by John Darer CLU ChFC CSSC
"What are current structured settlement rates?" is a frequently ased question about structured settlements. It's a natural question for consumers, but it has no set answer when it comes to structured settlements.When shopping for structured settlements, throw away what you've learned about shopping for other goods and services. Structured settlements allow one or more customized types of annuity payments to be created to suit the plaintiff's defined and anticipated needs. For example, a structured settlement payment stream can be created to replace the future salary lost as the result of the injury, or the death of the family bread winner.
The Internal Rate of Return (IRR) is a financial measurement used to compare a structured settlement to other investment or savings alternatives. First solve for your needs and THEN compare the alternative plans or structured settlement proposals by using the Internal Rate of Return measure. Be sure to account for the fact that structured settlement payments are income tax-free so that you must gross up the Internal Rate of Return to compare to an investment or savings alternative that is taxable.
How do you gross up a tax free rate of return? It's simple. Assuming you have the IRR already:
Step 1 Determine your tax bracket
Step 2 Place a decimal point in front of your tax rate percentage
Step 3 Subtract your result from Step 2 from the number 1
Step 4 Divide your result from Step 3 into the IRR and now you will have your taxable equivalent IRR.
Example: IRR is 4.5%,
Step 1 Assume 28% tax bracket from the example
Step 2 .28
Step 3 1 minus .28 equals .72
Step 4 4.5 divided by .72 equals 6.25%
For a convenient taxable equivalent yield table that may help you in converting tax free to taxable equivalent and vice versa please click here
For a further discussion on structured settlement rates of return (IRR), and helpful hints concerning IRR, please clickhere
If you need a structured settlement quote please contact us or your structured settlement broker or settlement planner.
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