BlogUncategorizedStructured Settlements For Financial Planning

Structured Settlements For Financial Planning

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Structured settlements have been around for decades, but many people don’t fully understand what they are or how they work.

In simple words, a structured settlement provides a customized schedule of periodic payments to resolve a personal injury or wrongful death lawsuit. This arrangement serves as an alternative to accepting a one-time lump sum payment settlement, which can be misused hastily.

While structured settlements are often utilized in legal situations, they also have applications for financial planning purposes across many life stages. When used strategically, the predictable payment streams can supplement retirement income, fund college savings, and cover healthcare costs during older ages. However, realizing these goals requires careful coordination with other assets and income sources.

This article provides a quick overview of:

✅ How structured settlements work, along with their financial planning benefits and downsides.

✅ Smart ways to incorporate structured payments into your long-term financial blueprint.

How Does A Structured Settlement Work?

With a structured settlement, the at-fault party or insurer agrees to pay the injured plaintiff or their family members defined periodic payments for over 5, 10, 20, or even 30+ years. These recurring payments are customized to the recipient’s needs and can increase annually to keep pace with inflation and provide financial security. Structured settlements also provide tax-advantaged growth because these payments are not considered taxable income.

Rather than receiving settlement funds upfront to manage and invest on their own, the plaintiff essentially transfers this lump sum amount to a specialized life insurance company. The insurer then assumes responsibility for providing scheduled payments over time. This arrangement allows plaintiffs to benefit from reliable income streams that last for years without assuming growth risks or the temptation to spend funds irresponsibly.

The Role Of Structured Settlements In Financial Planning

Structured settlements deserve special consideration for several financial planning goals, because they offer:

  • Customizable payment schedules aligned to future income needs
  • Protection from overspending lump sums hastily
  • Tax Benefits: tax-deferred growth without needing investment experience
  • Asset protection from creditors, lawsuits, and divorces
  • Efficient means to match future expenses to income

While they lack the wealth-building upside and flexibility associated with investing lump sum awards, structured settlements provide guaranteed income largely unaffected by market volatility. This makes their income streams extremely reliable – an important feature for retirement planning.

Integrating Structured Settlements for Retirement Funding

A comfortable retirement requires utilizing multiple income sources to cover living expenses, travel, housing, healthcare, long-term care, estate planning costs, etc. Government programs, like Social Security and Medicare, provide foundations, while personal savings and employer pensions fill gaps.\

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Structured settlement annuities can play three main roles:

1. Supplement other income sources

Structured payment streams layered on top of Social Security checks, 401(k) withdrawals, and other recurring funds create sufficient “income layering” to support daily retirement living. This additional income allows claimant families to earmark other assets for growth-oriented investments, splurges, emergency savings, etc.

2. Grow Assets Tax-Deferred

While initial settlement sums used to purchase structured payments come from taxable lawsuit resolutions, the subsequent periodic payments allow tax-deferred growth. By delaying taxes, structured settlements achieve higher effective returns to boost retirement preparedness. Claimants can also utilize this tax treatment by rolling over a 401(k) or IRA into a structured settlement policy.

3. Match Future Costs

Retirees face ever-rising healthcare expenses, long-term care event risks, and other escalating costs during their golden years. Structured settlements allow customizing payment increases to align with these expected cost fronts. This helps earmark appropriate funding for late-stage retirement expenses that often catch seniors by surprise.

Structured Settlements For Education Planning

For families with young children or grandchildren, structured settlement payments also align nicely with college savings needs. Their predefined income schedules can accomplish two key objectives:

Fund Tuition And Expenses When Needed

Schooling costs continue soaring ahead of broad inflation, putting huge burdens on parents, students, and families. Structuring settlement payouts to flow during the years children reach college age provides a reliable means to pay these predictable expenses after kids turn 18.

Families can direct exact amounts toward annual tuition, room and board, fees, books, and transportation costs to avoid haphazard savings.

Lock In Future Tuition Rates

Many universities allow “freezing” tuition rates at current-year levels for students enrolling in the future. Aligning structured payment schedules from legal settlements to match guaranteed tuition rates locks in schooling costs despite inflation.

This allows families to send kids to certain private universities that would otherwise become unaffordable.

Structured Settlements For Healthcare Costs

Unfortunately, many settlement recipients sustained major injuries or lost loved ones that carry lasting medical implications. Even with insurance, extended treatments, home health assistance, specialty transportation, and prescription management medical expenses rack up out-of-pocket costs over time.

These expenses accelerate during later-in-life years along with normal senior care needs.

Your Structured settlement payment can play a vital role in funding predictable healthcare costs, including:

– Supplemental Needs

Spacing settlement payments to supplement Medicare provides buffer funds for deductibles, co-pays, uncovered drugs, in-home care, alternative treatments, and experimental medical therapies.

– Long-term care

Nursing homes easily cost $90,000+ per year, while round-the-clock home health aides also quickly drain savings. Assigning structured payments for covering a portion of eventual LTC expenses is wise planning.

– Special needs trusts

Those living with disabilities can assign structured settlements to specialized trusts without disqualifying them from Medicaid/SSI. These trusts administer funds for medical equipment, transportation, therapies, attendants, and other healthcare costs while maintaining public assistance.

Considerations For Structured Settlement Planning

Structured settlement Annuity Payments can be helpful, but you need to consider a few important things to make sure they work well for your situation:


Will the payments from the settlement come at the right times to pay for the costs you are expecting, like college or retirement?

Make sure the schedule lines up with when you will need the money.

Customization Options

You can customize the payments in different ways, like whether they increase for inflation over time or stay the same.

Think about what options make the most sense for your needs down the road.


Keep in mind any risks with relying too much on the settlement payments or not having enough flexibility. Have a backup plan you can turn to if needed.


Talk to a tax expert. You don’t want any surprising taxes on the settlement payments to cause issues later. Understand any taxes ahead of time.


Settlement payments have good protections if structured properly. Make sure your payments are shielded if you ever face lawsuits, creditors taking money, or a divorce.

Getting advice from financial advisors, lawyers, tax experts, and benefits counselors is wise. They can help make sure your settlement payments work well within your full financial picture.

Overcoming The Objections!

Despite their reliability in financial planning, structured settlements present some perceived drawbacks that deter lump sum takers:

Lost Opportunity Costs – Claimants forfeit their ability to directly invest funds potentially earning higher returns than structured payments offer. However, research shows most individuals waste settlement money quickly due to mismanagement. Modest structured payment growth still likely outpaces average personal investing results over equivalent time periods.

Reduced Flexibility – Locking funds into structured payouts seems inflexible relative to having direct control over lump sums. However, scheduled income streams still provide needed flexibility by covering major predictable costs. The remaining assets can be utilized freely for other priorities.

Default Risks – Some claimants worry about structured settlement annuity providers going bankrupt, leaving payments in jeopardy. However, state laws establish investor-protection foundations to guarantee issuers’ fund obligations. These promises allow beneficiaries to redirect payments if original writers default.


Structured settlements were originally designed to protect injury victims receiving damage awards. But their unique payment streams also solve many financial challenges for claimants and their families across life stages.

Aligning customizable structured schedules with major future expenses in retirement, college savings, and healthcare medical bills helps ensure these settlement funds efficiently meet financial needs. This relieves beneficiaries from assuming investing responsibilities they are unprepared or uncomfortable managing resulting in better lifetime outcomes.

While everyone’s situation differs, structured settlements warrant special consideration for their reliability, tax advantages, asset protection features, and ability to match incomes with rising future costs. Integrating them purposefully into comprehensive plans ahead of time provides peace of mind!


Are structured settlement payments tax-free? How does that work?

Yes, structured settlement payments are income tax-free thanks to a special provision in the Internal Revenue Code, Section 104(a)(2). This tax advantage applies to settlement payments for personal physical injury or physical sickness, allowing the funds to grow tax-deferred over time. So unlike investing in a lump sum award, recipients don’t pay current income tax on their structured payouts, maximizing the long-term value.

Can I receive part of my settlement as an upfront lump sum payment?

Yes, many structured settlements allow claimants to receive a portion of the total settlement value as an immediate lump sum payment. Recipients can then assign the remaining funds to a customized long-term payment schedule to fund future costs. This blended option provides quick access to cash while still leveraging structured payments.

Can payment amounts increase to keep pace with inflation?

Certainly. Most structured settlements allow annual payment escalations to offset rising prices over time. Typical increases range from 1-4% yearly. Locking in lifelong inflation bumps ensures the purchasing power and longevity of payment streams. This prevents inflation erosion over decades-long payout schedules when costs inevitably rise.

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