While some trial lawyers automatically reject the guarantees and unique tax advantages inherent in a structured settlement when interest rates are low or there is the perception that they (their clients) can do better in the stock or bond markets. But consider that even those who are not going through a major life transition event may have a loss aversion and a natural emotional reaction to extreme market declines leading them to sell out during periods of extreme market declines to seek the safety in cash. See Market Timing is Not Easy in our section Structured Settlements vs Other Investment Alternatives.
Some assume that the client would not be interested in a structure because they are not a minor, unsophisticated, incompetent, needy for income or dependent on complex medical support. The decision to go with 100% cash by a Plaintiff may be borne from the reasons above or other reasons such as fear of the unknown, misperceptions about flexibility; sometimes simply the perception to get rich or even the dignity of wealth.
Decisions made solely made on the basis of achieving said returns on a straight-line basis could prove to be flawed. An average rate of return of 7% does not mean that 7% was achieved in each and every year in between, or will be in the future. In most personal injury settlements, the calculation involves more than a simple lump sum future value or present value; there are multiple cash flows to consider, varying rates of inflation on multiple items, such as cost of medical items, timing of income streams and unknown mortality. If you take two historical periods with the same hypothetical settlement amount, the same distribution amounts and dates and the same returns, but the returns were achieved in a different order there will be a considerable difference in the ending balances.
T
he greater the fluctuation in returns brings a greater range of variation in projected values. Thus a projected investment return that employs a static or deterministic approach is bound to be inaccurate because of the failure to recognize the implicit volatility.
Monte Carlo analysis, also known as Monte Carlo simulation, employs what is known as "stochastic" analysis using multiple variables, thus permitting us to account for such factors as health care inflation, general inflation, mortality factors, investment rate of return and others. Armed with a sophisticated program run on a desktop or laptop a simulation of 1,000 to 10,000 trials can be run. The simulation randomly draws values for each factor for each year based on their probability distributions, accounting for an appropriate standard deviation, thus providing a better display of the risk of a 100% cash decision. It shows how long the money will last based on the set of assumptions. The allocation of settlement proceeds in an important decision. For many it's a once in lifetime decision because they have no means to earn back their mistakes. Structured settlements offer guarantees and unique tax advantages not available to other investors.
"Monte Carlo Simulation, also known as the Monte Carlo Method or a multiple probability simulation, is a mathematical technique, which is used to estimate the possible outcomes of an uncertain event. The Monte Carlo Method was invented by John von Neumann and Stanislaw Ulam during World War II to improve decision making under uncertain conditions. It was named after the well-known casino town, in Monaco, since the element of chance is core to the modeling approach, similar to a game of roulette. Since its introduction, Monte Carlo Simulations have assessed the impact of risk in many real-life scenarios, such as in artificial intelligence, stock prices, sales forecasting, project management, and pricing". Source: IBM
If you have been solicited to sell your structured settlement payments, beware of the slick "sales pitch" that claims better investment opportunities for the discounted lump sum they want to pay you.
Last update February 19, 2023
Have you tested your investment and withdrawal assumptions to see the chances that the assumptions work? I'm here to help. Call me at 888-325-8640 or send me a message and I'll be in touch.
4structures.com, LLC
The Structured Settlements and Settlement Planning Company
43 Harbor Drive, #309 Stamford, CT 06902 USA
888-325-8640
646-849-1588
New York City (Manhattan, Bronx, Brooklyn, Queens, Staten Island), Westchester(NY), Nassau County (NY) , Suffolk County on Long Island (NY), Albany County (NY), Oswego County (NY), Steuben County (NY), Broome County (NY), Onondaga County (NY), Fairfield County (CT), New Haven County (CT), Hartford County (CT) New London County (CT), Tolland County (CT), Litchfield (CT), Middlesex (CT) , Bergen County (NJ), Middlesex County (NJ), Ocean County (NJ)
Structured Settlement Experts and Settlement Planning Consultants for settlements from claims or lawsuits arising out of Aviation accidents, Medical Malpractice, settlements involving Serious Personal Injury, Wrongful Death, Wrongful Incarceration, Employment, Civil Rights, Discrimination of any type, Auto accidents, Motorcycle accidents, Maritime accidents, Workers' Compensation, Product Liability, Real Estate Liability, Construction Defect claims or lawsuits, Landlord/Tenant,
Property, Attorney Fee Deferrals, Funding Agreements, Structured Installment Sales, Environmental Liability and Commercial Dispute settlements.
Structured settlements and structured settlement brokerage, settlement planning, Sudden Money®, financial transitionist, funding agreements and insurance related services provided by 4structures.com LLC.
Financial Advisory Services provided through Groove Financial Advisors , LLC, and its service partners.
Fiduciary services, including the custody and administration of trusts provided via service partners.
Securities and Insurance Products are NOT Insured by the FDIC, nor by any other Federal or State Government Agency, are NOT a Deposit of and are NOT Guaranteed by a Bank or any Bank Affiliate, and securities MAY lose value.
4structures (USPTO Reg. 4640532) , 4structures.com (USPTO Reg. 4640531) , We Know Structured Settlements (USPTO Reg. 3089738),
Because Certain Sells (USPTO Reg. 6237309) and We Know Structured Sales (USPTO Reg. 3490489), are Registered Trademarks of 4structures.com LLC.
John Darer is a Registered Trademark of John Darer (USPTO Reg. 4674907)
John Darer California insurance license 0761076
4structures.com LLC CA license OF19785 d/b/a 4structures Settlement Insurance Agency