3 Questions to Ask Yourself When Deciding Between Lump Sum and Annuity Payments

Buy structured settlements

Winning a jackpot lottery, structured settlement annuity, or some other deal that results in an annuity settlement can be a very exciting and rewarding experience, but it also raises an important question: do you want the money in lump sum or annuity?

Deciding between lump sum and annuity can be a difficult decision and is one that ultimately depends on the specific person’s situation. On average, structured settlement payout are about $324,000. That’s a lot of money to be making such an important decision on. If you choose the annuity you’re guaranteed a slow trickle of payments doled out on an annual basis. The lump sum is just what it sounds, a big chunk of cash right in your pocket.

The only downside to the upfront cash when deciding between lump sum and annuity is that you will ultimately not make quite as much money in the long run. Think of it as a convenience tax of sorts. Companies will give you all the money right away, but they’re going to want a cut of it.

Here are three questions to ask yourself when deciding between lump sum and annuity payments to determine which is right for you.

  1. Do You Need the Money Now? Even an “immediate” annuity won’t start paying out until about 30 days usually and then it will still be a very small portion of the total amount you’re owed. If you’re in need of money now the lump sum is probably you’re best bet. That way you can take the money and use it as you see fit without racking up more debt/interest etc.
  2. Will You Save Money in the Long Run? If you don’t necessarily need the money right away the next question to ask yourself when deciding between lump sum and annuity is whether or not paying off something will save you a significant amount of money in the long run. This is especially important when it comes to things like student loans and other interest inducing aspects. If you can save a lot of money in the long run by paying it off today it might be worth it to take the lump sum.
  3. Will it Make Your Life Easier Tomorrow? Even if you won’t necessarily save a ton of money it could still make your day-to-day life easier by having a nice wad of cash immediately. The answer to this question will be determined largely by your individuals preferences and current situation.

Over $6 million is paid each year to fund new structured settlements and the avast majority (92%) of claimants who have sold their annuities report being satisfied with the decision. Think about these questions if you’re debating the choice for yourself.

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