So, you are thinking of retiring and your employer has given you a choice as to how you want to receive your retirement money. Do you want to receive your payout in a lump sum or would you like them to pay you a much smaller amount every month for the rest of your life? This may have you confused about what to do. When choosing between a lump sum or annuity before retirement, here are some of the facts that you need to know.
What Will Your Retirement Check Cover?
Most people in retirement do not want to continue working full time to support themselves. That is why they invest in 401ks and retirement funds to begin with. So when you are faced with the decision of lump sum or annuity, you must first ask yourself what you are going to do with the money? Each decision may lead you to a different answer. If you are counting on that money to support you financially every month until you die, you may decide on a monthly annuity. If you plan to travel the world or invest your money though, you may want to consider a lump sum. This will give you a large amount of money to work with.
Factors to Consider When Choosing a Lump Sum or Annuity
Deciding between a lump sum or annuity can be difficult, but there are several factors you can take into consideration.
- Your Health- Annuities only pay until the day that you die. If you are in poor health, you may want to consider obtaining a lump sum. When you are making this decision, it is important to consider your partner’s health as well, because if he or she is expected to live longer than you, the monthly payment may help him or her get by after you are gone.
- Additional Income- If you receive social security checks, disability checks, or any other form of income during retirement, you may not need an annuity payment to live off of. However, if you do not have any other form of income, the monthly payment you can gain from an annuity may help you to fully enjoy your retirement. With an annuity, you are guaranteed to receive a check every single month until you die, and if it is a joint annuity, your spouse will continue to receive a check if he or she outlives you
- Cost of the Annuity- What is the interest rate on the annuity compared to the number of years you are expected to live? If you think you can get a better rate somewhere else, you may want to consider a lump sum.
- Inheritance- After you pass away, do you want to bless your children, grandchildren, friends, and family with an inheritance? Most annuities do not provide any money to beneficiaries after you are gone unless it is factored into the annuity. If you want to provide your family with an inheritance, find out if the annuity your workplace offers has this option, and if not, you may want to consider obtain a lump sum.
It is important that you consider all of the factors before making this important decision. For additional information on retirement and whether a lump sum annuity is right for you, consult with a financial advisor.