A structured settlement is a payment agreement arrangement that allows a plaintiff to be paid money over a period of time or for the rest of their lives rather than being paid a one-off lump sum. The payments are usually for personal injury, especially accidents. In most cases, the payments can either be paid by an insurance company or individual, and such cases never go to trial.
Structured settlements are a highly favored mode of compensation in situations where a plaintiff suffers a severe and permanent injury. When this happens, a defendant makes arrangements with his/her insurance company so that the plaintiff is covered by an annuity policy and receives payments over an agreed period, as stipulated in a signed agreement by both parties. This ensures that no lawsuit is filed and the defendant receives a steady stream of money for the duration they will be unable to fend for themselves.

Selling a structured settlement

Some people prefer to sell their structured settlements for various reasons some of which may be buying or repairing a home, paying for your children’s college fees, to invest in a business, to pay off debt, to assist a friend of family member financially or after sustaining an injury among a host of other reasons. The process of selling one’s structured settlement is not a complicated affair and entails the seller making the decision to sell, putting a price tag on the sale and appearing before a judge to get approval on the sale. After the sale is approved, then one can get their money in the form of a lump sum payment. There are three main ways to sell your structured settlements;
Partial- In this case, only a portion of your payments is all you will sell. You will continue receiving money periodically without losing your tax benefits. The structural settlement will continue to carry those benefits and extend them to your heirs in case of your demise.
Entirety- This is selling the entire structured settlement and preceding the periodic payments. A lump sum is offered which you can then invest.
Lump sum- This is done over time and guarantees and a steady stream of income in addition to the tax benefits for the term of the contract. It also gives significant money increments.

How to choose the best structured settlement company

The enterprises that buy structured settlements are not the same and have different modes of operation. Due diligence should be observed when choosing one of these structured settlement buyers. One of the best points of reference is the Better Business Bureau where companies are rated according to their performance. A company rated ‘C’ most probably does not give good service. Going through all the companies though can be a daunting task. Here are some pointers to head you in the right direction.

• How long the company has been in business- Experience in any field is key to service delivery. It also comes with a wealth of knowledge and a track record a seller can be able to peruse through. While there is nothing wrong with dealing with a new company, one that has been around for some time would be a sure bet, and one can check out its service record, payment duration and any other information one would want to know.
• A company that responds fast- Time is money, and the ability of a company to respond quickly to questions and queries tells a lot about the kind of service that you will receive.
• The best terms- It is always a good idea to go through the terms of the agreement with a fine tooth comb to get the best deal. Some unscrupulous companies have hidden charges in their offers. Those charges are then sneaked in and set you back cash wise. If you are not sure about a deal or an absolute clause, it is always good to consult with an attorney for clarification. It is also advisable to shop around, get various offers to be able to make an informed decision.

Here are some of the companies that are available for structured settlements;

1. JG Wentworth: With 20 years experience, this is a corporation that prides itself on putting smiles on thousands of customer’s faces. According to its website, it is the number one company that buys structured settlements and worth checking out.
2. Olive Branch Funding: This Company also prides itself in fast payments and a wealth of experience when it comes to structured settlements. A great customer experience is promised and hearing them out would be worthwhile.
3. SenecaOne: With a rating of between 3.4 to 4.4, which is relatively safe, this company promises fast payments and a quick process for your structural settlement.

So when going about the process of selling your structural settlement, this should act as a guide towards doing it right, in order to enjoy your cash.

Sources:

https://en.wikipedia.org/wiki/Structured_settlement…

Simply put, an annuity denotes a financial instrument sold by insurance firms that enable you to save money, have it increase yearly without being taxed. The amount then attracts a continuous future payment on some structured schedule you have control over. However, the payments are subjected to tax, just like any other ordinary income. Contrary to an IRAs, an annuity provides no limit as to the amount of income you can put on it.

Basically, there exists two types of annuities; immediate and deferred annuities.

• An immediate annuity- in this contract, you start receiving payments as soon as you make your first investment. An example includes an immediate annuity bought as you approach the age of retirement.
• Deferred annuity- it’s an arrangement in which your money is invested over a period of time when you are ready to start making withdrawals, usually in retirement.
• Fixed/varied- immediate/deferred annuities can either be variable or fixed. This depends on the mode of payout; whether fixed sum or tied to the performance of the market or a combination of both.

Annuity Selling Options

Note that you have options in selling your recurring payments. Following are potential options at your disposal:

1. Partial sale: Entails only selling a portion of your payments while continuing to receive payments. Partial sale for a period of time incurs no payments until the lapse of the sale period. Another option entails selling a portion of each and every payment, in which case you will still be entitled to continual payments, in proportion to the remaining portion after the sale.
2. Entirety option: The options entail clearing out all your settlement or investment annuity at once through the sale of annuity payments through the entire term of the contract. This terminates your regular schedule of payments. However, you will be left with a certain lump sum to use when you deem necessary.

How to sell Annuity payments

The sale of an annuity begins by finding a potential buyer, whether an individual or company and speaking with one of their specialized representatives. This can be done online or through establishing a physical meeting with the company representative. Your representative will require some information about the annuity and will, therefore, ask you some questions. A good representative should try identifying your financial situation in order to figure out the most suitable way possible to help your meet your goals.
After understanding your distinct annuity goal, the company will develop a few options for you. This will be offered to you by your representative and may include an entire sale of your term payments or simply selling a part of each payment while leaving you with some regular payments.

However, the choice of the sale will be yours. After educating you about various option implications, you will select decided how you will sell your annuity payments. The company will then get together all the paperwork and send them to the insurance company managing your account. You will have to provide the company with a signed copy of the annuity agreement, together with a contract authorizing the company to seal the sale. Once the buying company receives all the documentation and acknowledgment from the annuity issuance company, it will directly deposit the cash into your account. This can be done electronically or by sending you a check.

Reasons to sell your annuity payment

Although the specific situation and reasons for selling annuity payments are unique and inherent to the holder, below is a highlight of common reasons for such a sale;

• Need for change in your investment/estate planning strategy
• When you realize that your initial reason for investing in annuity no longer exists or applies.
• Need for immediate cash for a home improvement or down payment
• When the annuity was of inherited and you wish to earn a cash lump sum rather than monthly payments
• Need for business investment
• Intending to invest in the stock market, real estate, or retirement funds
• Wish to acquire a lump sum to settle off a debt from a financial institution or credit card
• Obtain lump sum to cover medical bills

Despite the reason, your potential buyer will carefully analyze your financial situation and take you through the available options. All in all, ensure to meet your annuity selling goals.…

Because the primary objective for retirement is to build a safe and secure income floor for the entire retirement planning horizon, safety-first advocates recommend you consider pensions, bond ladders, and income annuities when meeting these requirements.

Once the foundation is laid for your basic income needs, you can then invest the rest of your money in more volatile assets (like stocks) that will fund your discretionary purchases.

Example

For the sake of argument, let’s consider what would happen if you took your entire nest egg balance and purchased an annuity.

Using a simple generic online quote provider (note that this link is NOT an endorsement; it’s just for the sake of gathering numbers to illustrate my point), at the time of this publication, we find that a 45 year old couple could purchase a $1 million dollar immediate annuity from an A++ rated insurance company that would pay just over $40,000 per year.

That’s not too bad!  Notice that we’re getting basically about the same 4% return on investment that we would have received with the 4 percent rule.  Of course, the exception is that here the money is guaranteed for life.  You will never stop receiving payments for as long as you’re alive (and the insurance company remains in business).

The bad news is that if you and your spouse get hit by a bus tomorrow, then the money is all gone.

(Note: You can buy annuities that leave behind some or all of your initial investment to heirs.  However, the payout is considerably less.)

Recall that in the safety-first philosophy, legacy endowments like this are a secondary consideration.  In this example, the primary goal of secure, guaranteed payments for life has been achieved.

How Does This Change Our Target Nest Egg Goal?

The reason I have included this chapter in our discussion is because, again, I think that it is absolutely vital to understand the meaning behind the numbers you plan to use for determining your nest egg goal.  Whether those meanings have positive or negative connotations, it would be irresponsible not to consider the topic from all perspectives.

While I tend to lean more towards the probability-based school of thought, I don’t think you can (or should) dismiss what the safety-first approach is trying to accomplish: Confidence.  Therefore, there is no reason you can’t combine elements of both strategies to come up with a winning, power-house combination!

Example

Let’s say that you plan to retire by age 50 and would (again) like to shoot for a passive income goal of $50,000 per year.  But this time you’d like at least half of our income ($25,000) to come from a guaranteed source.  This way, applying an element of safety-first logic, you’d always know that your basic needs will be met.

Using the same online, generic quote tool as above, we find that we’ll need at least $550,000 to purchase an immediate annuity from a reputable source that will bring in this level of income.

To fund the remaining $25,000 of our desired income, we could then switch to a more probability-based approach.  Using Kitces withdrawal rates as an example, we’d also need an additional:

4. a) $555,556 assuming a safe withdrawal rate of 4.5%, or
5. b) $454,545 assuming a safe withdrawal rate of 5.5%

This means that our total nest egg goal should be anywhere between $1,004,545 and $1,105,556 in order to execute this strategy.

(Note that these figures are not that far off from the goals we concluded we could use in the previous chapter.)

Conclusions

As I said, I included this chapter to give you broader perspective on retirement planning security in general.

Ultimately, the decision on how you’d like proceed is yours.  Only you can define what “safe” really means to you.

If you are more comfortable with risk, then probability based methods may be more suited for you.  But if having an absolute guarantee that you will always receive money every month no matter how the markets behave, then perhaps considering some or all parts of a safety-first philosophy may not be out of the question.…

Up until now, everything that we’ve been talking about with “safe” withdrawal rates comes from something called the “probability-based” school of thought for retirement income planning.

To put this in context, for every withdrawal rate we’ve analyzed, there is always a rate of success associated with it.  There is some inherent element of a “gamble”; even if it’s very small.

The safety-first school of thought takes a different approach.  First and foremost, it puts the goal and certainty of retirement income before all else.  Period!

A safety-first approach is not concerned with reaching retirement as quickly as possible, having the most retirement income possible, or even building the most amount of wealth.  Its primary purpose is singular:

To find a way to ensure that the money you need for your basic essentials and contingencies are met under all circumstances!

Secondary priorities such as leaving money behind to heirs or wealth growth are held to a much lower priority; or in some cases dismissed altogether.  These would be considered discretionary or legacy priorities, and are far behind the first two.

Because there can be no risk, it is not acceptable to use a variable asset source to generate income.  Translation: A retirement nest egg based on market returns is far too risky!  In the safety-first approach, there is no such thing as a safe withdrawal rate.  To truly have 100% certainty, the income source must be guaranteed.

The safety-first school of thought is not something new.  It has been around since the 1920’s with the research of people like Frank Ramsey and Irving Fisher. In recent years, one of the bigger advocates for the safety-first approach is financial researcher Dr. Wade Pfau.  You can learn more about a safety first approach at these posts here.

1. What is a Safety First Retirement Plan?
2. Two Philosophies of Retirement Income Planning

Could the 4 Percent Rule Be Unsafe?

Is there any truth to the 4 percent rule or a probability-based approach being flawed?

Unfortunately, going forward, there may be some chance for uncertainty.

As Dr. Wade Pfau put it in the NY Times:

Because interest rates are so low now, while stock markets are also very highly valued, we are in uncharted waters in terms of the conditions at the start of retirement and knowing whether the 4 percent rule can work in those cases.

FYI: Here’s a chart of the Federal Interest rate over time.  As you can see (over on the highlighted area in the right), they’ve been at a historic low for quite some time.

Dr Pfau was also part of a paper from 2013 in the Journal of Financial Planning with co-authors Michael Finke and David M. Blanchett called “The 4 Percent Rule Is Not Safe in a Low-Yield World.”  In it, they warn that if current bond returns don’t spring back to their historical average until ten years from now, up to 32% of nest eggs would evaporate early.

Of course, these points are only a matter of opinion since the future always remains uncertain.

In support of a traditional probability based method, Michael Kitces argues that:

The 4 percent rule was built around some rather horrific bear markets of the past already.  Do we necessarily know or expect that the next one will be so much worse than any of the other terrible historical bear markets we’ve seen?…