Barry and Larry were always competitive. From the time the identical twins were young, each was always trying to out-do the other whether on the tennis court, in the classroom or earning merit badges.
You name it, they competed for it.
So when, at age 65, they were involved in an automobile accident while attending a family reunion recently, it came as no surprise to those who knew them that their competitive instincts kicked into high gear when it came time to make decisions on their insurance settlement.
Yes, they were much older now but some things just never change.
Fortunately, full recovery from the accident was expected and after all expenses were deducted from their settlement, each was offered the option of taking their net recovery in a structured settlement, cash or a combination of the two.
They had slightly different goals but had this much in common: With some of their settlement proceeds, each wanted . . .
- Guaranteed Lifetime Income - Both sets of grandparents had lived into their nineties and they each wanted to dedicate a portion of their settlement to securing some "longevity insurance" because of their anticipated long lives.
- Safe and Secure Cash Flows - They each still had some investment funds they were tinkering with but wanted these funds to serve as part of their "foundation" for the future.
Convinced he could "do better on (his)own," Barry took his settlement in cash and used part of his settlement to buy a Single Premium Immediate Annuity (SPIA) which pays him $1,000/Month for the rest of his life.
Barry's analysis worked out like this:
- Cost of annuity from A-rated carrier = $186,075.86
- Taxes on $12,000/Year due to 75.4% Exclusion Ration = $903.96
- Total Net Income/Year from annuity = $11,096.04
- Total Expected Net Payout if he lives to age 95 (same as grandparents) = $332,881.20
(NOTE: Barry's case assumes he expects to be in the 33.3% marginal tax bracket perpetually and that he lives in a state which does not assess a premium tax on SPIAs. If he lived in CA, ME, NV, SD, WV or WY his annuity would be MORE expensive)
Fortunately, Larry has a good friend who is a Certified Structured Settlement Consultant (CSSC). Eager to show up his brother, Larry asked his friend to provide an "apples-to-apples" comparison to Barry's annuity using a Structured Settlement illustration.
It only took a minute for Larry to begin smiling broadly because of the obvious superiority of the Structured Settlement. He couldn't wait to show Barry how much smarter he was.
Larry's analysis worked out like this:
- Cost of Structured Settlement from THE SAME A-rated carrier = $152,876.00
- Taxes on $11,096.04/Year = Zero
- Total Net Income/Year from Structured Settlement = $11,096.04 (Same as Barry)
- Total Expected Net Payout if he lives to age 95 (same as grandparents) = $332,881.20 (Same as Barry)
No Comparison Necessary!
While each brother has guaranteed future cash flows that are IDENTICAL after taxes, Larry's Structured Settlement costs 18% less money than Barry's SPIA! That means Larry ends up with an additional $33,199.86 CASH in his pocket.
What Finn Financial Group Is Noticing:
- Industry Sales of SPIAs totaled $8.48 Billion in 2011
- This represents a 78% increase (from $4.75 Billion) in 2003
- We believe Structured Settlements Outperform SPIAs in side-by-side comparisons EVERY TIME
- Ergo, don't listen to the "experts" who reject structured settlements out of hand because "rates are too low." They significantly outperform SPIAs which many retirees are choosing when it comes time to convert their life savings.
So don't get hurt just to take advantage of a Structured Settlement. But if you are given the option of structuring, think long and hard before passing up such an excellent opportunity.
(NOTE: We can help you with Structured Settlements AND SPIAs by the way.
Call anytime for professional assistance with either)