Thursday, September 6, 2012

Things You Need To Know AboutCompounding A Structured ...

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Compounding Structured Settlements (http://www NULL.freedigitalphotos NULL.net/images/Charts_and_Graphs_g197-Profit_Puzzle_p57281 NULL.html)Younger injured parties (under age50) can often benefit from the use of an inflation-adjusting component in their structured settlement. This means their payouts gradually increase at typically a 3 percent compounding rate. For older injured parties, however, an inflation component is not recommended. The person?s life expectancy does not warrant it.

For example, if a 52-year-old woman were awarded a$1 million annuity settlement, she would receive approximately $4,500 a month for 34 years (her life expectancy). With a 3 percent inflation component, she would receive $2,516 per month the first year, which would increase but not reach $4,500 per month until the 21st year. The $1,984 difference each month over the 21 years adds up to$500,000 tax-free. In most cases, she could probably make better use of the larger monthly amount while she is in her 50s and 60s, or she could decide to invest or save the extra cash she does not use for later in life. By eliminating the inflation factor, she has many more options for her money.

A similar analogy could be made for Social Security payouts. Many people are tempted to postpone collecting their Social Security benefits until they can receive the maximum payout at age 70 instead of collecting at age 66, when you are not restricted by how much you can earn each year. Factoring the income lost over the four years between ages 66 and 70 can be sizable and should not be dismissed.

While younger injured parties often require long-term planning for inflation as well as for education and other milestone expenses, for older clients, attorneys should strive to arrange for a sufficient stream of income to meet the financial needs throughout the life of their client.

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  2. No Complaints: Tight Safety Regulations on Structured Settlement Annuities
  3. U.S. Treasuries Provide Diversification to Structured Settlements
Tags: Annuities, Compounding, Injured Parties, Social Security, Social Security Disability, Structured Settlements

Source: http://patrickfarber.com/all/things-you-need-to-know-about-compounding-a-structured-settlement/

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