Many people are often confused between lump sum versus payments when it comes to loans. There are advantages and disadvantages to both. While the terms may sound similar they are not the same. A lump sum is a large amount of money that is paid out over a long period of time. This can be compared to a bonus that is given to employees on a yearly or monthly basis. When you receive a lump sum payment or an installment each month, there is some element of risk that perhaps the amount would be smaller than what was originally expected.
With a lump-sum payment you are basically replacing a debt with a lump sum. For this reason there is some element of risk associated with it. If there is a downfall in your financial situation and you must pay back the money, the amount of money you have now is gone and you must find another source of income in order to sustain yourself and your family until you are able to resume making regular payments on your mortgage or other debt obligations. Another aspect to consider is that if your financial situation changes drastically you could find yourself out of a job because you were unable to keep up with the payments on your home.
There are advantages to lump sum versus payments for several reasons. First, if you have a large enough lump sum and you are prepared to invest it, you can live on the money without having to depend on a pension or other type of retirement income. A large lump sum can also provide for extra medical benefits, college funds, and even debt consolidation. You may want to start or expand a business that will require you to have a significant amount of cash on hand at all times. This is also a good option when you are nearing retirement.
As you look at the two options for increasing your nest egg and saving for your golden years, you may be wondering how Americans who are retiring afford it. The answer is simple. Many Americans have access to either a 401k or an IRA through their employer. Many more American workers have access to retirement pensions and social security as well, which can significantly increase your nest egg.
When comparing the costs of a lump sum payment versus IRA and a pension payment, you will also want to consider health insurance premiums. Health insurance premiums are steadily rising in recent years. However, a lump sum payment can significantly lower your monthly costs, depending upon the age at which you are retiring and your current health. This is a great way to reduce the cost of retirement planning.
When comparing the costs of retirement planning using a lump sum versus IRA and a pension payment, you will also want to consider travel, mortgages, and insurance. If you have children who are not yet 18, you may also want to consider child care. Your nest egg is only as good as the money you put into it. When considering your retirement planning options, it is important to keep in mind that you will need to plan for your golden years as well as your childhood. Many Americans find that they continue to work well into their golden years and then find that they want to take part in extra activities. Your nest egg needs to be flexible, and if you use one type of plan, it should be able to grow and help you achieve your retirement goals.