29 Sep 5 Things to Consider When Debating Selling an Annuity Settlement
Before deciding whether selling your annuity settlement is something you want to do, you should first determine what you’ll receive in total cash for your structured settlement. After calculating a structured settlements payout sum you can make a more educated decision in whether or not you want to sell it and benefit now, or receive the annual income in the future.
1.) Start Date: The first thing you’ll want to keep in mind is that generally annuity settlements don’t begin paying you right away. In fact, many annuities will charge you up to 7% of your investment if you make a withdrawal in the first five to seven years. Unless it’s what’s known as an “immediate” annuity, in which case payments usually start after 30 days. This can make a huge difference in value. If your annuity is set to pay $2,000 a year, but won’t start for seven years, that’s $14,000 you might be incorrectly banking on.
2.) Time Period(Length): Where there’s a beginning, there will inevitably be an end. In the case of an annuity settlement that can vary. Life insurance annuities, for example, can be paid out over a certain time frame, like 10 or 20 years. Sometimes they last until the death of the spouse. Obviously, it’s impossible to predict exactly when that will be so calculating the value will take some slightly morbid estimation.
3.) Interest Rates: Annuities can be either variable or fixed in nature. Fixed annuities give you a guaranteed payout that never changes. Variable, on the other hand, relies on funds from investments made by you or the person that made the annuity. As a result the amount you receive changes depending on the investments’ performances. Again because of the inconsistency these are impossible to precisely predict, but a financial adviser can usually give you a pretty good projection.
4.) Fees/Penalties: Make sure you’re aware of all the fees, penalties, and various other charges that might be associated with your annuity. Besides early withdrawal, many annuities require annual maintenance fees. These can add up to an amount significant enough to change your mind when it comes down to it.
5.) Devaluation: The final thing to keep in mind is that money you have promised to yourself in the future is nice to have, but impossible to protect against the constant devaluation of the dollar. While the inflation rate sits at a cool 0.2% right now, it typically sits around 2% and has almost gotten to 5% in the past 10 years alone. When calculating the overall value of an annuity settlement to cashing it out for a lump sum remember that you’ll be able to invest any money you receive immediately and in whatever ways you want, making the initial dollar amount you receive more of a starting point than final sum.