| Determining Factors On The Lump Sum Annuity Options |
| Articles - Retirement |
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If you are approaching retirement you will be facing some pretty hefty decisions. One of these very important decisions to make is your lump sum annuity decision. Will you be taking your entire pension up front, or get monthly installments of it for the rest of your life? There may be advantages and risks to both choices.
If you are approaching retirement you will be facing some pretty hefty decisions. One of these very important decisions to make is your lump sum annuity decision. Will you be taking your entire pension up front, or get monthly installments of it for the rest of your life? There may be advantages and risks to both choices. Taking the entire pension immediately can be very tempting, but you must have a plan for managing the money. If you do not have a plan in tact for managing the money you may very well risk losing it. If you do not think you are up to the task of good money management you will have to hire someone to do it for you, which will not be free. If you are looking forward to retirement in order to relax and take up some new hobbies, you probably do not want to worry about how you are going to pay your bills. This is one security that an annuity payment can offer. An annuity will give you a base financial fund so you do not have to worry about your basic needs. You can not risk the mismanagement of all your funds because you will not have access to these funds. One thing to consider with an annuity is that very rarely do these payments adjust for inflation. If deciding on taking the lump sum and know that you can take care of the amount you receive, it can have its benefits. Since annuity payments will not rise with inflation, this means that the same amount you receive now will not have the same purchasing power in a few years. This means that the actual value in terms of buying power of your money will decrease over the course of time. Also, when taking a fixed-rate annuity you are locking in the current base interest rate on your monthly payment. In the current economic climate interest rates are very low, so you will be stuck 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 taxable payments. On each monthly payment you receive you will be held responsible for paying a tax on it. When taking the entire amount you can invest in an IRA and pay no tax on the entire amount, only on what you withdrawal. Even the taxes you pay on an IRA account will be lower than on annuity payments. These are just some of the factors that will play a role on your lump sum annuity decision. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. Enrique Castillano also writes about Retirement Planning and Annuities including Lump Sum Annuity and How much is my annuity worth? |