There are numerous reasons why you or your company should take advantage of being given a lump sum payment rather than an installment plan where you receive cash on a weekly, bi-weekly or monthly date. Although there are some conservative investors who will tell you that an installment plan is preferable to a lump sum payment, the fact of the matter is, if you are a responsible person with money, then a lump sum will offer you numerous advantages. This brief article will detail 4 reasons why accepting a lump sum payment is advantageous over a series of installments.
Your Company's Financial Health Will No Longer Be An Issue
If you own a company and are particularly worried about the state of your company's finances, then accepting a lump sum is something you should consider. If your company hits a rough patch financially, accepting a lump sum lowers the risk that your business will go completely belly up. This is especially the case if your company is protected by the Pension Benefits Guarantee Corp. (PBGC).
While the PBGC will cover the amount that your company owns, it does not cover what your company is owed. This is why accepting a lump sum is beneficial in the case that your company has to file for Chapter 7 or another variety of bankruptcy. If your company files bankruptcy and is still owed money that could have been accepted as a lump sum, the difference will be forfeited.
You Will Have Greater Control Over The Money
If you are a person who is well versed in investing, or if you're a person who is very controlling about where he or she invests his or her cash, you will most likely want to take advantage of a lump sum option.
Although it may be tempting to go the route of receiving installments, especially when the installments you receive come to you with an inflation adjusted form of interest, if you take a lump sum of cash, you can control how that money is directed by your own hand. You can place the cash in an IRA and, if you are a particularly smart investor, you can invest it however you like and turn that lump sum into a steady stream of incoming cash that could last you for a long time.
You Can Leave The Money To Your Heirs
One of the problems about having money owed to you, which is essentially what happens when you agree to receive income based on an installment plan, is that money is placed in a nebulous position when you die. Depending on the source of the income, this is many times seized by the state, or, in some cases, entirely forfeited by your estate. When you accept money in a lump sum the money is all yours. You are free to do with it as you deem fit, which means passing it on to your deserving heirs, if you so wish.
Time Value
Although it may seem preferable to receive annuities due to the fact that you may receive inflation-based interest on the annuities, this is not always a good thing. The amount of interest you receive based on inflation may not always be preferable to simply accepting the entire sum at one time. This is due to the supposition that money is always essentially worth more at earlier points in time due to real costs of living and the theory that money actually devalues over time. If you take a lump sum, you can invest it in more contemporary trends that allow for a greater cash flow.
Although it may seem intuitive to receive annuity for cash that you are owed, it may actually be more beneficial to receive cash in a lump sum. Continue here for additional info.
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