I was a panelist at the recent SCAHRM Educational Conference in Rancho Mirage. As part of my presentation, I addressed the low interest rate environment and why it is necessary for the health of our economy.
Interest rates have remained at historic lows for some time as the Federal Reserve continues to buy $85 billion in Treasury securities each month in an effort to keep long-term interest rates low and to encourage more borrowing and spending within the economy. Because of this aggressive buying strategy, the Federal Reserve controls 72 percent of the Treasury market with holdings at $3.04 trillion. It effectively controls long-term interest rate movement.
According to a May 11, 2013 Wall Street Journal article, “Fed Maps Exit From Stimulus,” the Fed isn’t likely to suddenly stop its Treasury spending anytime soon. If anything, even as the economy shows real signs of strengthening, the Fed will only gradually slow its spending and will closely evaluate the effects of any spending cutback on the financial markets.
While low interest rates are good for the economy, the anemic rates are frustrating for individuals who rely on interest payments as an important part of their income. Investment decisions can become confusing. However, for injured parties who must be sure they have enough money to pay for current and future medical bills and other living expenses, the decision remains easy.
Advantages of a Structured Settlement Even When Interest Rates Are Low
Most injured parties are not financial experts. With a structured settlement, they are guaranteed specific payment amounts throughout the life of the settlement regardless of market volatility. They don’t need to worry about the ups and downs of the market.
There are other benefits. Money within the structure’s annuity compounds so the overall payout is higher than if taken as a lump sum at the settlement’s inception. Since payments from structures are tax-free, the real rate of return is higher than if the settlement funds were placed in a taxable security. This makes current low interest rates much more palatable.
To view the Wall Street Journal article, go to Fed Maps Exit From Stimulus.
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