Did you know that most financial experts predict an annual 2% inflation rate on goods and services in this country for years into the foreseeable future? Anyone holding a structured settlement or annuity, and expecting to receive payments from it to support themselves and their family, must take this rate into account in assessing their future financial plans.
To understand the role inflation plays in evaluating the value of your structured settlement or annuity payments, we thought we would offer an example of a structured settlement recipient who is scheduled to receive $20,000 a year for the next 20 years. This person is financially responsible, makes a monthly budget, and always makes sure not to exceed his/her monthly spending.
Unfortunately, if this person also does not take inflation into account, over time he or she will be unpleasantly surprised by the ever-shrinking purchasing power of that sum. Certainly, that first year the $20,000 received will buy $20,000 worth of goods and services. But because of annual price increases due to inflation, that $20,000 will buy 2% less in goods and services each and every year compared to the year before it. In fact, within just 10 years’ time that $20,000 will actually be worth $16,000, and within 20 years, it might only purchase $10,000 in goods and services!
Here’s another example, specifically for those considering retirement. Let’s say you have calculated your long-term financial needs, and estimate that you need $50,000 a year to live comfortably in retirement. Unfortunately, that figure is inaccurate unless you account for inflation. Because if the average inflation rate is 2%, in five years you will need $55,000 a year to maintain the same cost-of-living, in 10 years you will need $61,000 annually, and in 20 years you will need almost $74,000 a year!
The bottom line is that understanding the long-term impact of inflation is a crucial part of understanding the value of your structured settlement or annuity payments, and essential in making accurate retirement plans. Money is worth more the sooner it is received, so if you are considering selling your structured settlement or annuity payments for cash now, inflation must be one of the factors you take into account when you consider your future financial plans.
We hope we have shed some light on the role inflation has on the value of your structured settlement or annuity payments, but we are also always available if you have more questions at 877-227-4713. Call J.G. Wentworth today to discuss the value of your structured settlement or annuity payments, and learn more about how to get cash out of your structured settlement or annuity payments now, instead of later. Once again, we can be reached anytime at 877-227-4713.