- One argument against taking the annuity option is that you’re subject to changing tax rates, inflation and a higher cost of living over time. Annual payments made to you over 25 years are the same each year, but the money you receive the final year won’t necessarily be as valuable as the money you receive the first year. Taking a lump sum of cash up front allows you to find your own investments, giving you more control over your money and a chance to invest for greater returns than the annuity would provide.
- Taking the upfront cash option puts the money in your hands now while you’re still able to enjoy it. A lot of uncertainty exists 10 to 25 years down the road. What if your physical or mental health suffers? What if you die? If you die, your beneficiary may continue to receive money throughout the duration of your annuity, but wouldn’t you rather spend it yourself?
- Annual payments, on the other hand, can help you secure an income for a large part of your life. This can be ideal, especially if you’re younger or love your job and don’t necessarily need the large lump sum up front. While tax rates will change over time, your federal and state tax burden today on a lump sum likely will decimate the amount of your total winnings. Additionally, the amount of money you’ll receive over the life of the annuity will be more than the lump sum due to interest earned on the annuity payments you’ve yet to receive. A lump sum also can attract a lot of overwhelming attention from relatives, friends, charities, people with “business opportunities” and anyone wanting to sell you something.
- Hiring a certified financial adviser or an attorney to help you make the right choice between taking a cash payout or an annuity is crucial. You can benefit from taking at least several days before cashing in your ticket to get the right advice and plan for your current and future financial needs. The larger the amount of the payout, the more important your decision becomes.
previous post
next post