by John Darer® CLU ChFC MSSC CeFT RSP CLTC
This recent "Chip off The (Old) Rock" from Robert O' Donnell. President of Prudential Annuities underscores why structured settlements accompanied by good settlement planning is the right approach.
What is Settlement Planning?
Settlement planning is a comprehensive approach to helping plaintiffs and their counsel move through the financial transition resulting from a major life event. The financial transitions that must be made are unique to the transition and requires, experience, patience, empathy and the ability to educate. Settlement planning is not about selling a product.
What does "Stochastic" Mean?
Stochastic analysis or Monte Carlo simulation is a scientific tool used to attempt to predict the probability of outcomes using multiple variables. Instead of "If P then Q" it's "If P and A and K and then C, what are the chances of Q?".
Sometimes a person fails to achieve an objective because of linear thinking. They haven't considered important variables.
For example you recover a $500,000 settlement or have $500,000 sitting in your retirement account and want to know how much you can safely spend each year so that the money will not run out before you die. Can you think of any variables that could impact the answer today, or down the road?
- How about unexpected repairs?
- Unexpected health issues? Future need for long term care? Insurance in place?
- Interest rates?
- Death in the family?
- Kids dependent and living at home past age 21
- Parents become dependent and/or have long term care needs
- Expecting a new baby
- Expecting an unexpected new baby and
The list goes on...