so bad her hands are contorted beyond belief. One look and the SSDI people said yes.

 

[MRG]

I actually suggested that more than a year ago, but for some reason he was hesitant. He thought his doctors would be able to help him, but that is not the case. It's crazy to me that you would need a lawyer for disability with the kind of issues he has. My ex has been diagnosed with a fatal blood and bone cancer. He is in a brace permanently, can't drive, can barely walk, and he was denied disability. Disgraceful.

Get an attorney. Doctors generally don't help with disability like an attorney/non-attorney that specializes in SSDI. If he has the right conditions with documentation it's a good idea for him. He can get Medicare and a benefit from 62 to 65. He'll probably be eligible for lump sum back benefits.

 

[skyking1]

It would make a huge difference right about now with his situation.

 

[Phroig]

It sounds like your friend’s condition is chronic, given his life expectancy is 10+ years. Since the pension implies a non-COLA payout of 6%, I’d take the lump sum. I second the suggestion to wait until FRA to start SS; I believe the monthly amount increases to more than $2,200.
You could invest half the lump sum in a treasury ladder to pay for 5 years of expenses. (Be sure to invest the maximum $10K in I-bonds each year so long as the rates remain high.) The other half could then be invested entirely in equities (VTI). This gives you a 50/50 allocation, with the equity % increasing over time.
Five years should hopefully be long enough for the market to recover. This also lets you avoid any decline in the bond portion of a balanced fund. After five years, the Fed should be done increasing rates. You could switch to Wellington at that point, or a bit earlier.

 

[Trailwalker]

Hiring a lawyer specializing in disability law to at least evaluate the disability claim and make sure that time limits aren't blown is highly recommended. I had a friend go through the same thing with a severe back injury. It took a lawyer. Actually, it took three because the first two didn't know what they were doing. He didn't get it all, but he got a nice lump sum settlement.

 

[rothlev]

He has been denied disability, which is infuriating, and he just doesn't have the stamina to fight it.

How do you keep cash in the bank without taking a tax hit?

There are lawyers that specialize in social security disability, It is normal to be denied, given his age it is highly likely that if he appeals , possibly using one of these lawyers eventually he will win. Make sure he keeps a notebook with all medical information, log of how his disability affects his ability to function in daily life, have his dr. document everything .

 

[Trailwalker]

Was it a private disability policy or ssdi?

 

[Navigator]

Thank you. Can this be done after he files for SS? I doubt he will want to spend the energy before he leaves the job.

I am not an expert, but he can call SS and ask. The disability benefits will be much higher than his age 62 benefits, so it is worth the effort. It is not a lot of effort to file if he hires a company to help him with the paperwork. I received long term disability through my employer and their insurance company hired Alsup to apply for SS disability for me. It took less than an hour to fill out their paperwork. I had heard all kinds of horror stories about clearly disabled people being denied, but my application sailed through without problems.

 

[Sunset]

Thank you. Can this be done after he files for SS? I doubt he will want to spend the energy before he leaves the job.

This link says a person can:

https://www.aarp.org/retirement/social-security/questions-answers/retirement-to-disability.html

But, seriously it's probably the mental hurdle rather than the effort. I'm guessing it would be 1 meeting with a lawyer , 2 hours of filling out paperwork. and then waiting many months to hear something.

 

[athena53]

The cynical part of me is thinking that an annuity would be a darn good bet for the insurance company given your friend's likely shortened life expectancy. Unless he gets a bigger payout than average because of his health issues that would be a hard NO.

 

[arcyallen]

Corrections

I found that statement to be close to unbelievable, and it appears to be. I plugged what I think is their flagship fund, American Mutual Fund, into Portfolio Visualizer. There is about 35 years of history for the Class A shares showing a return of 10.58% against VG 500 Index return of 11.32. That does not account for the load haircut that the victims take -- considering the load the return would be worse. I also ran the Class C shares. PV gave me a 20 year history on that one, 7.27% vs VG 500 at 8.49%. QED.

Well, there is also the 12b-1 fee, which is the gift that keeps giving to the FA, coming right out of the victim's pocket every year and well hidden. And, at least at Fast Eddie's shop, every dividend reinvestment also gets trimmed by the amount of the front end load. My guess is that this is common practice.

I think as a group, American funds are sold, not bought. It would be interesting to know the percentage of shares that are Class A. I am too lazy, however, to dig through the SEC filings to see if this is disclosed.

Now returning to our regular programming, @Omega, I think @pb4's advice is both sound and easy to implement. I suggest that you pass it along to your friend.

OldShooter, your repeated reference to investors as "victims" leads me to believe whatever I tell you you'll either not believe, or find some other "yeah but". But I don't like factually wrong things floating around about great people/companies, so:

-American Mutual is an old fund and was established in 1950. It is one of their most conservative equity funds. Their return since 1950 has averaged 11.47% (including a maximum load, while the average load paid is 3.5%). While I currently can't find the S&P number since then, I know it's not that high. (Their actual flagship fund, ICA, has averaged 11.95% since 1934. Definitely more than the S&P)

-12b-1 fees aren't hidden. They're included in the expense ratio, which is printed in the same size print as everything else (and often in bold) on American Funds marketing material. At Jones we were trained to point to that number in the prospectus, look the client in the eye, and tell them they got charged that every year and that was what were were paid to maintain the account.

-I've never seen a mutual fund company charge a load on a dividend reinvestment. Ever. And American Funds definitely does not.

It's fine if you don't like active funds, or brokers, or whatever. They're not for everyone. But when you mischaracterize and state incorrect information it's not productive. People need accurate information so they can make the best decisions they can.

 

[ERD50]

... But I don't like factually wrong things floating around about great people/companies, so:

-American Mutual is an old fund and was established in 1950. It is one of their most conservative equity funds. Their return since 1950 has averaged 11.47% (including a maximum load, while the average load paid is 3.5%). While I currently can't find the S&P number since then, I know it's not that high. (Their actual flagship fund, ICA, has averaged 11.95% since 1934. Definitely more than the S&P) ...

Can you give us the ticker symbols for the funds they offer? It's not hard to back-test these.

-ERD50

 

[pb4uski]

That was my thought too, but someone here mentioned long-term care which is something else to think about. Having a pension might be better in that case.

It all depends on how long term the long term care is... if it is just a few years then the lump sum is still better. If it's a decade or more then that is a horse of a different color.

 

[Omega]

It sounds like your friend’s condition is chronic, given his life expectancy is 10+ years. Since the pension implies a non-COLA payout of 6%, I’d take the lump sum. I second the suggestion to wait until FRA to start SS; I believe the monthly amount increases to more than $2,200.
You could invest half the lump sum in a treasury ladder to pay for 5 years of expenses. (Be sure to invest the maximum $10K in I-bonds each year so long as the rates remain high.) The other half could then be invested entirely in equities (VTI). This gives you a 50/50 allocation, with the equity % increasing over time.
Five years should hopefully be long enough for the market to recover. This also lets you avoid any decline in the bond portion of a balanced fund. After five years, the Fed should be done increasing rates. You could switch to Wellington at that point, or a bit earlier.

Thanks for the advice. I'm liking the idea of delaying SS too.

 

[arcyallen]

Can you give us the ticker symbols for the funds they offer? It's not hard to back-test these.

-ERD50

They've got about 40 funds. For reference the list can be found here:
https://www.capitalgroup.com/individual/what-we-offer/mutual-funds.html
To directly answer your question, the ticker for ICA (Investment Company of America) is AIVSX. American Mutual is AMRMX.

Some of the funds I'm fond of for various reasons: AGTHX, ANCFX, CAIBX. They are a "conservative value house", which means during growth times (the last 15 years?) they do OK, and during times of trouble they've done fantastic. The internet crash of 2000 is an excellent example. Buying high quality diversified investments (while avoiding fads) and holding them for the long term...even if they look bad temporarily...is how they operate. If that sounds good, great. If not, they're probably not for you.

I don't want to hijack this thread into an American Funds thread. I would just recommend everyone take a breath, step back, carefully research, and then make decisions. I'm also happy to talk via PM or in a new thread. Unless the OP is dying for more info

 

[Omega]

Get an attorney. Doctors generally don't help with disability like an attorney/non-attorney that specializes in SSDI. If he has the right conditions with documentation it's a good idea for him. He can get Medicare and a benefit from 62 to 65. He'll probably be eligible for lump sum back benefits.

I'm definitely going to push him to do this. It would change his whole financial picture!

 

[Omega]

They've got about 40 funds. For reference the list can be found here:
https://www.capitalgroup.com/individual/what-we-offer/mutual-funds.html
To directly answer your question, the ticker for ICA (Investment Company of America) is AIVSX. American Mutual is AMRMX.

Some of the funds I'm fond of for various reasons: AGTHX, ANCFX, CAIBX. They are a "conservative value house", which means during growth times (the last 15 years?) they do OK, and during times of trouble they've done fantastic. The internet crash of 2000 is an excellent example. Buying high quality diversified investments (while avoiding fads) and holding them for the long term...even if they look bad temporarily...is how they operate. If that sounds good, great. If not, they're probably not for you.

I don't want to hijack this thread into an American Funds thread. I would just recommend everyone take a breath, step back, carefully research, and then make decisions. I'm also happy to talk via PM or in a new thread. Unless the OP is dying for more info

Thanks for your detailed responses. I'm actually not completely averse to annuities, I just don't think it's the right thing for my friend.

 

[OldShooter]

OldShooter, your repeated reference to investors as "victims" leads me to believe whatever I tell you you'll either not believe, or find some other "yeah but".

Agreed, that was unnecessarily inflammatory. I do however, consider load-payers to be victims when there are thousands of no-load funds that can be bought at no cost most places and with a smaller transaction fee at the rest.

American Mutual is an old fund and was established in 1950. It is one of their most conservative equity funds. Their return since 1950 has averaged 11.47% (including a maximum load, while the average load paid is 3.5%). While I currently can't find the S&P number since then, I know it's not that high. (Their actual flagship fund, ICA, has averaged 11.95% since 1934. Definitely more than the S&P)

Are backing off your unbelievable statement? ("Every single one of their domestic [and maybe international?] equity funds have beat their indexes since inception.") I easily found two funds that failed this test.

12b-1 fees aren't hidden. They're included in the expense ratio, which is printed in the same size print as everything else (and often in bold) on American Funds marketing material. At Jones we were trained to point to that number in the prospectus, look the client in the eye, and tell them they got charged that every year and that was what were were paid to maintain the account.

Good to hear but I'd bet that few people holding funds with 12b-1 fees remember this.The recurring fee has nothing to do with "maintaining the account" and everything to do with additional unearned profits for the FA and the house.

I've never seen a mutual fund company charge a load on a dividend reinvestment. Ever. And American Funds definitely does not.

I was using Fast Eddie as an example, but in checking I see that they charge sales commissions on reinvestments, mathematically the same but not called a load.

It's fine if you don't like active funds, or brokers, or whatever. They're not for everyone. But when you mischaracterize and state incorrect information it's not productive. People need accurate information so they can make the best decisions they can.

There's a half century of data that says active funds underperform, but that is a separate thread. What I don't like is brokers that gouge naïve customers with things like loads and 12b-1 fees. I was asked to teach an Adult-Ed investment class by the local school district and declined because of the work involved. I reversed that decision though when I discovered that Fast Eddie had sold a financially naïve friend "four or five annuities." Now my goal is to alert my students to the dangers out there. More or less a micro version of what Warren Buffett has been doing for years. Providing accurate information to individual investors.

 

[arcyallen]

Are backing off your unbelievable statement? ("Every single one of their domestic [and maybe international?] equity funds have beat their indexes since inception.") I easily found two funds that failed this test.

Good to hear but I'd bet that few people holding funds with 12b-1 fees remember this.The recurring fee has nothing to do with "maintaining the account" and everything to do with additional unearned profits for the FA and the house.

I was using Fast Eddie as an example, but in checking I see that they charge sales commissions on reinvestments, mathematically the same but not called a load.

You're continuously confusing your opinions with facts.

-I don't know what two funds you're talking about that "failed the test". You mentioned American Mutual's performance starting in the 80's. I said since inception, which is before then. I supplied the lifetime performance numbers for that and also ICA. A few years ago American Funds published a video that showed their funds, from inception, with a full 5.75% charge and how they outperformed their indexes. Perhaps these last few years have changed that by a tiny amount, but I can't imagine the outcome is much different.

-The 12b-1 fees have EVERYTHING to do with maintaining the account. If an advisor just sells a bunch of funds and collects the upfront load, there's no financial incentive to keep or service the account at that point. The 12-b1 fee is that incentive. If you don't believe that, that's fine. But that's the stated reason both publicly and internally. If you'd like to apply a more nefarious reason, that's your choice.

-Per the prospectus regarding dividend reinvestment at Edward Jones:
"Sales charges are waived for the following shareholders and in the following situations:
• Shares purchased through reinvestment of capital gains distributions and dividend
reinvestment"
There is no charge. Period. If a dividend of $1000 gets paid out, $1000 gets reinvested.

I keep showing facts. You keep talking opinions and speculation. We're talking two different languages. Take care.

 

[OldShooter]

... I keep showing facts. You keep talking opinions and speculation. We're talking two different languages.

I guess we'll just agree to disagree on that. That Fast Eddie Kool-Aid seems to be pretty strong stuff.

 

[MRG]

You're continuously confusing your opinions with facts.

-I don't know what two funds you're talking about that "failed the test". You mentioned American Mutual's performance starting in the 80's. I said since inception, which is before then. I supplied the lifetime performance numbers for that and also ICA. A few years ago American Funds published a video that showed their funds, from inception, with a full 5.75% charge and how they outperformed their indexes. Perhaps these last few years have changed that by a tiny amount, but I can't imagine the outcome is much different.

-The 12b-1 fees have EVERYTHING to do with maintaining the account. If an advisor just sells a bunch of funds and collects the upfront load, there's no financial incentive to keep or service the account at that point. The 12-b1 fee is that incentive. If you don't believe that, that's fine. But that's the stated reason both publicly and internally. If you'd like to apply a more nefarious reason, that's your choice.

-Per the prospectus regarding dividend reinvestment at Edward Jones:
"Sales charges are waived for the following shareholders and in the following situations:
• Shares purchased through reinvestment of capital gains distributions and dividend
reinvestment"
There is no charge. Period. If a dividend of $1000 gets paid out, $1000 gets reinvested.

I keep showing facts. You keep talking opinions and speculation. We're talking two different languages. Take care.

American Funds is a fine fund company. They're distribution channel is the problem. Having to convince an advisor to push your product is a lot less efficient than selling directly to your customers. That's why their fees, before advisors' fees, are about 10x Vanguard, Fidelity, Schwab index offing.

 

[target2019]

Carrying the annuity arguments further is an injustice to OP's thread. Just one opinion.

 

[cyber888]

Looks very much like a Scam adviser - jumping from a pension to an annuity means the adviser wants the big commission

 

[meleana]

Take the lump sum and roll it into an IRA at Vanguard. Invest the ~$400k in Wellseley Income Fund. Set up an automatic monthly redemption for $3,000/month from the IRA to his checking account.

Then move on to more important things in life like getting a handle on health issues, family, etc.

Wellesley is quick and easy, but it could be STAR fund or a combination. Life Strategy Moderate Growth would not be a bad option either.

If $3,000/month is going to be bad from an ACA perspective then he can shave it down as necessary to optimize ACA given his spending needs.

THIS^^****