Top Considerations When Choosing Between Lump Sum and Annuity

A lump sum is a payment given to a person all at once, while an annuity is a series of steady payouts made either monthly or annually over a long period. Both are normally provided to people who have won the lottery or a personal injury, medical malpractice, or wrongful death case. Each has advantages and disadvantages that you can read below.

Annuity

Pros

Choosing an annuity means you’ll have an income flow that’ll last for the rest of your life. This may also be passed on to your designated beneficiary.

Cons

Because the amount is regulated and released on a specific date, going for this option may feel restrictive. Not all annuities have the capacity to transfer your benefits to your next of kin. Also, this money may not be enough to cover urgent bills.

Lump Sum

Pros

If you have outstanding loans or large debts, you can pay them as soon as you have the cash. This amount can be passed on to family members as an inheritance. You may also use this money to invest in a business, a new home, or continuing education.

Cons

It’ll be up to you to ensure you spend it wisely, so you don’t run out of money quickly. It’s going to take a great deal of control to refuse impulse buys, particularly if you have the cash to purchase nonessential stuff.

The pros and cons are your simple guides to choosing between a lump sum and an annuity. Each person has their own needs. They must then consider the following factors to further analyze their personal circumstances before making their final decision.

Life Expectancy

If your health’s in optimum condition and you think that you’ll live beyond the average life expectancy, annuities make a better choice. You’d want to spend the rest of your retirement with a steady stream of income that’ll allow you to relax and have fun.

But, if you’d rather spend big on some grand items you have on your retirement bucket list, lump sum’s the way to go. It’s also a great opportunity to distribute your family’s inheritance.

Return of Investments

In general, a smaller investment equals lower revenue. Using your monthly or annual scheduled payments to start a business will only take you up to a certain financial bracket. But, if you fund a venture with your lump sum, the odds of raking in more money go higher.

Financial Risks

The bigger the money you invest, the greater the risks if things don’t work out. Likewise, going for lower returns that come with smaller ventures can significantly minimize your losses.

These considerations will allow you to properly decide between lump sum and annuity payments credit. The bottom line is that you have to pick the one that best serves your needs. If you plan your move well, you’ll find yourself set and comfortable for the rest of your life.

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