Navigating the world of annuities and structured settlements can be confusing at times and determining if you should sell your future payments can be an even more daunting decision. While there is a lot that goes into the process including your reason for selling, who to talk to, and how it will impact your financial future, the first question you are probably asking is how does selling my structured settlement or annuity work? Through examination of the process, you will be one step closer to determining the best move for your financial health.
Simply speaking, the path to selling your structured settlement or annuity is just a few steps. You begin by contacting an advisor, such as a member of our team, who will work with you to better understand you needs and financial goals. We take a look at your settlement, payments, timing, and reasons for wanting to sell and come up with the best options for you. If you decide to continue once the numbers have been laid out, a judge approves the transaction and you get the funds you need.
First of all, let’s talk about the type of payments you are receiving. If you opted for a structured settlement, then you chose to take the winnings of a personal injury lawsuit over a period of time as opposed to one lump sum. This might have been done for a number of reasons including financial stability over a period of time, or tax benefits. For example, if you won $100,000, your structured settlement might require the defendant to pay you $10,000 every October for the next ten years. You also have the ability to design a structured settlement that suits your monetary needs most effectively including a large initial payment, ability to receive more to pay for extraordinary expenses such as tuition or medical bills, increase or decrease over time and even delayed payments.
An annuity is basically a contract between you and an insurance company where you make a payment or payments and they promise to grow that money and send you scheduled payments based off the money produced through the investment. Unlike structured settlements that are determined through the courts, annuities can be very complicated and can be configured in a number of different ways. The two main types of annuities are fixed and variable
- A fixed annuity is roughly a savings account with an insurance company. They offer a guaranteed rate of interest, typically around 5%. Since most annuities are used for retirement, this percentage is often considered low compared to the stock market.
- Variable annuities act as mutual funds within an annuity. The funds you receive will depend on how well the mutual funds chosen perform in the market. You put money that has already been taxed into the annuity and then the account grows tax deferred which means you will be required to pay income tax on the growth from the annuity when you start receiving payments.
Lottery payments can also be tricky to navigate as selling your lottery payments costs you money. While you get the cash you need now, it will not amount to the same total you would have received if you stayed on your original payment schedule. This comes down to the concept of time value of money (TVM) which basically means that having a dollar today is worth more than having a dollar in the future. This is true because the money you have today is able to be used today or earn interest, while the money you do not have can’t be spent or earn interest until you get it in the future. This is also impacted by inflation. Having money in your hand now is worth more than the promise of having it in the future because you can do something with it now, including invest it. While your financial health and goals are personal, there are a number of circumstances where a lump sum would be useful.
While the process of selling your payments might seem daunting, our team is here to help you determine the best course of action and connect you with buyers who provide you with the most competitive offers. Once you have determined that selling your payments is the best move for your financial wellbeing and found an offer that suits your needs, a contract will be determined, and a judge will sign off on the sale. You will then receive the funds you need! Our team is here to help if you have any further questions regarding the process.