Should you take a one time lump sum or annuity payment. Should you spread the payment out over the course of many years?
Believe it or not, you may actually get the chance to make a choice like this. And, you need to have all the facts and understand how your choice can affect your family.
Typically, we think of this choice when a new lottery winner is announced. We all tend to daydream about what we would do with a huge lottery win. It’s okay to dream of winning the lottery.
That dream should also includes how you would choose to accept the winning payout. Is a reduced lump sum payment better? Or, should you parcel out your winnings a little bit each year over the course of 20 or 30 years in the form of an annuity?
Now let’s flip this on its ear a little bit. Imagine the same questions with respect to a life insurance payout, your retirement nest egg, private pension plan, or an inheritance. Now, the chance of having to make this tough choice is a lot more realistic and likely than those dreaming of pocketing those lottery millions.
Benefits Of Taking A Lump Sum Payment
Should you take the lump sum or annuity payments over time? A dollar today is worth more than a dollar in the future. This is true thanks to inflation. It is not that a dollar is worth more because a dollar is always worth one dollar.
But, we can buy more things with money today than the same amount will buy us in the future. So, if you had the choice of a million dollars today, inflation alone would make you want to take it as a lump sum. You would not spread it out over years where your buying power will be reduced.