38 yr old with a question about structured settlement

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h08151952
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38 yr old with a question about structured settlement

Post by h08151952 »

Hello Everyone,

This is my first time posting on this forum.

I received a 1 million dollar settlement.

I am considering a structured settlement versus lump sum.

I read the Bogleheads windfall wiki. It was very helpful.

I do not want this money to change my life. I want to invest it carefully for my child and family. I grew up in a poor immigrant family which
really gave me drive and a hard work ethic. I do not want this to affect my child.

I hope you can help guide me to books I can read, places to find trustworthy information. I am nervous about talking to financial planners because I just don't know who I can trust.

Both myself and my partner have professional jobs and we still have graduate school debt at about 200k(combined), rent an apartment,
we do not have credit card debt.

Thank you for your time and advice!
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anon_investor
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Re: 38 yr old with a question about structured settlement

Post by anon_investor »

h08151952 wrote: Mon Oct 11, 2021 9:35 pm Hello Everyone,

This is my first time posting on this forum.

I received a 1 million dollar settlement.

I am considering a structured settlement versus lump sum.

I read the Bogleheads windfall wiki. It was very helpful.

I do not want this money to change my life. I want to invest it carefully for my child and family. I grew up in a poor immigrant family which
really gave me drive and a hard work ethic. I do not want this to affect my child.

I hope you can help guide me to books I can read, places to find trustworthy information. I am nervous about talking to financial planners because I just don't know who I can trust.

Both myself and my partner have professional jobs and we still have graduate school debt at about 200k(combined), rent an apartment,
we do not have credit card debt.

Thank you for your time and advice!
Take the lump sum, pay off that debt, save/invest the rest (don't spend it).
sport
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Re: 38 yr old with a question about structured settlement

Post by sport »

Welcome to the forum.
Vanguard Private Advisory Service (PAS) is a good low cost advisor. They will not cheat you nor take advantage of you.
carminered2019
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Re: 38 yr old with a question about structured settlement

Post by carminered2019 »

anon_investor wrote: Mon Oct 11, 2021 9:55 pm
h08151952 wrote: Mon Oct 11, 2021 9:35 pm Hello Everyone,

This is my first time posting on this forum.

I received a 1 million dollar settlement.

I am considering a structured settlement versus lump sum.

I read the Bogleheads windfall wiki. It was very helpful.

I do not want this money to change my life. I want to invest it carefully for my child and family. I grew up in a poor immigrant family which
really gave me drive and a hard work ethic. I do not want this to affect my child.

I hope you can help guide me to books I can read, places to find trustworthy information. I am nervous about talking to financial planners because I just don't know who I can trust.

Both myself and my partner have professional jobs and we still have graduate school debt at about 200k(combined), rent an apartment,
we do not have credit card debt.

Thank you for your time and advice!


Take the lump sum, pay off that debt, save/invest the rest (don't spend it).
+1, your cashflow will be higher with no debt.
Last edited by carminered2019 on Mon Oct 11, 2021 11:16 pm, edited 1 time in total.
Topic Author
h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Also our student loans have a 3.5 percent interest rate. Would you still recommend paying this off if the rate of return for investments would be greater?
sport
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Re: 38 yr old with a question about structured settlement

Post by sport »

If you do not already have it, get some term life insurance to protect your family. Just term life, no other kind.
Topic Author
h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Yes, I am in the process of getting term life. If I hear someone trying to push whole life, I lose trust.
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anon_investor
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Re: 38 yr old with a question about structured settlement

Post by anon_investor »

h08151952 wrote: Mon Oct 11, 2021 10:21 pm Also our student loans have a 3.5 percent interest rate. Would you still recommend paying this off if the rate of return for investments would be greater?
Yes, today's interest rates on safe investments are still lower than that, pay off the student loan debt.

Get term life, whole life is a rip off.
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Matahari
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Re: 38 yr old with a question about structured settlement

Post by Matahari »

Welcome to the forum.

You did not mention the type of settlement and you don't have to. But, have you confirmed that no part of the lump-sum settlement is taxable? Make sure that you check this matter.

Proceed slowly and with careful deliberation. As you know from having read the Wiki, there is no need to rush into anything. Good luck to you and your family.
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22twain
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Re: 38 yr old with a question about structured settlement

Post by 22twain »

Again, welcome to the forum!

There is a Bobleheads wiki article about managing a windfall:

https://www.bogleheads.org/wiki/Managing_a_windfall

A common piece of advice is to keep quiet about it in order to avoid making yourself a target. Don't change your public lifestyle suddenly, which will give your friends and acquaintances clues that something has happened.
It's "Roth", not "ROTH". Senator William Roth was a person, not an acronym.
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Stinky
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Re: 38 yr old with a question about structured settlement

Post by Stinky »

What are the terms of the proposed structured settlement? For example, is your choice something like (a) $1 million now, or (b) $51,000 per year for 20 years.

And will you be paying taxes on the proceeds? Extending my example, will you owe income tax on any part of the proceeds if you take $1 million now? Alternatively, will you owe income tax on any part of the proceeds if you take $51,000 per year for 20 years?

If you’ll share the terms of the proposed structured settlement, we can probably calculate the implicit interest rate in the offer. I’m guessing it’s in the 2-3% range, but that’s purely a guess.

Having that interest rate in hand should help you to form your decision.
It's a GREAT day to be alive! - Travis Tritt
Train2bogle
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Re: 38 yr old with a question about structured settlement

Post by Train2bogle »

As the previous post alluded to, any advice so far is kind of useless without some details of the settlement.

Structured settlement would likely have a small interest rate attached to it.

Many settlements are taxable. The way it’s taxed could strongly swing the decision between structured and lump sum.


If you get taxed on the lump sum, that’s like a $400k tax haircut. If you are in a low tax bracket, and you got say $55k for 20 years (and would pay tax each year on $55k/yr), you’d pay closer to $300k in taxes over the duration.
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

The settlement is not taxable because it is personal injury. And the gains on the structured settlement would not be taxed. This was told to me from the law firm representing me and the structured settlement broker. However, I have not spoken with a tax attorney yet.

The structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.

We get taxed at the 35% income tax bracket.

I am also in the process of opening a business right now, we have an emergency fund, we have combined 400k in retirement, I have 20k in a HSA that is invested, plus 20k in a brokerage account. I maxed out backdoor IRA this year.

We have self control and are not concerned we will spend this money. We are very careful about our money.

Yes, I agree about all your advice. We are very low key family. The windfall is private and we have not shared this information with anyone.
pizzy
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Re: 38 yr old with a question about structured settlement

Post by pizzy »

h08151952 wrote: Tue Oct 12, 2021 6:46 am The settlement is not taxable because it is personal injury. And the gains on the structured settlement would not be taxed. This was told to me from the law firm representing me and the structured settlement broker. However, I have not spoken with a tax attorney yet.

The structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.

We get taxed at the 35% income tax bracket.

I am also in the process of opening a business right now, we have an emergency fund, we have combined 400k in retirement, I have 20k in a HSA that is invested, plus 20k in a brokerage account. I maxed out backdoor IRA this year.

We have self control and are not concerned we will spend this money. We are very careful about our money.

Yes, I agree about all your advice. We are very low key family. The windfall is private and we have not shared this information with anyone.
Lump sum, pay off school debt, put rest in Vanguard PAS or Schwab Intelligent Portfolio with whichever AA helps you sleep at night.

Check back in 20 years.
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Stinky
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Re: 38 yr old with a question about structured settlement

Post by Stinky »

h08151952 wrote: Tue Oct 12, 2021 6:46 am
The structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.
I did some quick and dirty work with my interpretation of what you said above.

Presuming that -
--- You defer $1 million today, with first installment payment deferred for 20 years
--- You receive annual payments, with your first payment in year 21 (that is, roughly 2042) and your last payment in year 40
--- The implicit interest rate during the deferral period is 6.2%

If I've done the math correctly, you could receive approximately $295,000 per year, tax free, for each year from 2042 to 2061.

So far as I'm concerned, receiving a 6.2% tax free return for the next 40 years is a slam bang winner, and I'd accept in a heartbeat. My only concern is whether the entity that will be paying the benefits is absolutely certain to be able to pay benefits until the year 2061.

Do my numbers line up with yours?
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

My vote is to take the lump sum, pay off any higher-interest consumer debt, and then put the money in savings until you have really thought about what your long-term plan is for the money. I would not lock up the money for 40 years provided I was confident that I wouldn't fritter it all away - better to keep the money liquid and maintain your flexibility.

While it probably feels weird now to be talking about this kind of money, trust me - there will eventually (a few months, probably) be a point where having that kind of money is just not a big deal. The key thing is to avoid doing anything major with that money until you reach that point. That includes dealing with the pushy settlement annuity salesperson and / or apposing counsel's lawyer, both of whom probably get a kickback from the cost of that annuity they are trying to sell you. (In other words - don't let them push you into it!)

Once you are there, reach out to Vanguard - they have a "personal advisor services" (PAS) team that can work with you on how best to invest the money. Their costs for this service are very low (0.3% assets under management), and it's very easy to cancel it once you learn more about investing. This makes PAS a great set of "training wheels" until you get more comfortable with managing this kind of money.

Also, if you haven't already done so - don't tell anyone about the money. Nothing good will happen when everyone around you knows you're a newly minted millionaire. It also makes it easier for life to get back to normal (see previous paragraph).

Source: I was once in the same position as the OP - received a seven-figure malpractice settlement as well. I did almost all of the things listed above and am very, very grateful that I did so. The worst mistake I made in the process is annuitizing part of the settlement (using the structured settlement) - just felt like I gave up a ton of liquidity and potential return for some security that I really didn't need as my wife and I are not spendthrifts. (This is really the only reason for these annuities to exist - to protect recipients from going out and blowing all of the money. For some people that makes sense, but in the OP's case it seems like it is not needed.) But they were pushing it hard as the "responsible" choice, and I knew far,far less about investing than I do now, and I was just so overwhelmed by the whole process that I went for it...
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Hello, I have to make a decision soon.
cockersx3 wrote: Tue Oct 12, 2021 7:53 am I was once in the same position as the OP - received a seven-figure malpractice settlement as well. I did almost all of the things listed above and am very, very grateful that I did so. The worst mistake I made in the process is annuitizing part of the settlement (using the structured settlement) - just felt like I gave up a ton of liquidity and potential return for some security that I really didn't need as my wife and I are not spendthrifts. (This is really the only reason for these annuities to exist - to protect recipients from going out and blowing all of the money. For some people that makes sense, but in the OP's case it seems like it is not needed.) But they were pushing it hard as the "responsible" choice, and I knew far,far less about investing than I do now, and I was just so overwhelmed by the whole process that I went for it...
This is really impactful to me. Can I ask how long you deferred this for? I am really still on the fence. I am learning about investing and not sure either. I feel like you probably did back then when you had to decide how to handle your settlement.

Formatting of quote fixed by Moderator Misenplace.
mikejuss
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

h08151952 wrote: Tue Oct 12, 2021 6:46 amThe structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.
Where does the 6.2% figure come from? It sounds to me like it was pulled out of thin air. You're better off controlling your own investments, OP, and thus taking the settlement as a lump sum that you can manage according to your own wishes.
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Re: 38 yr old with a question about structured settlement

Post by PVW »

h08151952 wrote: Tue Oct 12, 2021 6:46 am
The structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.
Be careful - 6.2% guaranteed return sounds high. It might actually be the payout rate, which will include returning some of the original principal in addition to some interest. You will need to know the payout details to calculate the return.
Small Savanna
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Re: 38 yr old with a question about structured settlement

Post by Small Savanna »

A lot of people are recommending the lump sum, but I assume part of the benefit of a structured settlement is that the growth over time is tax free, similar to a Roth IRA. To assess the value of that, you could create a spreadsheet model to compare two options:

Option 1 - Take the lump sum, invest it at some notional investment growth rate, and see how much you have in 20 years, assuming x % of your net gains will go to taxes, at dividend/capital gains rates.

Option 2 - Take the annual payments, invest them as they are received, same assumptions on investment returns and on taxes but only on the gains after funds get distributed to you, and see how much you have in 20 years.

You could run the model with different assumptions about investment returns and tax rates as a sensitivity analysis.
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

Small Savanna wrote: Tue Oct 12, 2021 8:22 pm A lot of people are recommending the lump sum, but I assume part of the benefit of a structured settlement is that the growth over time is tax free, similar to a Roth IRA. To assess the value of that, you could create a spreadsheet model to compare two options:

Option 1 - Take the lump sum, invest it at some notional investment growth rate, and see how much you have in 20 years, assuming x % of your net gains will go to taxes, at dividend/capital gains rates.

Option 2 - Take the annual payments, invest them as they are received, same assumptions on investment returns and on taxes but only on the gains after funds get distributed to you, and see how much you have in 20 years.

You could run the model with different assumptions about investment returns and tax rates as a sensitivity analysis.
If the OP takes Option 2, how will the settlement amount be invested before he receives it?
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Stinky
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Re: 38 yr old with a question about structured settlement

Post by Stinky »

Stinky wrote: Tue Oct 12, 2021 7:05 am
h08151952 wrote: Tue Oct 12, 2021 6:46 am
The structured settlement is flexible for deferral and distribution period.
For the long term growth scenario the annual net return is 6.2%.
I received hypothetical distributions for 15 year and 20 year deferrals with a 20 year pay out.
I did some quick and dirty work with my interpretation of what you said above.

Presuming that -
--- You defer $1 million today, with first installment payment deferred for 20 years
--- You receive annual payments, with your first payment in year 21 (that is, roughly 2042) and your last payment in year 40
--- The implicit interest rate during the deferral period is 6.2%

If I've done the math correctly, you could receive approximately $295,000 per year, tax free, for each year from 2042 to 2061.

So far as I'm concerned, receiving a 6.2% tax free return for the next 40 years is a slam bang winner, and I'd accept in a heartbeat. My only concern is whether the entity that will be paying the benefits is absolutely certain to be able to pay benefits until the year 2061.

Do my numbers line up with yours?
OP, could you share with us what the hypothetical distribution was for the 20 year deferral with a 20 year payout? Was it the $295,000 per year that I calculated above, or was it a different number?

If it was $295,000 per year, I still think that this is a strong offer to consider. 6.2% tax-free growth for 40 years sounds extremely attractive to me, in terms of both providing earnings during retirement and leaving a legacy for the next generation.

But, it's possible that I misinterpreted your statement. If so, it would be good to know that too.
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Re: 38 yr old with a question about structured settlement

Post by AnnetteLouisan »

22twain wrote: Tue Oct 12, 2021 1:23 am Again, welcome to the forum!

There is a Bobleheads wiki article about managing a windfall:

https://www.bogleheads.org/wiki/Managing_a_windfall

A common piece of advice is to keep quiet about it in order to avoid making yourself a target. Don't change your public lifestyle suddenly, which will give your friends and acquaintances clues that something has happened.
+ 1,000
nordsteve
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Re: 38 yr old with a question about structured settlement

Post by nordsteve »

If your are considering a structured settlement, there is a good series of articles that the Star Tribune is running that details how they can be abused. Today's article:

https://m.startribune.com/accident-vict ... 600104478/
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cockersx3
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

h08151952 wrote: Tue Oct 12, 2021 5:01 pm Hello, I have to make a decision soon.
cockersx3 wrote: Tue Oct 12, 2021 7:53 am I was once in the same position as the OP - received a seven-figure malpractice settlement as well. I did almost all of the things listed above and am very, very grateful that I did so. The worst mistake I made in the process is annuitizing part of the settlement (using the structured settlement) - just felt like I gave up a ton of liquidity and potential return for some security that I really didn't need as my wife and I are not spendthrifts. (This is really the only reason for these annuities to exist - to protect recipients from going out and blowing all of the money. For some people that makes sense, but in the OP's case it seems like it is not needed.) But they were pushing it hard as the "responsible" choice, and I knew far,far less about investing than I do now, and I was just so overwhelmed by the whole process that I went for it...
This is really impactful to me. Can I ask how long you deferred this for? I am really still on the fence. I am learning about investing and not sure either. I feel like you probably did back then when you had to decide how to handle your settlement.

Formatting of quote fixed by Moderator Misenplace.
The structured settlement was set up to disperse money in annual installments for 4 years, for each of my two kids. The latest date for the last disbursement was +12 years from when it was awarded. The amount that I annuitized was about 1/3 of the total lawsuit settlement value - and in retrospect was far, far more than what I ever would have needed to save for college.

That was my overall point - that by getting the structured settlement now you're giving up a lot of flexibility with that money, at a stressful time where you just don't really know what you will need long term.

As I said before, these settlements exist primarily as a way to protect spendthrifts from themselves. (And yes, there are people out there who need this kind of protection.) They are generally not good financial investments - you can almost certainly do better financially by investing the money over the long term. As long as you are confident that you won't go out and fritter the money away, then I would personally advocate getting the lump sum and saving it in a low-risk investment for now. Once the "weirdness" of suddenly dealing with giant financial numbers wears off - and I seriously mean it, it will wear off eventually - give the Vanguard PAS team a call and talk to them about your goals, and work with them to come up with a financial plan that makes sense.

Good luck!
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

cockersx3 wrote: Wed Oct 13, 2021 1:53 pmAs I said before, these settlements exist primarily as a way to protect spendthrifts from themselves. (And yes, there are people out there who need this kind of protection.) They are generally not good financial investments - you can almost certainly do better financially by investing the money over the long term. As long as you are confident that you won't go out and fritter the money away, then I would personally advocate getting the lump sum and saving it in a low-risk investment for now. Once the "weirdness" of suddenly dealing with giant financial numbers wears off - and I seriously mean it, it will wear off eventually - give the Vanguard PAS team a call and talk to them about your goals, and work with them to come up with a financial plan that makes sense.
What funds was the settlement money invested in before it reached your pocket?
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Matahari
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Re: 38 yr old with a question about structured settlement

Post by Matahari »

h08151952 wrote: Mon Oct 11, 2021 9:35 pm
I do not want this money to change my life. I want to invest it carefully for my child and family. I grew up in a poor immigrant family which
really gave me drive and a hard work ethic. I do not want this to affect my child.

***

Both myself and my partner have professional jobs and we still have graduate school debt at about 200k(combined), rent an apartment,
we do not have credit card debt.
OP, you mention a "partner" (rather than a spouse). While I don't want to inquire about the status of your relationship, make sure you consider these issues as well, if they have not already crossed your mind. If you plan to repay your graduate school debts, do you want to pay off the school debt of a non-spouse partner? In typical situations, the debt of a non-spouse partner is not considered the debt of the other partner. If so, are your debts roughly equal in amount? By paying off your partner's debt, are you inadvertently providing your partner with a financial windfall that might "affect" things going forward? Are you confident about the unity between you and your partner about the handling of your financial settlement? What about regarding your plan to live as you have done so far and invest the funds for "my child" (your language) and family?

No need to respond to me with specifics. I simply want to raise the considerations and, again, I wish you and your family the best.
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cockersx3
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

mikejuss wrote: Wed Oct 13, 2021 2:03 pm
cockersx3 wrote: Wed Oct 13, 2021 1:53 pmAs I said before, these settlements exist primarily as a way to protect spendthrifts from themselves. (And yes, there are people out there who need this kind of protection.) They are generally not good financial investments - you can almost certainly do better financially by investing the money over the long term. As long as you are confident that you won't go out and fritter the money away, then I would personally advocate getting the lump sum and saving it in a low-risk investment for now. Once the "weirdness" of suddenly dealing with giant financial numbers wears off - and I seriously mean it, it will wear off eventually - give the Vanguard PAS team a call and talk to them about your goals, and work with them to come up with a financial plan that makes sense.
What funds was the settlement money invested in before it reached your pocket?
Not sure what you mean. Since it was a structured settlement from a lawsuit, the only thing I see as a recipient is the amounts that get paid out and when. The settlement was then assigned to a (well-known, high-credit-rating) insurance company that was contractually obligated to pay the amounts listed on the dates listed. How they fund those amounts isn't something that was shared with me. That said, the calculated IRR from the investment suggests it was backed up with low-risk bonds.
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

cockersx3 wrote: Wed Oct 13, 2021 3:57 pm
mikejuss wrote: Wed Oct 13, 2021 2:03 pm
cockersx3 wrote: Wed Oct 13, 2021 1:53 pmAs I said before, these settlements exist primarily as a way to protect spendthrifts from themselves. (And yes, there are people out there who need this kind of protection.) They are generally not good financial investments - you can almost certainly do better financially by investing the money over the long term. As long as you are confident that you won't go out and fritter the money away, then I would personally advocate getting the lump sum and saving it in a low-risk investment for now. Once the "weirdness" of suddenly dealing with giant financial numbers wears off - and I seriously mean it, it will wear off eventually - give the Vanguard PAS team a call and talk to them about your goals, and work with them to come up with a financial plan that makes sense.
What funds was the settlement money invested in before it reached your pocket?
Not sure what you mean. Since it was a structured settlement from a lawsuit, the only thing I see as a recipient is the amounts that get paid out and when. The settlement was then assigned to a (well-known, high-credit-rating) insurance company that was contractually obligated to pay the amounts listed on the dates listed. How they fund those amounts isn't something that was shared with me. That said, the calculated IRR from the investment suggests it was backed up with low-risk bonds.
I guess I'm referring back to the OP's comment about getting a 6.2% return if he cuts the settlement up into parts. How would low-risk bonds yield 6.2%?
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cockersx3
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

mikejuss wrote: Wed Oct 13, 2021 4:11 pm
cockersx3 wrote: Wed Oct 13, 2021 3:57 pm
mikejuss wrote: Wed Oct 13, 2021 2:03 pm
cockersx3 wrote: Wed Oct 13, 2021 1:53 pmAs I said before, these settlements exist primarily as a way to protect spendthrifts from themselves. (And yes, there are people out there who need this kind of protection.) They are generally not good financial investments - you can almost certainly do better financially by investing the money over the long term. As long as you are confident that you won't go out and fritter the money away, then I would personally advocate getting the lump sum and saving it in a low-risk investment for now. Once the "weirdness" of suddenly dealing with giant financial numbers wears off - and I seriously mean it, it will wear off eventually - give the Vanguard PAS team a call and talk to them about your goals, and work with them to come up with a financial plan that makes sense.
What funds was the settlement money invested in before it reached your pocket?
Not sure what you mean. Since it was a structured settlement from a lawsuit, the only thing I see as a recipient is the amounts that get paid out and when. The settlement was then assigned to a (well-known, high-credit-rating) insurance company that was contractually obligated to pay the amounts listed on the dates listed. How they fund those amounts isn't something that was shared with me. That said, the calculated IRR from the investment suggests it was backed up with low-risk bonds.
I guess I'm referring back to the OP's comment about getting a 6.2% return if he cuts the settlement up into parts. How would low-risk bonds yield 6.2%?
OK got it. Yeah, I didn't follow that part either. Maybe it's a calculation error? I've never heard of a structured settlement paying more than bond-level rates. Again, a structured settlement payout is a legal obligation on behalf of someone, so from the recipient's perspective it should act like a bond.

One thing to point out is that, for a structured settlement to be tax-free (ie like the actual settlement), I believe that the payout terms of the structured settlement need to be agreed to before the settlement happens - the terms of the settlement (ie amounts and dates) will be in the final release of claims that the OP will need to sign before he / she gets the settlement. It's not like a variable annuity where the payout can change based on market conditions - believe it has to be $xx dollars paid on yy dates.

In my case, the structured settlement saleswoman gave me various options on payouts and dates and how much of the settlement each option would "cost" me. I assume that the OP going though those discussions now prior to final settlement, which is driving the question.
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

The investment is a market based product with Northcoast.

The payouts will be graduated and about the amount the last poster calculated.

My question is if I do the structured payout should I take out lump sum after 20 years deferral.

Or do a 20 years deferral and take out over 5 years.

Also I am getting the payouts in two halves-this year then next year.
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

The investment is a market based product with Northcoast.

The payouts will be graduated and about the amount the last poster calculated.

My question is if I do the structured payout should I take out lump sum after 20 years deferral.

Or do a 20 years deferral and take out over 5 years.

Also I am getting the payouts in two halves-this year then next year.
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

It is a mix of stocks and bonds. I can pick the type of investment and percentage of stocks/bonds
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Also we have about similar loans. Those loans are paid respectively by each of us.

I will not be paying off the student loans of my partner.

And he considers this settlement my own money and is continuing to invest in 401k.
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

h08151952 wrote: Fri Oct 15, 2021 9:09 pm The investment is a market based product with Northcoast.

The payouts will be graduated and about the amount the last poster calculated.

My question is if I do the structured payout should I take out lump sum after 20 years deferral.

Or do a 20 years deferral and take out over 5 years.

Also I am getting the payouts in two halves-this year then next year.
OP, 6.2% is a fake number. Unless you are a profligate spender, take a lump sum, invest it in index funds, and move on with your life.
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Stinky
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Re: 38 yr old with a question about structured settlement

Post by Stinky »

h08151952 wrote: Fri Oct 15, 2021 9:11 pm It is a mix of stocks and bonds. I can pick the type of investment and percentage of stocks/bonds
It sounds like you are being given the choice of either (a) taking the money now, and investing the way that you want, or (b) leaving it with someone else for a period of time (maybe 20 years), investing per their template, and then receiving the money.

If you take the money now, you'll have control of it. You'll be able to do what it what you want, and when you want. You'll also pay taxes on any earnings on the money.

If you defer the money, you won't have control of it. On the bad side, you might be subject to credit risk of the party that you leave it with, and you might have excess fees. On the good side, you won't be paying taxes on the earnings on the money (per a previous post of yours).

In my mind, I'd choose having control over the money over saving a little in taxes and taking credit risk. I'd take the money now.
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neednewcar
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Re: 38 yr old with a question about structured settlement

Post by neednewcar »

Lump sum buys you immediate freedom. I would take the lump sum.
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Re: 38 yr old with a question about structured settlement

Post by AB609 »

h08151952 wrote: Fri Oct 15, 2021 9:11 pm It is a mix of stocks and bonds. I can pick the type of investment and percentage of stocks/bonds
I don't really know anything about these type of settlements but if you are getting a fixed 6.2% return why would you be selecting the investment mix? I would want to do a lot of due diligence on the mechanics and underwriting of this thing.

I personally would take the lump sum, payoff the loan and invest the rest according to my investment plan. The structured settlement might ultimately be a good deal but I like liquidity and control of investments.
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

AB609 wrote: Sat Oct 16, 2021 11:49 am
h08151952 wrote: Fri Oct 15, 2021 9:11 pm It is a mix of stocks and bonds. I can pick the type of investment and percentage of stocks/bonds
I don't really know anything about these type of settlements but if you are getting a fixed 6.2% return why would you be selecting the investment mix? I would want to do a lot of due diligence on the mechanics and underwriting of this thing.

I personally would take the lump sum, payoff the loan and invest the rest according to my investment plan. The structured settlement might ultimately be a good deal but I like liquidity and control of investments.
Because it isn't a "fixed 6.2% return"; it's a projected 6.2% return. And that's why the OP should take a lump sum and invest it according to his own wishes.
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Yes it is projected 6.2 percent after the 1.25 percent of fees.

The majority seem to be recommending lump sum and talking to a Vanguard advisor.

To be honest, I have not made a decision yet.

I realize how fortunate to have this opportunity.

I just don’t think I have the financial literacy right now to know exactly what to expect for taxes of capital gains.

The prospect of investing the first 500k and having a projection of 1.2 million after 20 yrs seems very good to me, but as you’re saying I am losing the flexibility and control.

Thank you for all your input.
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Re: 38 yr old with a question about structured settlement

Post by Stinky »

h08151952 wrote: Sun Oct 17, 2021 8:16 am Yes it is projected 6.2 percent after the 1.25 percent of fees.

The majority seem to be recommending lump sum and talking to a Vanguard advisor.

To be honest, I have not made a decision yet.

I realize how fortunate to have this opportunity.

I just don’t think I have the financial literacy right now to know exactly what to expect for taxes of capital gains.

The prospect of investing the first 500k and having a projection of 1.2 million after 20 yrs seems very good to me, but as you’re saying I am losing the flexibility and control.

Thank you for all your input.
Realize that 6.2% is not guaranteed. Just a wild guess.

The one thing that is certain is the 1.25% in annual fees. Even if you defer just $500k, the fees will cost you over $6k per year.

I’m with the majority. Take the money now, pay down debt, invest the rest in low cost mutual funds.
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

Could you tell me your reasoning of paying of my student debt versus investing in retirement?

I was thinking that if the rate of return on investments would be higher than the student loan interest rate that I should continue investing for the retirement now?
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

h08151952 wrote: Sun Oct 17, 2021 10:01 am Could you tell me your reasoning of paying of my student debt versus investing in retirement?

I was thinking that if the rate of return on investments would be higher than the student loan interest rate that I should continue investing for the retirement now?
Because paying down your student-loan debt--even if the interest on it is not very high--equates to a guaranteed rate of return (ie, paying it off now means you will avoid whatever interest you might have paid in the future), while the rate of return for a market investment is anything but guaranteed.
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h08151952
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Re: 38 yr old with a question about structured settlement

Post by h08151952 »

I was thinking the major benefit of the structured settlement is that the future gains will not be tax free. Could you explain to me how capital gains are taxed?
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

h08151952 wrote: Sun Oct 17, 2021 4:54 pm I was thinking the major benefit of the structured settlement is that the future gains will not be tax free. Could you explain to me how capital gains are taxed?
You mean that the future gains will (not "will not") be tax-free. I guess that's true; I don't know. The point is that you're better off managing your own investments, not letting someone else charge you 1.25% for doing so. Remember that you never pay taxes on investments until you sell them, and even then they're taxed at a lower rate than income. I don't sense that you'd be selling this investment anytime soon, so this isn't something you need to worry about as a near-term problem.
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

h08151952 wrote: Sun Oct 17, 2021 4:54 pm I was thinking the major benefit of the structured settlement is that the future gains will not be tax free. Could you explain to me how capital gains are taxed?
Yes and no.

Yes, the proceeds from a structured settlement of a personal injury lawsuit are generally tax free. This is because they carry the same tax ramifications as if you received a lump sum settlement, which would also be tax free in this case.

No, this is not the major benefit of a structured settlement. The major benefit to the recipient is generally considered to be spendthrift protection - ie, it legally "locks up" the money and parcels it out in smaller chunks to help the recipient spend it more judiciously. The tax benefits are ancillary I think.

A capital gain (or loss) is the difference between how much something is sold for and how much something is bought for.
Capital gains are taxed based on income, and also based on how long the investments are held before being sold. You only have a capital gain when you sell. In general, "long-term" capital gains (ie, gains from things held longer than a year) carry a significantly lower level of taxes than normal earned income. Here's a link that goes through the basics.

I'm still not really following the details of the structured settlement. I assume that the settlement broker is giving you options on possible structured settlements, and that - once you pick one of the options - the payout amounts and dates will not change. Is that right? I keep reading about how you're being asked to select investment options, etc, which implies that the amounts / dates in the structured settlement will change in the future - which doesn't align with my understanding of how structured settlement annuities work.

Once again - if you're confident that you will not fritter a large lump-sum away, my strong recommendation would be to just take the lump sum and invest it on your own. Losing access to the money for decades (which seems to be part of all these options you're getting) is just not going to be worth whatever tax benefits you will get in my opinion. And besides, over the long term I really do think you'll be able to get better returns on your own.
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Re: 38 yr old with a question about structured settlement

Post by CurlyDave »

h08151952 wrote: Mon Oct 11, 2021 10:21 pm Also our student loans have a 3.5 percent interest rate. Would you still recommend paying this off if the rate of return for investments would be greater?
Some people here will tell you to pay them off, others will say that over a long term returns from securities will be greater. I am in the invest the money and enjoy greater returns camp, especially if you are really in it for the long haul.

The argument on one side is that the 3.5% is a guaranteed return, the argument on the other side is that over a long term stocks have always returned more than 3.5%.
Answering a question is easy -- asking the right question is the hard part.
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Re: 38 yr old with a question about structured settlement

Post by mikejuss »

cockersx3 wrote: Sun Oct 17, 2021 6:16 pmwhich doesn't align with my understanding of how structured settlement annuities work.
Curious: what is your "understanding of how structured settlement annuities work"? In this case, it appears to be a monthly sum subject to market fluctuations. Is there another kind of settlement with ironclad interest rates paid out along with the principle?
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Re: 38 yr old with a question about structured settlement

Post by cockersx3 »

mikejuss wrote: Mon Oct 18, 2021 12:18 am
cockersx3 wrote: Sun Oct 17, 2021 6:16 pmwhich doesn't align with my understanding of how structured settlement annuities work.
Curious: what is your "understanding of how structured settlement annuities work"? In this case, it appears to be a monthly sum subject to market fluctuations. Is there another kind of settlement with ironclad interest rates paid out along with the principle?
I had thought (and I could very well be wrong) that the payments from a structured settlement annuity needed to be fixed - ie, $xx dollars paid over $xx period - to preserve the tax-free status of the annuity. The whole idea is that the legal settlement is written such that the tortfeasor pays the recipient that fixed amount, rather than a lump sum. In this way the settlement annuity preserves its tax-free status - instead of getting $xx as a lump sump, you instead get $yy over zz years.

This is how my settlement annuity worked, and from my (albeit limited) research on them this is how they generally are written. I agreed to receive a portion of my legal settlement as annual payments of a fixed amount over a fixed number of years. The amounts and dates were written into the legal settlement / discharge of claims that I signed along with the tortfeasor. The annuity was then "assigned" by the tortfeasor to a well-known, highly rated insurance company who actually makes the payments.
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Re: 38 yr old with a question about structured settlement

Post by aristotelian »

Settlement money isn't taxable, so I don't see why you would want to take it over time unless they offer some kind of premium for structured.
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