April 28, 2022 - First things first: Structured settlements have always been cool and have always been smart choices for those resolving personal injury claims.
What's not to like about guaranteed, tax-free or tax-deferred income secured by some of the most well-capitalized financial institutions in the world?
But for the past few years, their cool factor took a hit in the eyes of many as evidenced by the fact some practitioners (attorneys, claims professionals, etc.) have avoided even considering structured settlements due to the perceived "low" interest rate environment.
They simply assumed structured settlements were not attractive.
Settling aside for a moment that structured settlements consistently provide benefits which exceed the payouts of other alternatives of similar risk, it is true that some payout patterns didn't quite "WOW!" clients like they might have in years past.
But that was then. This is now.
What's Changed Lately?
For starters, short term interest rates are up.
The 10-Year Treasury isn't a precise apples-to-apples comparison to structured settlement rates, but it is often seen as a barometer of interest rate trends generally. And the trend is definitely up!
In 2020, the 10-Year Treasury languished below 1.0% for most of the year.
For most of 2021, it never eclipsed 2.0%.
If today's rate continues its northward climb and eclipses 3.0%, (approximately 0.122% from that benchmark as of this writing), it will be the first time to hit this figure in three-and-a-half years.
It's been 2008 since the 10-Year Treasury closed north of 4.0% and, while anything is possible, history suggests it may yet be a decade or more before we return to that level.
for some perspective on this topic.
One final observation worth mentioning about interest rates is the interrelationship between any interest rate increase and its starting point. For instance:
Whereas a rate increase from 1.0% to 2.0% represents a 100% improvement,
A rate increase from 2.0% to 3.0% represents only a 50% improvement.
This point is worth stressing since these recent movements have come on the heels of historically suppressed interest rates.
The fact rates are now more than two full percentage points better than they were two years ago means you'll notice a more dramatic impact on quotes you request today than you will if, two years from now, rates are at 5.0% and you're comparing to today.
In other words, this is an EXCITING time to lock in to a tax-free or tax-deferred structured settlement, structured attorney fee, structured installment sale, or retirement annuity.
Beyond Interest Rates
What else makes this an appealing time to consider structured settlements and related products and services?
Two things come immediately to mind:
Expansion of Structured Settlement Options
Once upon a time, the only structured settlement option available to consumers was the plain, old, boilerplate fixed life company annuity some might describe as "boring."
Boring or not, these fixed annuities have been securing the futures of some of our most vulnerable citizens for decades, so their value is unquestionable. And by any measure, boring trumps loss of value (which can easily occur when money is squandered or mismanaged) any day of the week.
But as our industry has evolved, so have product offerings.
Many clients now have the option to dedicate a portion of their funds into structured settlements linked to market performance. Some of these are life company offerings which provide a guaranteed floor level of income which can increase over time but will never decrease.
Another one converts a future lump sum into periodic payments if interest rates are favorable when the lump sum is due.
Other options permit direct allocations into marketable securities and indexes linked to market performance. Some of these, too, offer floor levels of income which protect the recipient from total loss in the event of a protracted down market.
What makes these newer options particularly impressive is knowing how superior they are to the offerings of traditional financial planners who cannot offer the same tax-free or pre-tax growth potential.
Dire Market Predictions
Nobody, and I mean NOBODY, ever really knows what the future holds.
If someone assures you they have a secret window into the future and can guide you to invest in the market with confidence you won't lose any money, you'd be well advised to run as far and as fast as you can in the other direction.
That said, some who have spent a lot of time studying and analyzing market history and trends (and are paid a boatload of money to get things like this right) seem to be hinting the bull market party may be over
. At least for the foreseeable future.
Over time, the market can reward those who are patient and have a long enough time horizon.
But short term, and when a person is systematically drawing down funds needed to live off, the glitter of a reward oftentimes is not worth the risk of disaster.
In Case You Missed It
Before closing, just a brief reminder of some of our recent offerings which may be of value to you in your personal and professional lives.
One will open your eyes to some of the realities facing those coming into (or already in) retirement. I still have a handful of gift cards for The Baby Boomer Dilemma.
(While supply lasts)
The other was created as a service to the legal community as an Everything You Always Wanted to Know About Structuring Attorney Fees* (*But Were Afraid to Ask) offering. (I have received some excellent feedback on this one!)
Click the links below if interested in either.