" I'm not looking so much at the return on my money, but the return of my money. "
- Wil Rogers
When evaluating any of the investment alternatives to the guaranteed, tax-exempt annuity, it is important that a true "apples to apples" comparison be done considering risk, payment duration, brokerage fees, ongoing investment management fees, and finally, taxes. As for taxes, it must be remembered that these settlement annuity payments, pursuant to IRS Code Section 104 are fully exempt from any Federal, State, City, Social Security or Medicare taxation.
The truest comparison would be to compare the current after-tax yield of United States Treasury Bonds of a similar duration to the annuity proposed. For example, the after-tax ten year treasury yield would be compared with a term certain annuity of ten years guaranteed. Furthermore, the after-tax yield on a thirty year treasury bond could be compared with a term certain annuity of thirty years guaranteed. Since annuities are the only investment vehicle that can pay for life, any comparisons to annuities that pay for life expectancies beyond 30 years are best compared to the maximum duration of a treasury bond (30 Years).
The chart below illustrates the current yield on United States Treasury Bonds. To complete your calculation for comparison purposes, you would simply take the current yield and reduce for taxes to find your after-tax yield (i.e. 10 yr T-Bond @ 3.5% - 28% tax = 2.52%).
For more information on taxable-equivalent yields, refer to the full chart here. For two sample case studies, click here.
There are never any initial or annual fees, ongoing commissions, reporting requirements or additional expenses involved in these structured settlement annuity policies. Alternative investment options, whether fully disclosed or not, often carry these "extras" which serve to reduce their overall return.