Selling Structured Settlements "Tempting But Not Smart" -Suze Orman

by John Darer CLU ChFC MSSC CeFT RSP CLTC

Selling Structured Settlement Payments " Tempting but Not Smart" says Suze Orman

Financial guru Suze Orman responds to a woman who along with her husband is thinking about selling of her husband's remaining structured settlement payments, with the the advice that such transactions are "tempting but not smart".  O, the Oprah magazine

Some of the relevant facts

• Husband sold ten years of (periodic payments from) that (structured) settlement in 2004, but in 2014
  

  Selling structured setttlement payments is tempting but not smart. You only get pennies for every dollar
  
  he'll start receiving monthly payments of $400.
• The couple has $30,000 in debt,  a 7-month-old son and hope to buy a house within the next few years.
• The wife is thinking that by selling the rest of the settlement to pay off bills will allow them to save for the home of their dreams. There's about $110,000 left; by selling it, they'd net $17,500 in cash now, rather in 60-90 days, or 6 months, or who knows).

Some choose to simply focus on the sound bite " tempting. but not smart", when actually the most important sound bite from Suze Orman, from a financial literacy standpoint,  is "DO THE MATH!"

Orman's practical advice includes a mathematical analysis which helps the consumer come to their own conclusion that the sale of the structured settlement would not erase the debt

Here is Suze'spowerhouse advice frin the article:

• "I want you to dig out of debt without touching the settlement money. Your dream should be to get out of debt, not to buy a home that you have no way of affording right now".
• Orman also refers the couple to the National Foundation for Credit Counseling, a nonprofit organization (Tel. 800-388-2227 ) whose counselors will assess your situation and help negotiate payment plans with creditors when feasible
• Orman also shows the couple another perspective by demonstrating that  if they were to invest the entire $400 every month in a Roth IRA for 20 years and earn a conservative 5 percent annual return, they would have about $165,000 in 2034. If you were to keep that sum growing for another 15 years—without investing another penny—you could have more than $340,000 by the time they retire. Orman emphasizes "that's a dream that can be yours if you use the structured payouts wisely".

Orman's advice offers a sound counterpoint to the predatory "minimax solution" offered by certain cash now pushers. "Minimax solution" is where the advertiser uses the inducement to trade these "teensy weensy payments" for a "huge lump sum". You've all seen it!

Settlement planners and structured settlement consultants should look beyond the sound bite and offer practical advice when faced with similar questions.

Last updated February 16, 2024