Sometimes waiting to spend money makes good financial sense.
Buying patio furniture after Labor Day or calendars in January, for instance.
Having your furnace serviced in the summer or taking a cruise in the off season are all examples of choices thrifty people make.
But when it comes to arranging for your lifetime security, does the waiting game still make sense?
The Break-Even Rule of 100
One of the most common reasons given by people who reject the opportunity to structure their insurance settlement proceeds or attorney fees or who put off rolling over their retirement savings into an annuity is that they believe interest rates are "too low."
Often, they don't actually know what interest rates are paying or what they will receive by annuitizing. Instead, they simply make assumptions based on what they've heard others say.
So they choose cash instead assuming they'll be able to make up any lost ground once interest rates improve.
Setting aside the possibility that interest rates
may not rise in a meaningful way for a long, long time (or could actually drop), what if you could make a more informed choice about what you should do?
This is where a handy little thing called the "Break-Even Rule of 100" can be useful. This simple formula can help quantify the cost of waiting and help you make better decisions:
100 / (interest rate increase %) = # years it takes to break-even
We just uploaded a new pamphlet from one of our life company partners to the
Brochures section of our website that covers a few examples of the
Break-Even Rule of 100 in practice.
Many people fail to realize waiting can be so costly.
But by pushing a few buttons, anyone with basic calculator skills can see for themselves that it's entirely possible for rates to improve in the future but not enough to offset what they will lose by waiting because of the time value of money.
Additional ConsiderationsMeasuring the cost of waiting is only part of the story though.
Because
physical injury structured settlements pay benefits (principal and interest) that are
100% income tax-free, the advantage of structuring
NOW can be compounded because post-settlement annuities are priced differently and are partially taxable making structured settlements the superior choice.
And since structured settlement decisions must be made prior to any negotiations being finalized, you won't get a second bite at this apple.
Finally, because it's possible to "even out" a high tax bracket this year by structuring taxable settlements and attorney fees in such a way that they are paid out, with pre-tax interest, over future years (when an anticipated tax bracket might be lower), passing up structuring these opportunities can prove even
MORE costly.
SummaryThere might be dozens of good reasons to not structure settlements or attorney fees or to hold off converting one's retirement nest egg into an annuity.
But interest rates being "too low" should not be one of them.
Securing your future with guaranteed income that is safe will never go out of style. Choosing a structured settlement, structured attorney fee or other annuity can help accomplish just that.
So grab your calculator and run a few scenarios for yourself. Then call us to let us know how we can help you.
Thank you for the opportunity to be of service and best wishes for continued
Success!
Dan Finn, CPCU, CSSC
Certified Structured Settlement Consultant
Dan@FinnFinancialGroup.com
NOTE: This newsletter is presented for educational purposes only and should not be construed as tax or legal advice. All rights reserved.
