When you are considering a lump sum payment versus payments, there is no clear-cut winner. The best thing for your business is to talk with a qualified investment professional who can help you determine which option is best for your organization. There are pros and cons to both choices and understand them will allow you to make an informed decision that’s in your best interest. Here are some of the key differences:
One of the primary differences is the amount of money that is paid out during the term of the agreement. Most structured settlements are paid out over time, and a lump sum payment would be far less than the average annuity payout. Depending on the state where your settlement is structured, the terms of your plan may dictate what you receive. In some states, the amount of payouts is limited to a set percentage of the total payout over the life of the policy. In other states, the criteria for deciding who gets the full payout vary from case to case. With lump sum versus payments, it’s important to first determine the stipulated finding of the insurance company.
Another key difference between the lump sum versus payments is the tax implications. Unlike pension payments, structured settlements don’t have to be returned to the buyer at the conclusion of the settlement. In some states, however, the tax-free status of structured settlements applies only to pensions and annuities, not to other types of retirement compensation. It is important, then, to learn the tax implications of your pension payments.
Your current or future income level is also a deciding factor when choosing between lump sum versus payments. While your income level may have changed since you received your last pension, lump sum payments may offer you a better return on your investment than are annual pension reviews. If your pension is very good, for example, you might want to wait until you are older to sell it for a lump sum. The money you’d get with the sale can go toward making the next bigger purchase you’d like. You can also wait to sell your pension if you are not meeting the requirements necessary to become retired. This will allow you to keep your monthly pension and use the money for your dreams.
How long you’ve been working should also be considered. If your job is steady, your pension will probably stay the same over the years as your salary increases. On the other hand, if your job is losing its job-vacation possibilities are likely. As well, if your pension has a long spiking and falling rate, you might not have enough saved to cover the cost of an LPO. So lump sum versus payments really depend on your current financial situation.
Other things that affect your choice between lump sum versus payments are your spouse’s medical expenses, your children’s college costs, and your children’s educational expenses, if they’re currently enrolled in school or not. It’s also important to remember if you or any of your dependents are uninsurable. For that reason, there isn’t much difference between the two payment options, especially when it comes to your family’s future.