If you are planning to sell your property and need to choose between a lump sum and payments, you should first evaluate your priorities. A lump sum payment is attractive when you need quick cash. However, most buyers will prefer the monthly payments that come on their annuities. Here are some factors to consider when comparing lump sum versus monthly payments:
How much time do you have to sell your property? While lump sum versus payments may not always be your best bet, remember that at times the money that you receive from an annuity can supplement the standard retirement pension. One of the greatest advantages of lump sum versus payments is it gives you instant income without waiting for a check to arrive in the mail. The amount that you sell your monthly payments for is based on the present value of your future annuity, so if you wait a long time before selling your payments you will actually lose money.
What are your other options for getting money quickly? Your state may provide some or all of these funds, as well as many others. Your local workers’ compensation program may also pay lump sum payments for a specified period of time. Another option for fast cash is to sell your annuity. Your future annuity (with the help of your worker’s compensation agency) will reimburse you for the lump-sum payment you receive if you sell.
What is the value of my pension? If you are nearing the age of retirement, you may still be eligible for Social Security and a private pension. These pensions are not tax-free, but they are worth much more than the value of your annuity. Depending on your age, your pension will probably be equal to your current gross income (plus a little more). In addition, your Social Security benefits are based on your filing status, and not your age when you are eligible for them, so your pension may not be as large as it would be if you made more lump sum versus payments.
Can I claim a refund for my pension? Some employers will allow you to claim a refund for your Social Security retirement benefits. Your filing status will determine if this is allowed, and the amount of money you can receive depends on the year you retire, your work history, the amounts of your benefits, and whether or not you qualify for certain credits such as those for having a college degree. A refund can also be claimed if you work outside of the United States for a year or more. However, if you retire to a state or country outside of the United States, you cannot claim a refund. Check with your tax agency for details.
The lump sum payment option can be very attractive in terms of saving money for retirement. It is not for everybody, though. Before choosing this or any other option for your pension plan, be sure you understand all of your choices. Shop around, compare plans, and make sure you are getting all of the advantages you should have to be confident you are making the right retirement choice.