Table of Contents

- Summary:
- What is an Annuity?
- Annuities Types.
- How Annuities Are Taxed ?
- What is The Difference Between an Annuity And an Annuity Due?
- What Does a Fixed Annuity Pay?
- Understanding Structured Settlements.
- How an Annuity Works in Retirement ?
- How Do You Calculate annuity?
- Understanding Annuity Tax Deferral.
- What is Single Premium Deferred Annuity (SPDA)?
- Is it Better To Take The Annuity or Lump Sum?
- What Are The Different Types Of Annuities?
- So How Do You Decide Which Type Of Annuity Is Best For You?
- Annuities Can Be Paid Out For As Long As You Live
- Annuity Taxation
- One Of The Main Benefits To Purchasing An Annuity Is Tax Related
- Annuity Due :Why An Annuity Due May Be Your Best Option
- In The Case Of An Ordinary Annuity
- Clearly The Advantages Offered By An Annuity
- When calculating the future value of an annuity due a slightly different
- formula is used than that used when calculating the future value of an
- ordinary annuity.
- An extra element of algebra must be included to allow for the extra interest
- earned because payments are made at the beginning of a period and not at
- the end.
- Fixed Annuity : What is a fixed annuity and how does it work?
- Fixed Annuities Can Be Either Immediate Or Deferred
- If You Are Thinking About Purchasing A Fixed Annuity
- Retirement Plans
- Understanding Structured Settlements
- What Are The Advantages Offered By A Structured Settlement?
- Pros & Cons Of A Structured Settlement
- What Do I Do If I Want To Convert My Structured Settlement Into A Lump Sum?
- Approaching A Structured Settlement Broker
- Retirement Annuity : How does a retirement annuity work?
- Purchasing An Annuity
- A Fixed Annuity
- A Variable Annuity
- Are annuities a good retirement investment?
- Annuity Formula :What Is An Annuity Calculator, And How Useful Is It?
- You Can Approach These Calculators From Different Angles
- Annuity Calculators Can Be Particularly Useful
- They Also Offer A Tax Deferral Calculator
- Understanding Annuity Tax Deferral
- Annuity tax deferral allows investments
- The Main Difference Is The Tax Deferred Treatment Of The Annuity
- Annuity Taxation
- Annuity tax deferral is only one of the advantages offered by annuities. With
- annuities, investors can elect to receive a life-long, guaranteed income
- stream. Plus, an annuity can have a death-benefit feature where the holder
- can designate a beneficiary. The annuity death benefit is exempt from
- probate since it is considered life insurance.
- What is Single Premium Deferred Annuity (SPDA)?
- Who Would Want To Buy An SPDA?
- You Might Consider an SPDA
- In summary, there is one set of circumstances in which i would definitely
- advise you to consider an spda. If your goal is to have income during your
- retirement years, but you don’t want to take any market risk with your
- capital.
- What Should I Watch Out For When Shopping For an SPDA?
- How Can I Check On a Company’s Renewal Rates?
- Can I Annuitize My SPDA?
- What is Better Lump Sum or Annuity?
- Sometimes you be placed in a situation where you have to make the
- decision between accepting a lump sum payment, or an annuity. This could
- be when accepting a redundancy package, when receiving a settlement
- payment, when winning a lottery, or many other situations.
- So how do you choose which option to take?
- Take the Lump Sum or Annuity?
- Tax Implications
- Consult A Financial Advisor

## Summary:

In simple terms, agreeing to a structured settlement is often the most advisable way to avoid having your settlement funds wasted on non-essentials.

**For example**, if you pay money into an investment fund over the course of your working life, when it becomes time for you to retire, your investment or the earnings from your investment can be used to purchase an annuity.

This annuity will then be paid out to you on a regular basis (probably monthly) to take the place of the income that you would have received from working.

You could also invest exchange a lump sum (perhaps from the sale of an asset such as property) for an annuity so that, again, you will receive this money in regular payments. Most people use an investment or insurance company to manage and broker an annuity.

A contract is written, stating all of the details of this payment. Unlike a life insurance policy, an annuity is designed for you to benefit from during your lifetime, rather than being paid out to family upon your death.

**What Are The Different Types Of Annuities? **

There are many different kinds of annuities. One type can be a fixed annuity payment. This can be a more secure form of investment as you agree on a fixed amount that you will receive with each payment, and this is not affected by interest rates or variations in the stock market.

On the other hand, you could arrange for a variable annuity. As the name suggests, the amount that you receive can vary – Usually based on exchange rates, stock markets and interest rates. This could go in your favor, or to your disadvantage, and so is more of a risk.

**So How Do You Decide Which Type Of Annuity Is Best For You?**

Well, your financial advisor or broker would be in the best position to advise you. Factors that could make a difference to which way you should go are things such as whether

This annuity is going to be your only source of income, whether as a couple you might consider a combination of fixed and variable, and possibly any assets or other investments that you might already have.

The financial institution that provides the annuity tries to negotiate a contract, which will work in their favor. Most annuities end with the death of the recipient. Therefore, if the recipient dies before they have received the full benefit of their investment, the company profits.

In some cases, they may have to pay out an annuity longer than they had expected, but you can be sure that they calculate this pretty carefully to reduce this risk! Some people go to the trouble of purchasing a number of annuities to spread out the risk and/or possible profits.

Some couples chose a joint-and-survivor annuity, which continues to pay out to the surviving spouse on the death of one of the couple. The surviving spouse continues to receive a regular payment until their death.

**Annuities Can Be Paid Out For As Long As You Live**

Or for a fixed term. Careful planning and good advice are needed, and annuities are not the best choice for everyone. You would need to be sure that the amount of money that you receive with each annuity payment is enough for you to meet your living expenses.

On the other hand, if you know that you will have enough to live on with each payment, an annuity can be an excellent choice that brings the security of an income. Remember to account for the effects of inflation in your calculations!

**It would not necessarily be wise to invest everything that you have in an annuity. It may be a good idea to make sure that you set aside some savings so that you can meet possible emergencies or other eventualities, which may require a one off lump sum payment.**

**Read More :Retirement Savings Calculator**

**Annuity Taxation**

**One Of The Main Benefits To Purchasing An Annuity Is Tax Related**

The money invested is tax-deferred, meaning that every dollar that you invest is working towards increasing your payouts, rather than some of it having to go to tax. You will have to pay tax on withdrawals that you eventually make.

Something else to discuss with your financial advisor, or to consider before choosing a company who sells annuities, is the fee structure. Read the fine print carefully, and compare the commission and fee structure of more than one company. Some can charge very large fees i you decide to cash in, or pull out of your annuity.

Retirement, and early retirement are probably the most common reasons for people to choose an annuity. Another reason could be to fund a child’s education. By investing a regular amount of money from when they have a child, by the time the child is ready to go to college,

An annuity can be purchased to fund or subsidize the cost of education. Of course, there are many other reasons or long-term goals that someone might have where purchasing an annuity might be the best solution.

**Annuity Due :Why An Annuity Due May Be Your Best Option**

An annuity due differs slightly from what might be called an ordinary annuity in that the contributions to the annuity fund are made at the beginning of each contribution period. **For example**, an individual may make a contribution of $2500 at the beginning of each quarter rather than at the end of each quarter.

Making a payment at the beginning of a period (a month, a quarter, a year) affects the future value of the annuity (which is a factor that must be known for accurate financial planning and if the annuity is ever to be sold).

And is also means that when the funds can be distributed immediately when it matures – The payment will be due at the beginning of the first distribution period.

**In The Case Of An Ordinary Annuity**

When the accumulation phase has been completed the holder will not receive any payment in the first period. All things being equal (e.g. interest rate) it is better to get money at the beginning of a period, according to the financial principle known as the time value of money.

Receiving funds from a mature annuity at the beginning of a period,

**For example** at the beginning of the year can offer significant advantages.

One advantage is the availability of income for use during that year, whereas the holder of an ordinary annuity may have to wait one year before he receives any income. Receiving a payment at the beginning of the year also allows the holder the option of investing the money and making it work for one more year.

**Clearly The Advantages Offered By An Annuity **

Due will depend on the amount of the regular payments made during the accumulation phase, as well as the length of the phase.

Making a $10,000 payment at the beginning of each yearly period in the accumulation phase obviously offers a greater benefit than making a $500 payment at the beginning of each monthly period.

#### When calculating the future value of an annuity due a slightly different

#### formula is used than that used when calculating the future value of an

#### ordinary annuity.

#### An extra element of algebra must be included to allow for the extra interest

#### earned because payments are made at the beginning of a period and not at

#### the end.

fv = r x [(1+i)n – 1] / i is the algebraic formula that economists have agreed upon to determine what an annuity will be worth when it matures. FV stands for future value; R stands for the regular payments; I stands for the interest; N stands for the number of payments; But, to establish what the annuity will be worth where the holder has been making payments at the beginning of periods (in advance), the additional formula (1+i) is added to the equation.

Don’t worry if you know nothing about algebra! you can simply use one of the free calculators provided by the likes of ing, pacific life or midland annuities.

There are other complexities concerning the choice between an ordinary annuity and an annuity due (e.g. variable interest rates) and once again this makes the need for a consultation with an expert financial adviser inescapable.

**Fixed Annuity : What is a fixed annuity and how does it work?**

A fixed annuity is a popular option for people to choose as a supplement to their chosen source of retirement income. Your insurance company or broker will make investments for you, and then pay out an agreed, fixed amount of money to you on a regular basis for an agreed term.

These investments generally produce better rates of interest than other savings accounts, but are safer than many other types of investments. This security and form of guaranteed income are one of the reasons that many people choose a fixed annuity.

**Fixed Annuities Can Be Either Immediate Or Deferred**

A deferred fixed annuity accumulates interest at a guaranteed rate until you start receiving withdrawals. An immediate fixed annuity means that you start receiving regular payments from the insurance company, and these payments don’t change.

The payments paid out with a fixed annuity are, as the name suggests, guaranteed. This is a comforting thought for those who fear investing in stocks as the market can change dramatically, and not always to their advantage.

Fixed annuities also usually have quite low minimum investments, which is also an attractive prospect for those who have come into a small sum of money, and wish to benefit from it upon retiring, or upon the need to start paying for a child’s education.

One other benefit of purchasing a fixed annuity is that taxation of the money invested is deferred until you actually receive the payments. This means that more of your money is actually invested as no tax is paid until you receive annuity payments.

**However, be aware that when you start receiving payments, you are then taxed on these as income, not capital gains. This is usually a higher rate of tax.**

**If You Are Thinking About Purchasing A Fixed Annuity**

Be sure to read all of the fine print and get some professional advice. sometimes, fees and charges can be quite high, and other forms of savings or investments may suit you better. Also, the fixed interest rates may only be fixed for a limited period of time before dropping to lower rates.

Another factor to bear in mind if you choose a fixed annuity (rather than an indexed or variable annuity), particularly if you are planning for your retirement which is a long way into the future, is that a fixed payment that you agree upon now is not taking inflation into account.

What you think that you need now to cover basic living expenses may not be enough in say, 20 years time when you retire. You also have to be aware that if you change your mind and decide to pull out of the contract, high penalty charges may be incurred.

**Retirement Plans**

There are many companies out there offering various forms of retirement plans, so be sure to shop around and see who offers the best terms and rates. Hartford annuities have lots of information and calculators on their website, as do pacific life annuities, midland annuities, and many others.

It is well worth doing thorough research and asking for professional opinions before entering into a long-term contract such as an annuity.

It is often recommended that an annuity of any kind is purchased as a supplement to other forms of retirement income, rather than a sole source of income. An annuity can give peace of mind as you are guaranteed a specific amount of money, usually until you die, and can cover your basic needs.

**Read More : Mortgage Calculator**

**Understanding Structured Settlements**

A structured settlement is usually what is referred to when a compensation awarded by a court of agreed to by an insurer is paid out in periodic instalments. Instead of being paid a lump sum, the individual awarded the financial compensation is paid regular amounts over a fixed period of time, often yearly.

**What Are The Advantages Offered By A Structured Settlement? **

The primary advantage from the beneficiary’s point of view is the lowering of tax liability, and in some cases the beneficiary may not have to pay any tax at all.

Many individuals prefer the option of receiving yearly instalments of smaller sums, since the funds are less likely to be lost to unwise investments – A lump sum could be poorly invested or hastily spent (especially in cases where the individuals family members expect the beneficiary to be generous with their lump sum award).

Other people who would benefit more from yearly payments include minors and those who have become disabled in some way. Regular payments will take care of the needs of these groups, and in the case of minors, the temptation to be reckless with the money is removed (at least to a large degree).

**Pros & Cons Of A Structured Settlement**

There are some disadvantages that should be known before entering into such an agreement. In some cases (with the help of a solid financial advisor) a lump sum could be invested in such a way that it yields more than you would get if you agree to a structured settlement.

Another disadvantage is the inability to purchase a home or a business (etc.) outright. of course, making such purchases with the flow of funds from the settlement is still possible.

But you will have to arrange finance (e.g a structured settlement loan) and pay interest on it, and in addition, you lose the bargaining power that might have been possible if you had the cash.

You must also watch out for heavy fees charged by some structured settlement companies/brokers and insurance companies. It is advisable to use a structured settlement broker when dealing with the company or individual (and their lawyers) who are required to pay you the money.

A structured settlement may also appear to be worth much more than it actually is. For instance, a $2,000,000 award paid in 20 yearly instalments of $100,000 is actually only roughly equivalent to a lump sum of $850,000.

**What Do I Do If I Want To Convert My Structured Settlement Into A Lump Sum?**

First of all you need to check the fine print; is it permissible under the terms of the structured settlement to cash it in for a lump sum? Also, the law in many states places restrictions on the sale of structured annuities.

Next you need to discuss your situation with a trusted financial advisor before approaching a broker (selling structured annuities usually involves a broker), since you do not want to swap your annuity for cash and lose a fortune in the process.

Of course, the majority of structured settlement brokers are honest people, but at the end of the day their aim is to make money when they purchase a structured settlement, and you want to keep their gain at the lower end of what is permissible.

**Approaching A Structured Settlement Broker **

Would be a wise move if you have a lump sum to invest, since they may use their skill and experience to get you a good deal, and they may already have annuities that they can offer you.

Choose a reputable firm (deal directly with the likes of pacific life, midland) not only for the protection of your own assets, but you want to be satisfied that any annuities that the broker can offer have not been obtained by taking advantage of the sellers.

**Retirement Annuity : How does a retirement annuity work?**

There was a time when planning ahead for your retirement, specifically your financial needs, involved little more than putting some money aside in a special savings account or making contributions to a government or private retirement plan. Nowadays however, there are what can be a bewildering variety of schemes that supply funds for your retirement.

Having a variety of plans to choose from is a good thing, but like i said it can be bewildering, at least if you don’t take the time to do care for research and to consult with an experienced financial adviser.

**Purchasing An Annuity**

An option that appeals to many is the purchase of an annuity, either fixed or variable. You’re probably familiar with what an annuity is: You contribute a certain amount of funds to an insurer; insurer invest that money and at the end of a specified period you receive either a lump sum or periodic payments(e.g. monthly, yearly).

Many individuals prefer the security offered by the fixed annuity. you make regular contributions for a fixed period of time (the accumulation phase) and you know exactly what income you will receive when the annuity matures (annuitizes).

It’s easy to see why this financial product would appeal to those who want to take care of their retirement needs – You know exactly what you are going to get.

Of course, to have the certainty of what you will receive in the future comes at a premium. In addition, simply knowing what the future amount of funds is going to be is not in itself a guarantee that your retirement needs will be taken care of. why? because of inflation.

**A Fixed Annuity **

May provide for example, $50,000 a year when it matures in 20 years time. That’s great, but unfortunately none of us know exactly what the value of $50,000 a year will be in 20 years time – This is because of inflation. For this reason, some people are willing to opt for a variable annuity.

**A Variable Annuity**

Yields a greater return when the markets are strong and interest rates are high, but it may yield a lesser return (than a fixed annuity) when the opposite is true. Therefore, it is a riskier investment.

**Are annuities a good retirement investment?**

Of course, if you choose to opt for a fixed retirement annuity, you will not lose your money (unless the insurer goes bust of course), and you can use the other two thirds of your investment funds in ways that may accrue a greater yield.

If your company offers you the opportunity to avail of a 401(k) plan, this is a very sensible option, especially if your employer is also willing to contribute to it. Many companies will even match what you are willing to contribute (as it stands this is capped at $17,500).

Some of your funds could also be set aside in an individual retirement account (ira), or even invested in stocks and shares. the best thing that you can do is sit down and talk to a couple of financial advisers. In any event, a retirement annuity should certainly be considered a very strong option.

**Annuity Formula :What Is An Annuity Calculator, And How Useful Is It?**

Once deciding that you would like to investigate the possibility of purchasing an annuity, the next task is to try to calculate how much you will need to pay in, and how much you will need to get out of it on a regular basis! This is where online annuity calculators can be useful.

By using an annuity calculator, you can get an idea of what you will be agreeing to, and will give you a basis on which to compare various companies selling annuities.

**You Can Approach These Calculators From Different Angles**

You could use them to determine how much you would need to invest each month for the next x number of years to receive a specified annuity amount –This angle could be useful if you are planning a retirement or early retirement.

Or, you could use them to see how many years it would take to deplete an investment of x amount – You could have a specific lump sum to invest, and would like to see how long it would last you if you were to purchase an annuity and receive regular payments.

**Annuity Calculators Can Be Particularly Useful **

If you want to work out the possible variations in interest rates, or for comparing the fees charged by various companies. Some companies have their own calculator on their website for you to use, while as other sites work on the basis of comparing companies that sell annuities.

People often tend to go with a company that they are familiar with or have already done business with when choosing a new financial product. But using an annuity calculator or consulting with an annuity advisor could possibly save you a lot of money.

Some websites and companies offer a selection of annuity calculators, depending on what you would like to find out. For instance, ing have a retirement needs calculator which helps you determine what you are likely to receive when you are due to retire. You can then decide whether or not you need to increase your payments into this fund.

**They Also Offer A Tax Deferral Calculator**

This helps you to see how much your investment would likely yield if you invested in a tax-deferred annuity, or a taxable investment option. An income needs calculator helps you to determine how much a particular amount of money would last you, or how much you will need to save in order to achieve a certain level of income in the future.

One other calculator on their site is a fairly detailed personal retirement income analysis. Once you have filled in all of the relevant information, you can see if there are any income gaps after you have calculated social security payments and other pension options. You can then perhaps plan to purchase an annuity to fill that gap.

As you can see, there are plenty of tools and calculators available to help you make an informed decision about your future finances and needs. Make sure that you compare a number of companies or consult an expert before deciding on an annuity as it could save you a lot of money!

**Read More :Loan Repayment Calculator**

**Understanding Annuity Tax Deferral**

Annuities can offer many advantages when compared to other investment instruments. One of these advantages, and some would say the biggest advantage, is tax deferral.

**Annuity tax deferral allows investments **

To have gains that grow tax free. in other words, the accumulation period is free of tax. The taxes are however due when the distribution period is started for the annuity. at distribution, gains are taxed as ordinary income rather than as capital gains. This treatment is because an annuity is considered an insurance product.

Currently, this treatment is a disadvantage to annuities. however, the taxation rules are always subject to change, and have changed drastically over the years. Also, the tax-deferred gains advantage of annuities outweighs the tax treatment difference, especially given long investment terms (10+ years).

It is best to understand the concept of annuity tax deferral with a few examples. A fixed annuity sounds very similar to a certificate of deposit (cd). A certificate of deposit also has a fixed rate of return, a specified contract length, and a penalty for early withdrawal.

**The Main Difference Is The Tax Deferred Treatment Of The Annuity**

A certificate of deposit (cd) would need to be held inside a retirement account, such as an ira, to match the tax treatment of a fixed annuity.

With a variable annuity, the investor’s premiums are used to invest in underlying assets, usually mutual funds. during the payout period, income payments made to the investor vary in relation to the performance of the separate investment account.

In terms of annuity tax deferral, a variable annuity follows the same procedure as the fixed annuity. There is an accumulation period where growth is compounded tax-free. during the distribution period, gains are taxed as ordinary income.

**Annuity Taxation**

As a comparison, the tax treatment of a variable annuity can be studied against a mutual fund. Mutual fund investments are only considered tax-deferred if they are held within a retirement account, such as an ira or 401(k).

IRAs have contribution limits associated with them. annuities do not. Often, annuity tax deferral is leveraged by investors who have already reached their contribution limits on their ira.

**The final example**, an indexed annuity, earns interested based on an external financial index, such as the s&p 500. Index annuities offer tax deferral benefits equal to variable annuities. In other words, annuities offer tax deferral, but when the tax is paid, it is paid at ordinary income rates.

Index funds do not offer tax deferral, unless they are held within an ira, but income is taxed at a lower capital-gains tax rate. If the index fund is held within an ira, the ira is subject to contribution limits which do not apply to indexed annuities.

It should be noted that there is an irs penalty if a withdrawal is made from a tax-deferred annuity prior to the age of 59 ½, to encourage retirement saving. ِِِCurrently, this penalty is 10%.

#### Annuity tax deferral is only one of the advantages offered by annuities. With

#### annuities, investors can elect to receive a life-long, guaranteed income

#### stream. Plus, an annuity can have a death-benefit feature where the holder

#### can designate a beneficiary. The annuity death benefit is exempt from

#### probate since it is considered life insurance.

**What is Single Premium Deferred Annuity (SPDA)?**

A single premium deferred annuity, or spda, is a fixed annuity that you buy with a single premium. You get a guranteed interest rate for a specified period of time, and the taxes on the interest you earn are deferred until you make a withdrawal.

**Who Would Want To Buy An SPDA?**

Anyone who wants to let his or her money grow risk-free while deferring income taxes on the earings portion of his or her account, with the goal of creating income later in life, may choose an spda.

Many people enjoy the idea of a fixed interest rate that will remain in effect for a specific period of time, typically from one to seven years. In most cases, the longer the gurantee, the lower the interest rate. This type of annuity is most easily compared to a certificate of deposit at a bank. In both cases, you get a guranteed rate for a prescribed period.

In an annuity, you incur surrender charges if you take your money out, and in a cd you are faced with a three to six month early-withdrawal penalty. The difference, however, is that with a certificate of deposit, you will be paying taxes each year on the interest you earn, even if you don’t withdraw it. With the spda, you will nor pay taxes until you make a withdrawal.

**You Might Consider an SPDA**** **

If your goal is to invest money with minimal risk and you are attracted to vehicles such as cds and treasuries; And you know you are not going to need any of the money you’re investing until after age 59.5 and you do not need current income.

But will need income sometime after age 59.5 and will be in an equal or lower tax bracket; or you are already 59.5 and older, you need current income, and the spda you are considering offers a guranteed five-year interest rate that is higher than the interest on five-year cds and treasuries.

#### In summary, there is one set of circumstances in which i would definitely

#### advise you to consider an spda. If your goal is to have income during your

#### retirement years, but you don’t want to take any market risk with your

#### capital.

And you want to avoid paying taxes now but are not in a high enough tax bracket for municipal bonds to make sense, and you believe that you will be in a lower tax bracket when you entire, then an single premium deferred annuity may be a great investment, regardless of your age.

**What Should I Watch Out For When Shopping For an SPDA?**

You should check to be sure the insurance company issuing the annuity is safe. And this is very important, ask about the interest rate being offered, the period of time during which the interest rate will be guranteed, and the surrender period stipulated by the contract.

Ideally, the interest rate should be good one, and the period for which the rate is guranteed should be at least as long as the surrender period. (In other words, if the interest rate is 7 percent and the contract has a five-year surrneder period, the company should pay you 7 percent for all five years).

If you are offered an attractive interest rate for a guranteed one-year period but the surrender period goes on for seven years, please be wary. Even if the first-year rate is outstanding, in the absence of a longer gurantee you are taking a big risk as to what the interest rate will be for the second year, the third year, and so on.

Many companies sucker you in with a good first-year rate and then lower it considerably in the remaining years. Finally, ask how the company sets its renewal interest rate, if applicable, or do some checking on your own. That way you know exactly what you are getting.

**How Can I Check On a Company’s Renewal Rates?**

Ask to see the history of renewal rates for older spda policies that the company has in force. If the company tends to lower the interest rates on policies as they get older, chances are good it will reduce yours, too.

Make sure you compare the company’s renewal rates in previous years to the rate on treasuries and cds for the same years. The way, you’ll know whether it make sense for you to purchase a particular spda.

**Can I Annuitize My SPDA?**

Yes, although it might not be wise to do so. Insurance companies that offer annuities tend to use different annuitization factors when annuitizing–That is, when calculating how much to pay on a monthly basis over your life span.

If you’re looking for income from an annuity, it would be best to find out which companies are offering the best annuitization rates and/or to buy outright an immediate, or income, annuity.

Typically, the annuitization rates offered by spda contracts are not as advantageous as those offered by immediate annuity contracts, and even immediate annuity rates vary from company to company.

**What is Better Lump Sum or Annuity?**

#### Sometimes you be placed in a situation where you have to make the

#### decision between accepting a lump sum payment, or an annuity. This could

#### be when accepting a redundancy package, when receiving a settlement

#### payment, when winning a lottery, or many other situations.

**So how do you ****choose which option to take?**

Of course, it depends on many different factors. If you feel confident enough to make solid investments with your lump sum payment, this may be the way to go. It also depends on whether you have the luxury of another source of income to cover immediate expenses while you invest your lump sum.

On the other hand, investments are never a sure thing, and the market can change suddenly. In this respect, the security of a regular annuity payment might feel like a safer option for you. This risk factor often depends on whether you have more than one income source or not.

**Take the Lump Sum or Annuity?**

Another thing to consider if you take an annuity over a lump sum is whether you have any other assets or savings that would cover an emergency, or a situation where you need access to a lump sum of cash. If this is likely to happen, a lump sum payment may be the better choice.

In some cases, it may be possible to split the options so that you have the benefits from both. You may be able to take half of the payment as a lump sum, and purchase an annuity with the other half. But this is not always an option – Sometimes it’s either or.

**Tax Implications**

One other thing to consider is any tax implications. If you accept a lump sum, you will most likely have to pay tax on it straight away. If you purchase an annuity, tax is deferred until you receive each payout.

If you have received a structured settlement, some insurance companies are willing (at a cost, of course) to buy the annuities from you, and provide you with a lump sum payment instead. This might be useful if you have debts or medical bills that need to be paid off as soon as possible.

Occasionally, an insurance company can get into difficulties, and be under pressure to produce better financial results. They may in this instance offer the annuity customer a lump sum payment. This may initially be a costly solution to the insurance company, but long-term it means less liability for them.

**Consult A Financial Advisor**

As always, consult a financial advisor. However be aware that most advisors will favor accepting a lump sum payment as they stand to collect more fees if you decide to invest that lump sum with them.

If you have been paying into an annuity fund for some years, and have passed the surrender period (where you will have to pay extra penalties and fees if you cancel before this time is up), your annuity may have matured.

At this stage, you may decide to continue paying in and in the future receive annuity payments, or you may decide to sell the annuity and get a lump sum payment instead.