Do you wonder about your retirement plan? Is it a pension annuity or a lump sum? What is the difference? What are advantages and disadvantages of them? Here are some answers to those questions.
Annuity
This type of retirement plan gives you money every month. This will continue for the rest of your life. Social Security falls under this category. If you win a large lottery jackpot, you may have the opportunity to take the money now, or the payments. This is a very similar situation with your retirement money.
However, that decision may already be made for you. Most plans offer you the monthly payment, instead of the payout. There are cases, like the 401K, that will give you that option. Be very careful when you exercise that option. You may not be able to change your mind at a later date.
Taking the money
Suppose it is like the lottery situation. You have the option of payments or lump sum. You know that you will get more money, if you take the payments. That is, if you live long enough. Longevity is promised to nobody. Some people may have a better chance than others. Long lives can be a genetic thing. However, it is still a guess at best.
There are cases where taking the money can be a good decision. Do you expect to get a nice size Social Security check each month? Maybe your spouse will too. A lump sum could be several hundred thousand dollars. You could do a lot with that money. You might decide to pay off a mortgage. Maybe you wish to set up a trust fund for your family. You may wish to start up a business.
Perhaps you want to sell everything and travel for a few years. Buy a large luxury motor home with cash. Pull a small car behind you. Take it easy for the rest of your life if you wish. Live down south in the winter. Live up north in the summer.
Taking the payments
You may not be expecting a substantial Social Security check. Your retirement check may be your main source of income. In that case, you may wish to consider taking the monthly payments. If you live a long life, you will get more money, this way. This also eliminates any chance of bad investments and mistakes.
When you take the payments, you have a guaranteed source of income for life. This can give you a feeling of security. However, there may be disadvantages.
If something unforeseen happens, your retirement check may stop. If not, your spouse may only receive a percentage of it. How long do you plan to live? You may be faced with the prospect of a shorter lifespan. Perhaps it is a medical condition. If you take the payout, you may be able to invest in something for your family.
Summary
What type of retirement plan do you have? You may be faced with a decision. Do you choose a pension annuity or lump sum payment? Consider all of the possibilities. Whatever you decide will be a gamble. Try to go with the best odds.
Author Resource:-
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