Are structured settlements a good idea in a zero interest rate environment?

"Should a trial lawyer propose, and should an injury victim accept, a structured settlement to settle their personal injury case in such a low interest rate environment?"

In this week's commentary on The Settlement Channel, I'm looking at the issue of zero interest rates, or even negative rates of interest, being offered on fixed income investments, in particular structured settlement annuity contracts. One of the constant refrains that structured settlement experts hear from trial lawyers, as well as their clients, is that structured settlements are a bad idea in a world where interest rates are offering effectively zero rate of returns when you factor inflation into the yield at 2%. On its face, you would think it's hard to argue with that logic as we are clearly in a historic period of zero to negative yields on fixed income and annuities. 

However, in practical experience, settlement planners and structured settlement experts have been hearing this same narrative for over 15 years now, as we have been in a 25 year bond market rally where rates have gone from double digits to the current negative or zero yields on high quality bonds and notes. It has always been "rates are too low compared to the past," but all along that 25 year curve, the value of a guaranteed, tax free income has been proven to be the key component of just about every successful settlement plan. The rate of return or yield is important for sure, but the consistency of the cash flow, monthly income, and security are paramount to injury victims who rely on those funds to live. I can personally attest that 15 years ago people were rejecting tax free yields of 7% to 8% as "too low," when the evidence of the last 15 years now shows that anyone smart enough to take those tax free deals was getting a yield roughly equal to that of the S&P over that same time frame, particularly when taxes and management expenses are deducted and a net yield is calculated. 

The question now is, what will planners, attorneys and injury victims be saying about their decisions to not structure annuity payments in the current rate environment? Will it be considered wisdom to have declined the option for lifetime, tax free income that was guaranteed, predictable, and couldn't be outlived or outspent by the injury client? Will they look back and say that the low rate environment was actually the precursor to a historic stock market correction, or even more likely, an eventual bond market correction that wiped out huge chunks of principal and crippled their ability to care for their future needs?

The bottom line is that no one can know what the economic and financial market futures of the US will be, they can only speculate. However, the one thing any experienced settlement planner or structured settlement expert does know is that guaranteed, tax free, no fee income for a person who can no longer work, care for themselves or needs to support a family, is like GOLD to them. Every plan requires an income strategy and over the last 35 years the structured settlement annuity approach has been proven time and again as the bed rock foundation of most settlement plans. There is almost always a place in the settlement plans of an injury victim for this monthly income and it is the wise attorney, planner or family that elects that option as PART of a comprehensive settlement plan. A structured settlement cash flow provides a safety net, a floor income and planning certainty in an uncertain world. No other investment option offers zero on going fees, administrative costs or taxes like a structured settlement does. It is truly unique in that regard. 

Conclusion: That even in a low interest rate world such as we see now, that while it might seem counter intuitive, it's entirely possible in a period of economic turmoil that the certainty and safety of a structured settlement payment stream makes the MOST sense as the people who rely on it can't afford to be with out an income, ever. Don't just focus on rates of return and what you think you might get in alternative investments, instead engage a competent structured settlement expert from the Settlement Expert directory to assist you in designing a settlement plan that makes sense. Chances are good you won't look back in 10-15 years with buyers remorse if you do.