Lately I’ve been hearing a lot of concerns and objections from a lot of otherwise financially unsophisticated and inexperienced plaintiffs about the IRR on structured settlement proposals. While they are correct that the rate of return is currently low by historical standards, they are missing the bigger picture.
To start with, it’s important to remember that structured settlements are tax advantaged, in the same way a 401(k) plan works, with undistributed returns compounding on a tax-free basis. So a structured settlement product with a stated return of 3% provides closer to a 4% or more return on a tax-adjusted basis. Also, the first question I ask people who tell me that the rate of return is low is, “Compared to what?”