Hello, I would like to know what will be a better option : receive a 365,000$ payment now or 1,460.00$/month for life as long as I live. My current age is 55.
Hello, I would like to know what will be a better option : receive a 365,000$ payment now or 1,460.00$/month for life as long as I live. My current age is 55.
Sounds like someone won the lottery! :-). If so, congratulations! May you live a long and happy life and be able to enjoy your winnings. :-). I, personally, feel that a lump sum option is the better of the two. The monthly payments would not be transferable, I believe, and therefore you ( technically your estate's inheritors) would not be able to enjoy the remaining amount, in the event of your unfortunate demise. By taking the lump sum, you can invest what you don't need to use at present and gain some interest on top of the lump sum. Also, the remaining funds are now part of your estate.
Im sure there are some financial gurus that will be able to better advise you. Whatever you choose, enjoy it in good health!
i did a scenario for you using an annuity payout calculator. From the pic you can see that you can still achieve a similar monthly payout from your entire deposit by setting up your own annuity. I will admit that I don't know all the cons or even pros with going this route, so I hope those will the knowledge will correct me.
The numbers above wouldn't work because if it is a lottery win then it isn't taxable!
The correct answer depends entirely on your situation.Quote:
Originally Posted by Ddoworld
Say you had an outstanding mortgage of $365,000. In that particular case, take the money now, pay off the mortgage, and now you don't have a mortgage payment. Or that is what I would do in that case.
Also, if you have children, this can enter the equation. If after you make your decision and, God forbid, you step in front of a bus the next day, your children would get nothing if you chose the payments, but would still have the $365,000 if you took the cash payment.
If you did receive the cash up front, then how comfortable are you with investing it? If you get the cash, and stuff it in a high interest bank account, or worse yet, run the risk of giving into temptation and blowing a lot of the money, then you aren't going to get much of a return on it, and you would probably be better off taking the monthly payment instead.
Is your health good? If you have a shorter life expectancy, then you would be better off taking the money up front. If most people in your family live lives into their nineties, then monthly payments are better.
Now, taking all of this out of the question and just looking at it mathematically, we can look at the return on the monthly payments.
At 55, you can expect roughly 25 years of payments. Doing a quick analysis on a spreadsheet, your monthly payment for 25 years would constitute about a 1.5% annual return on your money.
Now, we are currently in a low interest rate environment, but I would say that that level of return is definitely on the low side for a professionally invested pot of money. Dividends on bank stocks for instance, pay closer to 4% and are pretty safe.
So, bottom line, if you are comfortable with investing your own money (or paying a for fee professional adviser), then I would think that you could do better by taking the lump sum and having it invested. Me personally, this is probably the path that I would take.
But that's the question that you will have to ask yourself, the good old brunt's sleep test. Would you be able to sleep with your money invested in the market, even rather conservatively in bank stocks? Or could you sleep knowing that you took the "safe" payments knowing that you could have done better yourself?
In the end, money is good, but sleep is better.
Send me the $365,000 and I'll send you a cheque for $2000 a month for the rest of your life ;)
You would be ahead by approximately 160K if you take the lump sum over the annuity using a standard ROI of about 5%.