Deciding Factors On The Lump Sum Annuity Decision
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 opt to take your entire pension up front, this can be a few hundred thousand dollars for the few decades of work you put into your company. It may seem like a big amount and how will you manage it? Of course, you will have to manage it wisely, or hire someone who can, because you will no longer have a paycheck coming in from your employment to survive on.
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.
If you are to retire today with the low-interest rates of the current economic climate, you will be locking yourself into this low rate for the life of the payment cycle. Taking the money in a lump sum will allow you flexibility in being able to invest and possibly grow your money.
Annuity payments are taxable. If you invest your pension lump payment you can roll it over into an IRA that is generally not taxed. It is taxed when you make a withdrawal, and the taxes are usually less than with an annuity option. Thus, these are only some of the many factors to consider when making the lump sum annuity decision.
Article Source: FxTradingStock.com
About the Author
Enrique Castillano also writes about Retirement Planning and Annuities including Lump Sum Annuity and Sell Structured Insurance Settlement
by: Enrique Castillano
Total views: 33
Word Count: 426
Date: Sun, 26 Sep 2010
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