by John Darer® CLU ChFC MSSC CeFT RSP CLTC
Who are prospects for structured settlement annuities? Is conventional thinking about structured settlements too limiting?
Conventional thinking is that the prospects for structured settlements are primarily from the following groups:
- Minors, who have suffered personal physical injury
- Minors, who have a wrongful death cause of action due to the death of a parent
- Adults who have suffered personal physical injury with long term medical needs
- Adults with a need for income replacement
- Structured Medicare Set Aside arrangements
- Risk averse plaintiffs
- Plaintiffs in high income tax brackets
- The obviously unsophisticated, or mentally incapacitated
Some stats that appear to challenge conventional thinking and explore where there are gaps:
- According to a TIAA-CREF survey, when it comes to planning for retirement, "Generation Y (a/k/a Millennials) is interested in devoting a portion of their retirements savings to an investment that will provide a monthly payment for the duration of their retirement". Yet according to the same survey, 72% are unfamiliar with annuities.
- According to a Bank of America Merrill edge survey 66% of American expect to be stressed about money in retirement based on how they are currently saving. The same survey suggests that Generation X and Millennials are most likely to anticipate a financially rocky retirement.
- A survey conducted by the Indexed Annuity Leadership Counsel revealed that more than half of Millennials (ages 18-34) are "definitely interested" in retirement savings accounts that have features typically found in annuities.
- 16 insurance companies are now selling Qualified Longevity Annuity Contracts (QLAC), a 400% increase from 13 years ago. Qualified longevity annuity contracts, are a type of fixed longevity annuity that is held in a retirement account and has special tax attributes. Although the value of a QLAC is excluded from a client’s Required Minimum Distribution (RMD)calculation, distributions from QLACs don’t have to begin until a client reaches age 85, well beyond the age at which RMDs normally begin (age 70 1/2).
Millennials are the least financially literate generation according to a recent article by Jennifer Detroye, the Executive Director of The American College Center for Financial Security in Bryn Mawr, Pennsylvania. Only 5% of Millennials surveyed could demonstrate a basic understanding about borrowing, saving and investing in a survey that was a joint effort between The American College and Texas Tech Department of Personal Finance using Texas Tech's Financial Literacy Assessment Test. This is the current reality.
This lack of financial literacy makes Millennials, a prime target for opportunistic cash now vultures. Throw in cognitive deficits resulting from lead paint poisoning or traumatic brain injury, or general naivete, and you have a recipe for disaster. The issue of financial literacy was a central part of the thesis of New Mexico Law student Jeffrey P. Stradling in I Have a Structured Settlement and I Need Oversight Now” The Consumer Financial Protection Bureau and the Structured Settlement Industry New Mexico School of Law 2015. Better vision on the part of all stakeholders, including claims adjusters, plaintiffs lawyers, structured settlement consultants and settlement planners is needed to better serve this segment.
Structured settlements remain important because structured settlements offer safety, security and guarantees that are hard to find elsewhere. A structured settlement is a valuable financial tool worthy of allocation in many settlement plans.
Earlier this year I had the pleasure of working with a graduate degree educated Millennial who after having explored a comprehensive series of options, elected to structure 50% more than his attorney (a believer in structures) believed he would do, on a deferred cash flow starting 20 years out. He didn't structure all his net settlement funding amount, but he made a strong allocation to safety, security and guarantees with two highly rated annuity issuers.