TAKING STOCK: Pension buyout

Dear Mr. Berko:

I currently get $5,480 in monthly retirement income from General Motors, and when I go to the great beyond, my wife will get $2,740 a month for as long as she lives. We're both 72 and have long life expectancies, as both our parents lived in good health into their mid-90s. GM has offered me a cash buyout of $811,000 that can be put into an annuity with Prudential paying us the same guarantee. Or, we could take the $811,000 in cash, and according to one financial adviser, make enough every year (including dividends, options, premiums and capital gains) to produce over $7,000 a month in income and still have the $811,000 or more remaining for our children when we die. He and his partner are very convincing. Another financial adviser also advises us to take the lump sum and tells us he can get us more after tax income investing 75 percent in MLPs with 7 percent to 9 percent dividends, on which there would be no taxes, and then 25 percent in high-yielding stocks with 11 percent to 14 percent yields. He also tells us with great conviction that we would be able to leave our children a lot more than the $811,000 we put with him. Please tell us which adviser to use because we cannot afford to take any chances. This, plus about $40,000 we have in savings and CDs, is all the money we have. We owe about $148,000 on our home, two cars, a truck, three credit cards, two water scooters and a boat that I will sell.

AT in Detroit, Mich.

Dear AT:

Great Odin's raven...hell's bells and buckets of blood...paint me blue and call me Lester...tickle me with a chain saw; the callous cupidity of those financial vampires boil my blood and soul. You have a better chance of winning the Powerball than earning the yearly returns promised by those honey-tongued poseurs.

When some 42,000 "GMers" receive their enormous checks, most will be agape and revel in testosterone highs like the average, beer-swilling Sunday afternoon football fan. Let's be candid; GMers are no smarter than the average, Sunday afternoon football fan who has the financial IQ of a twit, thinks a blue chip is $5 at a poker game and that preferred stock is the finest whiskey in the house. These GMers will be at the mercy of a thousand swinish, articulate incompetents (financial advisers) who have no more conscience than a skulk of foxes in a poultry farm. Like Diogenes looking for that honest man, there are too few knowledgeable, wise, experienced and trustable financial advisers.

So considering the past prologue, I'm not comfortable that Wall Street will do what's right for GMers. Which is why those who manage Wall Street's financial houses are often called "the maggots of Manhattan." I'm concerned for the 42,000 financially illiterate GMers who will be mortally charmed by Wall Street's promises and monthly income guarantees. Do you know that an $811,000 lump sum needs to earn 8.1 percent annually to produce $5,480 a month? And while it can be done on a short-term basis, I don't know a single professional who can do this every month for 20 plus years till you guys are in the 90s. Considering the wild volatility and evident uncertainty of the market, the professionals I know would never accept an account if its beneficiary needed a guaranteed 8.1 percent return.

Free advice is often worth its cost, but in this case, the free advice is worth $5,480 a month as long as you live. Don't dally but run quickly, don't pass go, don't collect a "get out of jail free" card, and put every centime of that check in the Prudential Annuity because it's 100 percent guaranteed. If you ignore this advice, your $811,000 will be invested in a smelly bouillabaisse of high-fee mutual funds, index CDs, variable annuities, penny stocks, private limited partnerships and risky proprietary products that five years hence may fall in value by half. Forget about leaving money to the kids - rather, give them one of your two cars, your truck, both scooters and the boat with monthly payment books attached. Then, burn your credit cards.


Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.

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Published: Fri, Jul 27, 2012