THE LEGAL BLONDE
See Legally Blonde. It’s pretty (well, entirely) silly, and I feel quite sure that Harvard Law School has more than 100 students in its graduating class. But I think it will be pretty hard to see this movie and not come out laughing and smiling. And people who laugh live longer. Which, Philip Morris would doubtless argue to the Czech Republic, is not entirely a good thing.
But fret not for Philip Morris. In the first place, they were right. The health costs of smoking are balanced by the cost savings realized in cutting people’s post-productive years short. A country that could give its citizens a gold watch at 65 and strychnine at 66 would have its Social Security problem totally knocked.
And in the second place, whatever embarrassment Philip Morris may have suffered over its Czech memo, it can rest easy in the knowledge, mentioned here last month, that the Bush administration is squarely on its side, our tax dollars going to help promote Marlboros abroad. It’s a matter of America’s IN-trests, as the President would say.
THE SLEAZY BANK
Warren Spieker: ‘I noticed that in yesterday’s column you don’t name the sleazy bank. Personally, and I bet there are others, I’d like to know what bank is pushing this kind of stuff on seniors. On the one hand, withholding the name seems “honorable” and above the fray. On the other hand, maybe you can raise the level of consciousness amongst a group of consumers that just might make a difference.’
☞ I didn’t name the bank lest some take it to be a practice of this specific bank. All banks do this! (Well, most.) That’s the point: beware whoever your nice bank, or nice insurer, or nice financial planner is. They almost all wish you well (they really do), but often they have a personal stake in what they’re recommending. Which is fine – they have to eat, too. But neither is it your obligation to feed them if you’d rather take the simpler, cheaper, direct route. Why should my 88-year-old pal pay $1,900 up front plus a further $300 a year for a recommendation on where to put his $40,000? (Or else nothing up front but 1.59% – $636 – a year?)
Aaron Stevens: ‘[An alternative for your 88-year-old friend:] The Vanguard New York Insured Long-Term Tax-Exempt Fund holds AAA-rated average rating bonds, and only a 0.20% expense ratio.’
THE BEGGED QUESTION
Andrew Beaujon: ‘You write, ‘Even the AAA bonds beg the question – which I hope we never have to see answered – of what would happen in a really terrible economic collapse.’ To ‘beg the question’ does not mean the same thing as ‘to raise the question.’ Thank you for allowing me to get this off my chest.’
☞ Andrew – copy editor of Spin Magazine – is quite right. ‘Begs the question’ means (to me) ‘seems – but fails – to answer the question at hand, by giving it the run-around.’ It was late. My gyro was wobbly. I’ve gone back and fixed it. Thanks.
THE GIFT ANNUITY
Andy Lutton: ‘Another option your 88-year-old friend can consider is a Charitable Gift Annuity. Considered a ‘split interest gift’ by the IRS, the Gift Annuity is a guaranteed income for life in exchange for a gift to a qualified charity. The payment rate is based on the donor’s age; most charities use the rates established by the American Council on Gift Annuities. The rates are based on actuarial tables and life expectancies. The suggested rate for an 88-year-old is 11.4%. That’s an annual payment of $4,560 if he funds the Gift Annuity with the $40,000.
‘The ‘catch,’ of course, is that the donor no longer has access to the principal. This is an irrevocable gift. After he passes away, the remaining capital goes to the charity that issued the Gift Annuity. For a lot of people, though, that is OK. Some were planning on leaving money to charity anyway; others don’t have family or don’t want to leave everything to family. I wouldn’t recommend this if the $40,000 CD is the gentleman’s primary asset, or if he has family obligations to take care of with the principal.
‘Additionally, the donor receives an immediate charitable tax deduction. Because he is getting something in return for the gift (a life income) the deduction is not the full amount of the gift. An 88-year-old would receive a deduction of approximately $21,447 for a $40,000 Gift Annuity. Assuming he is in the 30% tax bracket, between federal and state taxes, that is a tax savings of about $6438.
‘There’s more. Another benefit is that a portion of his annuity payment is income tax free for the first several years – the IRS considers it a return of principal. When you take that into account, his ‘equivalent’ rate of return is even higher.
‘Furthermore, there can be additional tax benefits to using appreciated stock instead of cash from a CD.
‘A final benefit is that your friend will have the satisfaction of helping a worthy organization. The great thing about my job is that I get to work with a lot of very nice people who really want to help make the world a better place. Sometimes they can help do that, and get some financial benefits themselves too.’
☞ Andy is Vice President of LifePath Hospice and Palliative Care in Tampa. Setting up a gift annuity for a relatively small amount may or may not be practical (the charity of your choice may have some pointers for you). Another way to do it would be to put $20,000 or more into the pooled-income fund of Fidelity’s Charitable Gift Fund. It’s easy, with much the same advantage as a gift annuity; except that with an annuity you get a guaranteed annual income for life, some of which is a return of your own principal. With the pooled income fund, you would get a somewhat smaller, and less certain income – namely, whatever income the pool earns.
Quote of the Day
The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality.~Dante
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