There is generally a wide spread between corporate bonds of similar credit quality and treasuries when compared to structured settlement annuities. This holds true even when interest rates are very low. However, structured settlements still afford you a high level of tax leverage. It is wise to shift a portion of your assets into fixed income when the stock market is volatile or the economy is slowing.
A fixed income is exactly what is provided by a structured settlement. You can benefit from a structured settlement if you have an absolute need for income or you cannot accept volatility in investment returns even in a growing economy.
One option for those who have a high risk tolerance is the variable structured settlement. As required by underwriting rules, this needs to be packaged with a traditional structure. Only structured settlement brokers, who hold the appropriate securities and insurance appointments and licenses, can offer variable structured settlements.
With structured settlements, you get
- Tax leverage
- Peace of mind
- A competitive rate of return
How Structured Settlement Rates of Return Compare to Other Investments
The investment of a large cash lump sum settlement will produce an income that is likely to push the plaintiff into a higher tax bracket. To equal the same rate of return as that which is earned with a structured settlement on a net after tax basis, you would have to earn 20 percent to 40 percent greater rates every year.
Taxable equivalent internal rate of return or taxable equivalent yield are often used to describe what you need to earn on a taxable basis to equal the rate of return on structured settlement payments.
Rated age structured settlement annuities that have a deferred start date could function as a backstop if the plaintiff has significant future medical expenses, uncertain mortality, and health considerations. This would produce a taxable equivalent yield that exceeds nine percent and is guaranteed for a lifetime.
Mutual Funds Do Not Compare to the Tax Leverage
For the last 90 years, the average return for large capitalization stocks has been 10.4 percent. In the last quarter century, it has only been slightly better at 10.9 percent. But, keep in mind, these have much higher volatility and risk. By pairing the structured settlement with a settlement conservation trust, a special needs trust, or a settlement preservation trust, liquidity can be provided.
A strategy that facilitates great liquidity and a greater cash component is using a structured annuity backstop.
There is essentially no risk or volatility with a structured settlement. They are placed with a multi-billion dollar life insurance company, and the payments are contractually guaranteed through customized structured annuities. This means that even if the insurance company goes bankrupt or merges with another company, your payments are guaranteed.
If you are still not convinced about the benefits of structured settlements, talk to a money manager, trust officer, financial planner, or stockbroker. Ask them if they can exceed the total amount of payments on a net after tax basis. Their answer should convince you.