“Everyone is entitled to his own opinion, but not his own facts.”
Daniel Patrick Moynihan, United States Senator from New York (1977 to 2001)
Anyone who has spent time around structured settlements has heard some version of the same sentence: injured people who receive a lump sum spend it quickly, so periodic payments protect them from themselves. The most repeated version comes with a number attached. Ninety percent of lump sum recipients, it is said, have nothing left within five years.
The first article in this series asked why settlement planning, after more than 25 years, has not yet become a profession. Part of the answer lies in what settlement planning inherited from structured settlements: a defense role, a compensation plan paid at the moment of sale, a service that ends at settlement, and more. One inheritance has done more than any other to shape how injured people are seen, and this article examines it. I call it the dissipation myth. “Dissipation,” in the structured settlement industry’s usage, means spending a recovery so quickly or so unwisely that it no longer serves the needs it was meant to meet. “Myth” is a strong word, and I use it in a precise sense: a belief that is widely repeated, deeply useful to those who repeat it, and never tested.
Two points of credit come first. The belief was, and is, sincerely held. Many claims professionals and consultants watched people they cared about run out of money, and the belief grew from those experiences. And periodic payments genuinely help many injured people. Payments that are guaranteed, free of federal income tax, and matched to recurring needs are often the strongest single part of a settlement plan. The questions this article asks are not whether periodic payments are valuable. The questions are whether the reason the structured settlement industry has given for them is true, and what that reason has cost settlement planning.
The belief written into law
The protective rationale has been part of structured settlements since they began in the late 1970s, and it was written into the law that supports them. In 1998, Senator Max Baucus described the purpose of the 1982 legislation that established the federal tax framework for structured settlements: “to encourage and govern the use of structured settlements in order to provide long-term financial security to seriously-injured victims and their families and to insulate them from pressures to squander their awards.”
That statement contains two purposes that deserve to be separated. Long-term financial security for seriously injured people is a public policy goal no one should dispute, and every good settlement plan serves it. Insulating injured people from “pressures to squander their awards” rests on a factual premise: that, left to themselves, injured people tend to squander their awards. The first purpose stands on its own merits. The second depends on whether its premise is true.
Where the ninety percent figure came from
The most thorough public investigation of the premise was published in 2009 by Jeremy Babener, then a law student at New York University, in the NYU Journal of Law and Business. His note, “Justifying the Structured Settlement Tax Subsidy: The Use of Lump Sum Settlement Monies,” set out to find the evidence behind the ninety percent figure.
He did not find it. Babener traced the figure to a 1978 trade journal quotation attributed to a life insurance underwriter, which cited no study. Later articles repeated the figure without citation. A 1992 California practice guide included it and later deleted it. A 1990 Canadian study, mentioned in a British newspaper, was the most plausible source, but Babener could not locate it. He reported that a former executive vice president of the National Structured Settlement Trade Association (NSSTA) said of the supposed study, “I honestly believe it doesn’t exist,” and that NSSTA had discouraged use of the statistic. NSSTA deserves credit for that position.
Babener then examined the studies that do exist: American studies of workers’ compensation, railroad injury, and widows’ benefits from 1936 to 1971, and reports from the United Kingdom, Australia, Canada, Ireland, and Scotland. Most were decades old, foreign, or not comparable to modern American injury recipients. Where he reanalyzed them, the amounts spent unwisely were often small or ambiguous. One 1936 study estimated that only about five or six percent of the money was spent unwisely. His conclusion was measured. The tax subsidy’s justification was unproven, and a modern American empirical study was needed.
Babener presented his research at the Society of Settlement Planners conference in 2009, and his work was cited at a United States Treasury hearing in February 2010. The modern American study he called for has still not been done.
The industry’s own literature reached the same conclusion
The scrutiny did not come only from outside the structured settlement industry. NSSTA’s Master’s Certificate in Structured Settlement Consulting (MSSC) requires each candidate to write a paper, and two of those papers examined the premise directly. Greg Micoletti, in The Risk of Dissipation of Personal Injury Settlements (2016), searched for the study behind the ninety percent figure and found none. Karen Meyers, in Settler’s Remorse (2015), traced the premise to the evidence that does exist: studies of lottery winners and other windfall recipients, and the anecdotal experience of claims professionals. Lottery winners did not lose their health or their earning capacity to receive their money, and claims professionals see the cases that go wrong far more often than the cases that go right. Both authors did the industry a service by looking.
The surveys that touch settlement recipients directly are fragments. Surveys sponsored by life insurance companies, including American General and Prudential, asked recipients about their experience. They were funded by product sponsors, and they relied on what recipients reported about themselves. None followed actual recoveries over time. One survey, as Babener reported it, found that 57 percent of lump sum recipients said they had depleted their money, without establishing when, on what, or whether the money had ever been enough.
What fifty years of research measured
The structured settlement industry has a tradition of survey research spanning fifty years, and its findings are consistent across sponsors and decades. Plaintiff attorneys act as gatekeepers. Early introduction of periodic payments matters. The tort system is built around lump sums. Injured people value control and access to cash. Every one of those findings was measured, on real participants, repeatedly.
The dissipation premise is not among those measured findings. The surveys measured perceptions, preferences, and use of structured settlements at the moment of settlement. None followed the money, or the injured person, afterward. That gap is the precise sense in which fifty years of research have never confirmed the dissipation belief. The premise may be true. It may be false. It may be true for some groups of injured people and false for others, which is exactly what a planner would most want to know. What the record shows is that no study of settlement recipients, following actual recoveries over time, has ever tested the dissipation premise.
Six readings that require no character flaw
Suppose a study were done and found that some injured people do deplete their recoveries quickly. The conclusion the structured settlement industry has drawn for forty years still would not follow. That conclusion runs: depletion proves that the recipient could not manage money, and that incapacity justifies the structured settlement product. At least six other readings of the same observed fact require no flaw in the recipient at all. Each points instead to a feature of the system that produced the settlement.
The recovery was never enough. After attorney fees, costs, and liens, and after years of unmet needs before the case settled, a recovery reported as “dissipated” may simply have been spent on being injured.
The design left no reserve. A plan that puts nearly everything into periodic payments, with no cash set aside, invites the very transaction it was meant to prevent. When the roof fails or the car dies, the only market open to the payee may be a factoring company, which buys future payments at a steep discount. That sale is a failure of settlement design, not of the person’s character.
Managing a lump sum for a lifetime is hard. Professional finance treats drawing down a fixed sum over an uncertain lifespan as a genuinely difficult problem. Poor early market returns, fees, and ordinary human pressures defeat sophisticated investors who have advisors. A depleted recovery is at least as likely to reflect a problem of finance as a problem of character, especially for an injured person left without an advisor after the settlement.
Circumstance and predation. The people most likely to deplete a recovery are those with the largest unmet needs, the least access to advice, and the greatest exposure to solicitations aimed at people with no one advising them.
Cash as an assertion of autonomy. From the moment of injury, other people make the decisions that matter most in an injured person’s life. Physicians decide on treatment. Insurers decide what they will pay. Attorneys decide how the case is run. Defendants, courts, and consultants decide when and how the settlement is paid. A structured settlement then fixes the amount and timing of the injured person’s payments for decades, often under a design the injured person had little part in choosing. Seen from that position, selling payments for cash may not be a failure to plan. It may be the first financial decision since the injury that is entirely the injured person’s own, and a way to take back control that the injury and the claims process took away. The sale may still be unwise, and many are made on poor terms. But a plan that leaves the injured person no control at all invites exactly that reach for control. The better answer is a plan the injured person helped design, a reserve the injured person controls, and support in making decisions, not restraint.
A predictable transition. Mainstream financial planning has, for a quarter century, treated sudden money, from an inheritance, a divorce, a business sale, retirement, or a legal settlement, as a recognized life transition during which decisions are predictably strained. Susan Bradley and the Sudden Money Institute developed Financial Transitions Planning around that insight, with a model of stages through which people pass. On that view, whatever depletion occurs among settlement recipients is the same phenomenon advisors see in heirs and retiring business owners. The mainstream answer is planning timed to the stages of the transition, not restraint imposed as a condition of being paid.
What the belief has cost settlement planning
A belief that is never tested can still do real harm, and the dissipation belief has done harm in three ways.
First, it has shaped how injured people are viewed by settlement planners. If the injured person is a risk to be managed, protection means removing choices in advance. A practice organized around protecting people from themselves has little reason to ask what its professionals owe those people as their agents. The belief makes that question hard even to ask.
Second, it has shaped plan design. If lump sums are dangerous, more periodic payment is always safer, and a plan that commits nearly everything to fixed payments looks like the most protective plan available. Experienced practitioners know better. Good practice has never required putting as much of a recovery as possible into periodic payments, and a plan with no reserve for foreseeable needs leaves the injured person exposed to the factoring market.
Third, it has kept the structured settlement industry, and transitional settlement planning after it, from borrowing from other disciplines. Transitional settlement planning is my name for settlement planning as most planners practice it today. Disability services and elder planning developed, long ago, a different way of protecting vulnerable people. Person-centered planning builds a plan around the person’s own goals and preferences rather than around the products available. Supported decision-making gives a person the help needed to make and communicate the person’s own decisions, rather than transferring those decisions to a guardian or an advisor. The dignity of risk recognizes that the right to decide includes decisions an advisor or a family member would not make, and that protection purchased by removing choice carries an injury of its own. Those ideas serve many of the same people settlement planning serves, and they start from respect rather than suspicion.
What would settle the question
The question can be answered. A study would follow settlement recipients over time and record what their recoveries actually funded, grouped by case size, injury, age, reliance on government benefits, plan design, and whether the person had a planner. The data needed for such a study already exist, scattered among annuity issuers, trustees, qualified settlement fund administrators, plaintiff law firms, factoring companies, and planners. No single participant holds enough of it, and none is required to share it. A neutral organization, collecting the data without identifying any person or firm, could assemble what no participant can assemble alone. A practice that aspires to become a profession should want to know what its plans actually produce.
Periodic payments do not need the myth
The case for periodic payments is stronger without the dissipation belief than with it. Guaranteed payments, free of federal income tax, matched to needs that recur for a lifetime, and protected from many creditors, are valuable in their own right. A recommendation for periodic payments should rest on the injured person’s stated goals, the injured person’s needs, and the analysis that connects the two. It should not rest on a presumption that the injured person will waste the money.
The structured settlement industry was built in part on that presumption, and transitional settlement planning has largely inherited it. Modern Settlement Planning starts from a different premise: the injured person is a client with a claim, directing a plan, with support, toward the injured person’s own goals. Settlement planning can keep everything valuable that periodic payments provide and still set the myth aside.
The next article turns from how injured people have been seen to what the law says the settlement planner is: the injured person’s agent.
HOW I WRITE THESE ARTICLES: I write these articles with the help of AI tools. The ideas, judgments, and final text are my own, drawn from more than four decades in structured settlements and settlement planning.
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