Were you faced with deciding between lump sum and annuity? You may have been faced with that decision following a lawsuit or maybe you won a large lottery. Either way, you may have had to make a decision. Depending on the situation and where the money is coming from, that decision may have been done for you.
Before deciding between lump sum and annuity, it is important to understand the terms of the annuity. For example, the Mega Millions annuity pays winners one large payment upfront followed by 2annual payments for 29 years. Each year the payment increases by 5%. The Powerball annuity is annual payments for 30, and the amount of the payment increases each year.
Unfortunately, most Americans are living with some pretty serious debt, which may leave them wishing they had more money at their disposal than the preplanned annuity payments. On average, U.S. families have $15,355 in credit card debt, and over 70% of people believe credit card debt carries the greatest stigma in regards to living in debt.
One average, a household will pay $6,658 a year just in the interest on their credit cards, and one in every five Americans between the ages of 18 ad 24 believe they are living in debt hardship. These are startling figures when looking at the big picture. According to a recent survey, 26% of the people in the United States admit they are not paying their bills on time.
Meanwhile, there are 37,000 people getting structured settlement payments. The rising debt and need to have access to that money faster has led to the growth of people selling fixed annuities. Although there is a definite amount of paperwork and figuring that has to go into it, there companies that will buy annuities, so the seller gets their big payment up front, and the buying gets guaranteed payments for the life of the annuity.
Generally, when selling an annuity, you lose roughly 10% of the total amount. In order to make the deal beneficial to the buyer, they need to get out more money than they are investing. Some may question whether or not it is wise to sell a guaranteed annuity for less than it is worth. However, 92% of people that have sold their annuities state they are satisfied with their decision.
So even if you are faced with deciding between lump sum and annuity, you may still have options down the road. You can choose the annuity now and then cash in later if you change your mind by simply selling your annuity. When the money is coming from lottery winnings, the taxes are taken out before any money is dispersed. This means roughly 25% is withheld for federal taxes and 6% to 9% for state taxes. So have you thought about what to do when you win the lottery?
