My Purchase Structured Settlement

When many think of annuities they think of the ultimate level comfort, guaranteed income for life. Month after month routine checks floating in so you can do whatever it is you please. Over all that sounds pretty good, but it doesn’t mean it should be your financial goal now. Hiring expensive tax attorneys is often good for wealthy people, but you wouldn’t need one would you?

Get Out of Debt First

Having routine payments won’t do you any good if you don’t know how to live within your means. The whole point of the annuity is to fix your means forever. The best way to take control of your financial life is to beat down debt. In fact if you already own an annuity I would sell my annuity to pay down your high interest debt. You’ll be able to come back later at a proper time and get a new better annuity. Once you’re out of debt you’ll want to start saving for retirement.

Use Tax Free Growth Plans First

The first place you want to invest your savings is tax free growth plans. I prefer plans where I can choose my investments simply because I don’t believe buy and forget is the best choice for me. However, if your company offers a match you must take advantage of it first. A guaranteed 50 – 100% return in your first year of investment really helps the upward momentum. Next, I would invest all the way to the max allowed by the IRS into an IRA. Some would say a ROTH IRA, but I don’t trust the government won’t tax them later, so I would rather get my tax savings now. That’s just me with no political insight on the matter. After you max your IRA finish maxing out your 401k plan. I know it’s limiting, but it’s worth it for the decades of tax free growth.

Time to Buy Annuities

Now that you’ve maxed out your retirement plans ( The money is really growing now isn’t it?) it’s time to purchase an annuity, but not the type you generally think of. My favorite choice is the variable annuity for this phase in your game plan. The variable annuity allows you to invest in mutual funds wrapped in an insurance plan. Essentially the mutual funds grow tax free within the annuity, the insurance company will guarantee a certain rate of return as long as you hold the variable annuity for so many years and they will guarantee all of your principle. Obviously the terms vary a little bit from plan to plan, but this is another great way to invest in good mutual funds.

Time to Retire

Now that you have enough money to retire, and you’re of age for your retirement accounts, you can purchase annuities for a life time of income and beyond. I would begin with an annuity to cover all of your expenses and general wishes for the rest of your life. Then I would create separate annuities for each person in your life you would like to pass wealth too. I like this method because you can often set an individual up as the benefactor of the annuity and it bypasses the need to be put in a will. This way you won’t offend anyone that you’re helping your nephew more than your son or whatever your personal situation may be. My other favorite choice for annuities is to set them up for your favorite charities. Instead of writing one big check you can give them monthly support as long as they meet your standards.

Structured insurance settlements didn’t come to the United States until the 1970s as allowable option instead of the lump sum payment.  Some financial advisors prefer their clients get structured payments because the client will receive payments long after the pain that caused the settlement has passed.  The insurance companies prefer the structured settlements because it’s not a large of a hit to their cash flow and it balances out their risk over a longer period of time.  I personally hate the structured settlements and think you should sell structured settlement payments as soon as possible.  If the judge forces one make sure the payment is assigned to a third party or an annuity because you don’t want to have to depend on the defendant to keep making the payments.

Why the Structured Payment Sucks

The structured payment is horrible because a judge and lawyers determine what the worth of your money is not you.  Many times they’ll argue the value of the money is inflation or the payback on a treasury bill.  However, if you have a mortgage or high interest credit card debt at 24% your personal ability to earn more money with the lump sum would have made a much larger impact in your life.  Even if you have no debts you may have a business idea or understand some investing basics.  Again if your business or investments earn 8% – 12% per year you could be multiples richer over the life of your payments.  The last reason structured payments are horrible is they make most people worse with their money and job habits because they know the next check is coming.

Sell The Payments

Good thing for you it is completely legal to sell the payments to someone else for a lump sum of money.  There are lots of structured settlement brokers who will be happy to discuss options with you.  Feel free to call around and negotiate, this is your money and they want to buy the contract from you.   If you need help with the math hire a financial advisor to review each offer with you.  Often the terms can be complex, and you’ll need someone with experience in the area to decipher the terms into common sense.  You’ll need to be open with your financial advisor so they can understand how you intend on using the money so they can pick the terms that work best for you.

Going through an injury is a trying time.  You are attempting to follow doctor’s orders that usually never match with what work expects you to be able to do.  Your family still wants your help and you just want to close your eyes and have things go back to normal.  On top of it all you’ve had to fight the insurance companies to get a fair settlement.  Now that you’ve won there are some things you’ll need to do to prepare your life for the payments that will be coming.

Find Something to Do

Getting a structure settlement in way replaces the world that was your job.  If you are no longer able to do the job you used to prior to the injury you’re going to feel like a different person.  The longer you wait to find a new direction in life the harder it will be.  Routine monthly payments have a way of making people limited to the amount of income their settlement brings in.  This was never meant to be your top potential.  If it has already become limiting in your life consider going to a structured settlement company and just selling away your payments.  That way you’ll have a pile of cash to change your future with.

Decide How the Money Will Work For You

Since you’ve decided you will not be limited to your monthly stipend you now need to decide how this money will bless your life.  One choice is to simply give it away every month.  This is often rewarding in two ways.  One you get to help your favorite charities.  The other way is you now get to feel your injury did good for the world.  Instead of a check that reminds you of your pain, you get a check that you’ll be excited to help someone with.  Another choice is to invest it for the future.  By investing your income will become true wealth that can have generational impacts.  If you’re young you might not have thought about this much, but as an older person it means to world to know what you’ve built in this world could help your family for generations to come.  The last choice may simply be that this is your family’s play money.  Maybe it’s vacations one month or fancy dinners the next.  If immediate joy is what you need that is OK too because by spending it all on fun you still have to go out and live in the world.

Be Prepared for Problems

Most good lawyers will insist that the structured settlement is handled by a third party where the offending party simply pays a large firm to buy an annuity to cover the monthly payments of your settlement.  Sometimes large corporations get to keep their own annuities in house.  This can be problematic for you in the future when payments simply start getting lost or not processed at all.  The offending company doesn’t have much interest in paying you on time or being friendly with your questions.  Often they will be incredibly rude hoping you’ll leave them alone.  Just keep your lawyer handy and never correspond with them on your own.  If there are problems attack viscously with the law so they think twice before messing with you again.

Act Normal for the Family

You still need to teach the normal lessons of life to your kids.  They need to learn how to handle their finances in the real world when they grow up.  If all they ever see is a monthly payment that magically arrives they will have a harder time linking how money is really earned and used.