Lump Sum Annuity

How To Choose Between A Lump Sum Annuity And Regular Payments

A lump sum annuity can be offered in a variety of circumstances, and there is no doubt that it will always be tempting to take it. We all have ongoing expenses which need to be met, and we all have something which we could use money for right now. It is important to be able to consider these immediate needs in the context of the overall picture, and your potential needs for money in the future. It is also vital to think about your own personal ability to manage money.

There are many cases where you will be presented with the choice of either receiving a lump sum annuity or a series of payments over time. Many large competition and lottery wins are given in this way. If you have won a court case for injury compensation you will usually receive money over time, but there may be an option to apply to the court to receive all of the money at once. There is little point in doing this unless you have a specific reason for doing so, as it can have negative tax implications.

There are cases where a lump sum annuity will be of great benefit to the award winner. Maybe you are skilled at a certain line of business, but lack the capital to get started. An early release of the money which is due to you would be the obvious solution, as it would allow you to get started in business without needing to prepare business proposals and attempt to borrow money. If the business begins making a profit quickly, you could have the income which you would have got from the annuity as well as the capital investment in the business.

There is also the consideration of real estate. If you are awarded money over time instead of a lump sum annuity, you will be able to pay your rent but you will not be able to build up an asset using property. It may be possible to persuade a mortgage lender to lend you money based on the guaranteed payments you have, but you will still have more freedom with a lump sum. You can choose a property to buy which will suit your needs, and you can even split the money between your residence and income property.

The one consideration which may make you decide to stick with the regular payments is taxation. If you change the terms of a court order so that the money is no longer paid as part of it, you could find yourself in a situation where you are paying more tax. Make sure you consult a competent tax professional before you make a final choice. Although the amount involved may be small, with compound interest they can grow large over time. Plan your future carefully before you decide on a lump sum annuity.

 

 

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