When is it a good idea to sell an annuity? If you’re looking to pay off or reduce debt, pay for college or a car, or need a down payment for a home, you should consider selling your annuity in exchange for a lump sum. That will give you the cash to meet your needs and invest in your future. If, on the other hand, you don’t have any major expenses, own your home, have a secure career or are already retired, you may choose not to sell fixed annuity. Either way, it’s important to consider the advantages and disadvantages of selling an annuity settlement.
How do annual payments work?
Annuity settlements were first introduced in the 1950s and quickly became a popular way to disburse large sums of money. By 2013, the total number of individual deferred annuity contracts was 34.8 million, with their total value exceeding $2.58 trillion.
Annuity settlements can result from lottery winnings, lawsuit payouts, or other large payments like insurance or disability. Typically, they are paid in annual installments over a long period of time. This could be anything from twenty to thirty years, and the payments usually increase incrementally each year.
Are annual payments right for you?
What are the advantages and disadvantages of annual payments? Annual payments guarantee a regular income over a number of years, but that may not always be as good as it sounds. For all kinds of reasons, people may want to have control over their own money, to spend or invest in their best interests. In such cases, they don’t want to wait for years before they can access all their money.
Further, due to inflation, the value of money depreciates over time. So even a big annual payment of $100,000 will be worth less in thirty years time than it is right now. If you decide to invest your money, you may be able to increase its value instead. For whatever reason, if you need a large sum of money or want to control your money now, the bets choice is to sell fixed annuity.
Should you sell your annuity?
Why do people choose to sell fixed annuity? If you’ve been awarded a settlement and want to use the money to pay for college, pay off debt, buy a car or house, to start a business or open an investment portfolio, you may want to consider selling your lottery payments in exchange for a lump sum.
For example, if you’re thinking of buying a house, a lump sum is very handy! Most lenders look for a down payment worth 5, 10 or 20% of the total value of the house. The average cost of a new home, as of 2010, was $272,900. Most people don’t have the savings to cover that kind of expense.
Likewise, paying for college is a major expense that is also an investment in your life and future. Average college and tuition fees for the 2014-15 year, according to the College Board was $31,231 at private colleges. The in-state tuition at public colleges was $9,139. In both cases, that’s for just one year.
When you need a lump sum of cash, for such purposes as buying a home or car, paying for college or paying off your debt or medical bills, it makes sense to sell fixed annuity and get control over your money now, when you need it most. You can invest it in your future according to your best interests.