The Federal Reserve recently reported that household debt increased by $351 billion in the third quarter of the year—at its fastest pace in 15 years. Higher mortgage and credit card rates and overall inflation are making everything more expensive. Injured parties can offset some of the effects of rising prices by including an inflation component in their structured settlement.
COLA Annuities. Cost of Living Adjustment (COLA) annuities are structured so payments increase to help offset inflation. Payments from COLA annuities increase annually by a specific percentage rate decided at settlement time (usually 1 to 3 percent).
While the current jump in inflation is the highest since the early ‘80s, history shows it will eventually slow to within the COLA annual percentage parameter.
Annuity Returns Are Also Up. An annuity’s underlying investments are primarily Treasury notes and bonds. Treasury yields rise and fall with inflation. Their current yields are at about 4 percent—their highest in years. Yields from personal injury structured settlements are state and tax-free so the 4 percent yield translates to a real rate of return of 7 percent in California. This means structured settlements available today are offering much higher returns than those written only a couple of years ago.
If you have questions about structured settlement annuity products including their current returns, give me a call.
Pat Farber
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