Individuals with limited financial knowledge should think long and hard about managing a large anticipated settlement. As a financial writer and budget analyst for nearly a decade, I’ve seen countless individuals spend money on frivolous things, slowly burying them in credit card debt. If you’re set to receive a settlement, it’s wise to sit down with a financial advisor to map out a financial plan that mitigates investment risk and preserves capital.
Structured Settlement Defined
Congress created the Settlement Protection Act in 2002. According to Expert Law, when a plaintiff settles a case for a large sum of money, the defendant, the plaintiff’s attorney, or a financial planner consulted in association with the settlement, will propose paying the settlement in installments over time rather than in a single lump sum.
The structured settlement process is a powerful financial tool, created by Congress because most injured people who received lump sum payments where spending money carelessly before meeting their financial obligations.
In structured settlements, individuals work with a financial advisor to select a plan of the anticipated amount. Proactively working with a financial advisor ensures the money received isn’t spent on vacations, unnecessary items or on other people. It’s better to have a plan than aimlessly walk, right?
Structured Settlement Advantages
- Reduced risk of losing principal with poor individual investment decisions
- Sound financial advice tailored to individual’s investment risk
- Personalized planning to meet current and future financial obligations
One method of reducing investment risk is through structured annuity settlements. Structuring your settlement with an annuity will grow the principal amount in a retirement vehicle, reducing tax burden. Companies understand individuals have different investment temperaments, therefore, choose a company who listens, responds truthfully to questions and disclose their fees. There is no one-size-fit-all plan. And though a company may develop a sound financial plan, it requires discipline and commitment on part of the individual.
You can never plan too early if a settlement is headed your way. Experience shows me sitting down with a financial advisor today will ensure your economic house is in order, removing bad psychological processes that lead to bad financial habits.
If you’re slated to receive a large settlement, don’t wait! Talk to your attorney and tell them, “Do you know of any good financial advisors?” If not, an Internet search can provide a list of financial advisors near you, as well as testimonials [reviews] from past clients. Invest in your future, talk to a financial advisor.