Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

Structured Settlement Instead of a Health Savings Account?

by John Darer CLU ChFC MSSC CeFT RSP CLTC

It has been suggested that using a structured settlement annuity is an alternative to Health Savings Account. While I respect the author of the suggestion, in my opinion such assertion cannot be applied categorically and each situation should be looked at indepedently. This blog explores the question below.

Health Savings Account (HSA)

What is a Health Saving Account (HSA)?

A Health Savings Account (HSA) is a tax-advantaged medical savings account available to taxpayers in the United States who are enrolled in a high-deductible health plan (HDHP). A high deductible health plan requires a minimum deductible of $1,500 ($3,000 family) and maximum out of pocket limit of $7,500 ($15,000 family).

• Contributions are tax deductible
• Withdrawals from the HSA to pay qualified medical expenses are income tax-free.
• If you claim a family member on your taxes, you can use your HSA money for their qualified medical expenses – even if you just have single coverage. 
• Interest grows tax-free
• Unused funds roll over annually if not used
• Contributions to an HSA reduce your Modified Adjusted Gross Income, which determines eligibility of subsidy under the Affordable Care Act  (ACA)
• HSA accounts are liquid and portable.

Is a structured settlement a viable alternative to an HSA in 2023?

• An allocation of damages from a settlement involving personal physical injury settlement proceeds used to fund a structured settlement annuity also grows income tax-free. In contrast to an HSA, claimants can use structured settlement annuity payments for medical and non-medical costs.
• Structured settlement annuities, while fixed, do not have any usage stipulations. The injured claimant can use the payments to cover out-of-pocket medical costs, or any range of other expenses, from daily living expenses to longer-term costs, like college tuition or retirement.
• No ongoing fees
• Structured settlement annuities have no contribution limits, so injured claimants have complete control over the amount they want to contribute to the annuity.... HOWEVER
• Money cannot be withdrawn from a structured settlement annuity like it can with an HSA. If there is a timing mismatch, the only way to get liquidity is a confiscatory sale of structured settlement payment rights via a structured settlement factoring transaction for pennies on the dollar. The liquidity from a structured settlement is such cases may take 90 days and is subject to a judge's approval. Being dinged for a monthly fee from an HSA bank account is far less than the structured settlement factoring "penalty"
• That being said, research shows that the best HSA accounts offer low fees, easy access, and excellent investment options. For example

Lively HSA

The monthly cost to own a Lively HSA is $0. Account opening fee; $0. Account closing fee; $0. Debit card fee (up to 3 cards per account); $0. 

The account is also FDIC insured and it currently yields the following interest rate (varies depending on balance size):

Less than $2,500       0.25% APY
$2,500 – $4,999         0.35% APY
$5,000 – $14,999       0.45% APY
$15,000+                  0.60% APY

And if you’re an investor, all accounts are attached to the TD Ameritrade platform. And as luck would have it, TD Ameritrade recently changed their fee structure, and all stock trades now cost $0.00.   Source: DoughRoller.Net

What are the HSA Contribution Limits for 2024?

The HSA contribution limits for 2024 are $4,150 for individuals and $8,300 for families. The catch-up contribution limit for those over age 55 is an additional at $1,000.

If both spouses are 55 or older and not enrolled in Medicare, each spouse’s contribution limit is increased by the additional contribution. Each spouse must make the additional contribution to his or her own HSA.

Each situation must be looked at on its own merit.   Given a 360 degree look, structured settlements and HSAs are complemenary financial tools that can be used to serve a client's needs.   

Last updated January 12, 2024

 

 

 

Let 'Em EAT Cake! | Investing in "Food Scraps" and More Money Silliness

by John Darer CLU ChFC CSSC RSP CLTC

A 33 year old slice of Princess Diana's wedding cake has sold for $1,375 at auction at the Olympia International Fine Art and Antiques Fair in London.  In 2012 a 31 year old slice of toast from Charles and Diana's 1981 wedding breakfast sold for almost $400.

As was reported in 2007, a single french fry and a half drunk bottle of Coke containing David Beckham's saliva were up for bid on a New Zealand auction site. Bidding got up to $159!

It's the case of "don't do this at home" folks.

After another uninspiring performance, Manchester United could have used a swab of DNA from an in-prime Becks today.

IRS Rev. Proc. 2012-26 Health Savings Account Limits increased

by John Darer® CLU ChFC MSSC RSP CLTC

When settling personal injury or wrongful death cases, consideration should be paid to how future medical needs will be covered, even by those who have not suffered catastrophic injuries. For example, by the time a non-working surviving spouse and children receive a recovery, the 36 month COBRA extension may have been exhausted. Other limits apply to other situations. Health Savings Accounts may be a viable option.

Health Savings Accounts (HSAs) were created in 2003 so that individuals covered by high-deductible health plans could receive tax-preferred treatment of money saved for medical expenses.  Generally, an adult who is covered by a high-deductible health plan (and has no other first-dollar coverage) may
establish an HSA.

Eligible United  States tax payers will be able to contribute and deduct $3,250, individually (higher family limits) if they contribute the maximum amount to their Health Savings Account ("HSA") in 2013. The new limit was announced as part of Revenue Procedure 2012-26. In order to be able to take the deduction, a high deductible medical insurance plan must be purchased that meets certain requirements. 

Saving for a Rainy Day Becomes Increasingly Harder, Even For HIgh Earners

Disturbing News from the National Bureau of Economic Research and the Discover US Spending Monitor in an article about "wallet fatigue" published in Sunday's New York Post.

• "The middle class and the upper-middle class are looking at falling home prices, income raises that fall short of the inflation rate, an unemployment rate that barely moves and a reluctance to dip into savings.

• "25% of Americans report that they certainly could not come up with funds to cope with a financial shock within 30 days".

  "42.4% of respondents to the Discover Monitor say that they are running out of money when paying bills" (i.e. not enough to make ends meet")

  "NBER warns that there is also "a sizable fraction" of people who have made high salaries, but now nearing retirement without substantial assets".

We sell a variety of deferred payment solutions that can give someone the effect of "a salary that they cannot outlive".

 Cite: "Not This Week"  New York Post June 19, 2011 p 34

 

Have You Lost Money on Investments or Job Layoff ? Calculate Your Financial Comeback Now!

by John Darer CLU ChFC CeFT  MSSC RSP CLTC

Did you lose any money in the financial crisis of 2008-2009?   Have you lost money because of a bad investment, or had to spend down assets during a layoff?

Figure out how much you need to contribute and/or earn in order to get your portfolio back to where it was. Also useful as a savings/retirement plan projection. The New York Times has a very useful interactive graphic calculator.

Calculate Your Financial Comeback - Interactive Graphic - NYTimes.com

 

Prevent Lottery Winners From Ending Up Losers: Give Them More Options

by John Darer® CLU ChFC MSSC CeFT RSP CLTC

Do limited options for lottery winners increase the likelihood of dissipation? The choice is simply cash or annuity and many just take the cash. Some end up with nothing even though they started their post winning life with more than many are able to save in a lifetime.

The latest story about a lottery winner to end up a financial loser is Norfolk, England's Michael Carroll. Carroll , who managed to squander approximately $14 million he won February 11, 2002, at age 19, over the course of 8 years (after being down to about $900,000 in 6 years).

• Lost £1million on the dogs and horses (gambling)
• Spent £1million on the Rangers his favorite soccer team
• £400,000 fleet of luxury cars (which he sold in 2009 and spent the proceeds)
• Boasted about sleeping with four a day - a total of 2,000 at a cost of £100,000 over eight years - in order to sate his sexual appetite.
• Reportedly lost an estimated £80,000 on a property deal in Dubai after the market fell.
• In 2004, Carroll was jailed for five months after failing to comply with a drug treatment order, imposed as part of a sentence for cocaine possession

A May 30, 2010 story in Britain's Daily Mail quotes Carroll as reflecting "'The party has ended and it's back to reality. I haven't got two pennies to rub together and that's the way I like it. I find it easier to live off £42 dole than a million. He said others had benefited from the win more than he had. 'I'm just glad it's over. There were also vultures everywhere after my cash. I started to see what people were really like,' he explained.

Is it fair to the taxpayers that someone who won a sizeable sum is allowed to go on welfare and possibly qualify for Medicaid as a reward for a reckless financial downfall  in such a short period of time after their windfall?

On the one hand one could say people should have the right to screw themselves up. They make bad business decisions every day that cost them their savings. They borrow too much. They make bad investment decisions. Some get scammed by  the likes of a Bernie Madoff, Scott Rothstein, Marc Dreier or lower level alleged Ponzi hoods like "Dirty Barry" and Nicholas Cosmo Some get fleeced or taken advantage of by friends or family, or salesmen with a hot tip (never answer an investment survey!).

Today's lottery winners generally have only two choices;  a) take a lump sum or  b) take an annuity. Why don't they have more choices so they can make better decisions?

Why not give a lottery winner the ability to have a portion in an annuity? Give the individual the ability to have a stable secure income while still being able to grow into their new found wealth.  Perhaps a choice of all cash, all annuity, 1/4 annuity, 1/3 annuity and 1/2 annuity.  There should be enough options so that a person can make a reasonable choice.  Perhaps there should be some sort of guidebook to help people make an informed decision.

Using US rates for illustrative purposes, a 1/4 annuity would have meant $10.5 million in cash about $3.5 million into the annuity at say 5.41% tax deferred, the 30 year bond rate of February 11, 2002.

So our "hero" would have close to $7 million in net cash and an annuity that pays him $189,350 a year for 30 years. After assumed 35% taxes, the annuity would be about $123,077. He could blow all the cash and still have a meaningful income. Have a look at his mug in the link below. Think he'd be smiling more with more than the equivalent of $75 or so dollars a week on the dole?

Moreover, the secondary market assures that liquidity is still available.

Some might say why be paternalistic? Who gives a rat's ass if some SOB blows all his/her money?  I say why the hell not? Having now had the benefit of hindsight, if a guy like Michael Carroll finds it easier to live off 42 pounds a week compared to having a million in the kitty, perhaps somewhere in the middle would be right.

Read the Daily Mail story about Mr. Carroll.

Some of the problems experienced by Mr. Carroll could well be experienced by a personal injury victim, who through his or her own personal injury or the death of another comes into a large sum of money. Read our section on Structured Settlements for Minors and Settlement Planning For Children and Young Adults,

Compare Household Savings Rates Around The World

The financial security of households around the world could be reflected in their savings rate. Here's the list compiled in a June 10, 2010 report in Business Week.

China – 38%

India – 34.7%

Turkey – 19.5%

Switzerland – 14.3%

Ireland – 12.3%

Germany – 11.7%

Britain – 7%

Brazil – 6.8%

U. S. – 3.9%

Japan – 2.8%

Australia – 2.5%

What's your household savings rate?

Financial Statistics That Shape The Lives Of Tort Victims and Ourselves

by John Darer CLU ChFC CSSC RSP

The S&P Case-Shiller index of home values has fallen to where it was in 2002.

Current national savings rate 5.7%, highest since February 1995.

Nearly 6% of fixed-rate mortgages to borrowers with good credit were in the foreclosure process according to the Mortgage Bankers Association and 12% of homeowners with a mortgage are behind on their payments or in foreclosure.

Stat Source: Bob Leclair's Finance and Markets Newsletter 6.6.2009

Stat 2Stat 

The compound annual return on the S & P 500 for the ten-year period ending in 2008 was -1.37%.

Stat Source: Bob Leclair's Finance and Markets Newsletter 6.6.2009

Comment: Sound like a place for risk averse (by mind or necessity) tort victims to keep their money? Somewhere across America someone may be saying "You invested MY money for 10 years in an S&P 500 mutual fund and all I got was this stinking amount less"?

Comment: It is interesting to observe that every day since they have been offered in January 2003 the daily yield on 10 Year Treasury Inflation Protection Securities (TIPS) has exceeded the above. Source: Federal Reserve Board H15 Release

Comment: Structured settlements (whether funded through annuities or TIPS held to maturity), deliver a steady boring stream of payments free of income taxes and volatility.  Ho Hum Ho Hum.

A fluke you say? 

Let's go back in time to suggest that this IS NOT a fluke...

A study was done of Historical Rates of Return (1979-1995)

      

              T-BILL      INCOME TAX FREE STRUCTURED
                RATE     MUNI     SETTLEMENT
YEAR (3 MTH) (AAA)  RATE

1979    10.07%    5.92%      7.26%
1980    11.43%    7.85%      9.16%
1981    14.03%   10.43%     10.16%
1982    10.61%   10.88%     11.54%
1983      8.61%   8.80%      10.28%
1984      9.52%   9.61%      11.70%
1985      7.47%   8.60%      10.56%
1986      5.97%   6.95%      7.78%
1987      5.78%   7.14%      8.62%
1988      6.67%   7.39%      8.94%
1989      8.11%   7.00%      8.65%
1990      7.50%   6.96%     8.55%
1991      5.38%   6.77%      7.96%
1992      3.43%   6.35%      7.26%
1993      3.00%   5.57%      6.19%
1994      4.29%   7.09%      7.62%
1995      5.64%   6.18%      6.61%

Average  7.50%  7.62%   8.76%

Standard
Deviation 2.88% 1.50% 1.59%

Source: "Structured Settlements and The Interest Rate Switch" by J. Thomas Romans and Frederick G Floss Journal of Forensics Economics , Vol. 12 1999 p57, who credit the Federal Reserve Bulletin and TSSC, St. Petersburg, FL for the information in the table.

Comment: Structured settlement annuity yield compared favorably with Treasuries and AAA General Obligation Municipals over the same time period.

Helpful reading

Structured Settlement IRR Rate of Return Compared to Other Investments (4structures.com)

 

 

 

 

 

Would You Take Advice From A Settlement Planner Who Had Problems Managing His Own Money?

A Free Money Finance blog posted  "Would you take advice from a financial planner who was doing poorly financially himself?" is a very interesting read, particularly the comments. It and the Chapter 7 bankruptcy filing I read today which showed an abundance of Neiman Marcus, Bloomingdales, big credit card debt, home equity line "to the max" etc., in an area that is a heck of alot cheaper to live than where I do, made me adapt the question in relation to those who advise tort victims.

Should tort victims work with settlement planners whose spendthrift proclivities mirror those who they are duty bound to protect? What about plaintiff lawyers who refer the spendthrift settlement planner to one of their clients?

I've been doing this gig for a long time and I love it, but I never forget those salad days back in the early to mid 1980s. One has to start somewhere. But then where do you go from there?  How do you buildy our business? How do you establish and maintain credibility? I think alot of it has to do with knowledge leadership and your ability to articulate it. The business is dynamic and you have to invest in your head. You need to innovate. You also need to inspire confidence and how you carry yourself, how you manage the financial aspects of your own business and your life is a big part of it.

Prudent risk management is important in any financial plan, particularly those that are doling out advice to anyone, let alone tort victims with catastrophic injuries, who likely have little to no means to earn back mistakes.

Anyone can have unforeseen medical bills. Isn't that why plaintiffs need liquidity in their settlement plans? Do you have insurance? Do you have an HSA? Do you need a special needs trust?

What sort of risk management have you done to protect a drop in income or wealth? Do you have a budget and adhere to it? Do you have a reserve fund? Do you have disability insurance? In dual income households, have you planned for the contingency that one spouse may die prematurely.  But for "Sully" Sullenberger some families of US Airways 1549 might have been looking at that question in hindsight.

The old adage "people don't plan to fail, they fail to plan" resonates.

Structured settlement annuitants who spend recklessly on material items and fail to budget are susceptible to the sirens of financial crack dealers and cash now pushers. It is clear how the New York Judiciary feels about tort victims mismanaging their money. Which is worse "the squandering tort victim", or the "squandering settlement adviser?".

Why should we not question the credibility of those who emphasize "extensive financial services careers" or "spearheading multi million dollar portfolios" in their sales pitch to tort victims, yet demonstrate a reckless lack of discipline with their own finances?

 

 

Re-Finance Your Term Insurance!

by John Darer

Good news for families! The insurance Information Institute reports that term insurance rates have dropped 4% a year since 2000 with the trend expected to continue.

One reason for the drop:

Mandatory switch of mortality tables to the 2001 Commissioners Standard Ordinary (CSO) as of January 2009. 1980s tables were used previouly and there have been improvements in mortality along the way.

If you have a term insurance policy John Darer can help you review it in light of your current situation and update it if appropriate.

Call toll-free 888-325-8640