Settlement payout analysis
Structured settlement calculator: find the break-even rate.
When you're offered both a lump sum and a structured settlement, the core financial question is: what annual return would the lump sum need to earn to match the structured payments? That number is the implied rate. If you can reliably beat it, the lump sum may produce more wealth. If you can't, the guaranteed structure may be safer. This calculator computes that rate and shows a year-by-year comparison.
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What the implied rate tells you
The implied rate is the internal rate of return (IRR) embedded in the structured settlement relative to the lump sum offer. It answers: if you invested the lump sum and withdrew the same monthly amount, what annual return would leave you with exactly zero at the end of the payment period?
- Implied rate higher than your expected return: the structure is providing guaranteed income at a rate you'd find difficult to replicate with certainty in a portfolio. Income security favors the structure.
- Implied rate lower than your expected return: a well-managed lump sum would cover the same payments AND retain residual principal — favoring the lump sum for long-term wealth.
- Portfolio depletes before the period ends: even if the implied rate is lower, if the lump sum can't sustain the withdrawal over the full duration at your return assumption, the structure provides coverage the portfolio doesn't.
Tax treatment: why it matters in the comparison
For physical injury and wrongful death settlements, both the lump sum and structured payments are generally excluded from federal income tax under IRC §104(a)(2).1 Structured settlement payments established via qualified assignment under IRC §130 retain the same exclusion — meaning the guaranteed payment stream arrives tax-free.2
By contrast, investment income earned after a lump sum is received is taxable — dividends, interest, and capital gains all count. This asymmetry can meaningfully change the effective comparison, especially in higher brackets. Employment settlements, discrimination claims, and punitive damages often do not qualify for the §104 exclusion. Confirm your settlement type with your attorney and tax advisor before assuming tax-free treatment.
Want scenario analysis on your actual terms?
A settlement financial advisor can run full cash-flow modeling on your specific offer — incorporating tax treatment, longevity assumptions, care needs, and professional coordination with your attorney and CPA. Best fit: expected proceeds of $500K or more, or a settlement that must support care, housing, or lifetime income.
Also see: Structured settlement vs lump sum — overview · Settlement windfall guide · First-90-day checklist
Sources
- IRC §104 – Compensation for injuries or sickness, LII / Cornell Law School. Physical injury settlement proceeds are excluded from gross income under §104(a)(2).
- IRC §130 – Certain personal injury liability assignments, LII / Cornell Law School. Governs the tax treatment of structured settlement annuity assignments; payments retain the §104 exclusion.
- IRS Publication 525 – Taxable and Nontaxable Income. Chapter on lawsuit awards and settlements; covers which settlement types qualify for exclusion.
- IRS FAQ – Lawsuits, Awards, and Settlements. IRS guidance on when settlement proceeds are taxable and when they are not.
Calculator uses present-value annuity mathematics; implied rate is a nominal APR (monthly compounding). IRC §104 and §130 were not affected by the One Big Beautiful Bill Act (July 2025) or the Social Security Fairness Act (January 2025). Tax references verified as of June 2026. Verify applicability to your settlement type with a tax professional.