Lump Sum Annuity Guide

An annuity investment can be a great choice for individuals  looking for ways to enhance their retirement options. However, if you have invested in an annuity or inherited an annuity recently, you might have recently realized that you need more cash than what your monthly allowance is currently providing, you should look into the benefits of a lump sum annuity. A lump sum annuity can give you the extra cash you need now – without having to wait for your monthly checks to roll in.

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Many people will choose a lump sum annuity for a number of reasons, including:

  • Freedom to take a vacation
  • Get out of debt
  • Down payment for a new house
  • Purchase a new car
  • Car maintenance repair
  • Home upgrades
  • College tuition

The biggest advantage of a lump sum settlement with your annuity investment is that you will be able to enjoy all of the money from this investment – now. While a traditional annuity schedule will give you a  guaranteed amount of money each month, the lump sum choice hands you the entire financial investment at once. You won’t have to wait each month for the check  to arrive in the mail. Instead, you will be able to enjoy all of your cash  right now. You can use the money towards other investments, to pay off debts, college tuition or any other areas where you might need more money.

When you choose a lump sum annuity versus a monthly check, you will typically lose some of your investment to the company that “buys” the rest of your investment. For example, if you have $10,000 left in your annuity investment, a lump sum company will offer to give you the full $10,000 now  (rather than waiting for the monthly check) but will require a fee for  performing the service. Depending on what their rates are, you might see a loss  of a few thousand dollars for receiving all of your money up front. In  addition, you will want to look into tax laws in your state to understand how much money you might have to pay in taxes for receiving a large sum of cash. These penalty fees, however, will seem less important when you consider the benefit of having all of the cash in your hand right now.

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Another reason why many people will choose to get their annuity in one lump sum versus the monthly payments is inflation. Some annuities can take years to pay out and over time, inflation rates will rise even though the monthly checks you are receiving remains the same. In this way, the monthly checks you receive will be less and less effective, enabling you to  pay for fewer things as the cost of living increases with each passing year. Although there will be penalties and tax costs to pay with a lump sum, the  impact of rising inflation rates makes the lump sum annuity choice much more  advantageous for some investors.

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