Lump Sum Payment
Lump Sum Payment Options
As we approach retirement it is a time in our lives that we hope to be able to take advantage of the hard work we have put in to get us to this point. However before we can start off our new phase of life there is some important business to take care of. For starters there is the pension and our lump sum annuity option. Should you take your pension in a lump sum payment as soon as you retire, or should you receive a structured settlement company payment with regular monthly payments and a safe fixed interest?
If you do choose the up front lump sum payment it could add up to a substantial amount of money especially if you have worked for the same company for many years Such a large amount of money will need to be managed wisely so that it may last your lifetime. As this will likely be your main source of income from this point on it might pay to have a financial advisor help you manage your money.
Retirement we hope is a time for relaxation and pursuing the things you love such as hobbies and travel. With the security of a structured annuity payment, you will not be concerned with the management of your finances and investing your funds giving you peace of mind and time to do those things you love. Opting for a lump sum payment option needs careful management to avoid running out of funds before your time is up.
The monthly annuity option guarantees a regular payment coming in for the rest of your life. This payment does not however take inflation into consideration. Although the amount you initially receive may cover your expenses and more, over the years it will decrease in buying power. Put plain and simply your annuity will be worth less in the years to come.
If you opt for the lump sum payment option and invest and manage the money wisely you can make it grow in line with inflation or even better ensuring the same quality of life you have become accustomed to.
When you opt for a fixed rate annuity you are locking in the current base interest rate on your monthly payment. If those interest rates are low you will be saddled with a low interest rate for the life of your payments. With a lump sum you can consider short-term investment until interest rates increase. In this scenario you will have some other sort of income to cover your personal expenses.
Annuity payments are subject to taxes. For every monthly payment you receive you will be liable for taxes on that money. With a lump sum you can invest it in an IRA and avoid tax on the entire amount and only on pay taxes on what you withdraw. Taxes on an IRA are less than on annuity payments. These are a few considerations to make when when choosing between an annuity or lump sum payment.
