Before you actually retire you will have to make some serious decisions. One of these decisions includes the lump sum annuity option. Which one will you choose taking the entire amount up front, or a monthly annuity installment? There are pros and cons to both of these options, depending on how you interact with money.

If you opt to take your entire pension up front, this can be a few hundred thousand dollars for the few decades of work you put into your company. It may seem like a big amount and how will you manage it? Of course, you will have to manage it wisely, or hire someone who can, because you will no longer have a paycheck coming in from your employment to survive on.

Retirement for most is a time to relax and do the things you enjoy more often. When you have a stable income from an annuity payment, you do not have to worry about managing or investing a large amount of money. If you choose a lump sum and invest it incorrectly or spend unpredictably, your funds can run out.

An annuity option will promise you a stable income for life. This will help you cover living expenses so you do not have to worry about mismanagement of your money. On the down side, this amount will probably not rise with inflation. When you are dealing with annuity you can not risk losing all of your money, because you do not control the entire amount.

If deciding on taking the lump sum and know that you can take care of the amount you receive, it can have its benefits. Since annuity payments will not rise with inflation, this means that the same amount you receive now will not have the same purchasing power in a few years. This means that the actual value in terms of buying power of your money will decrease over the course of time.

Also, when taking a fixed-rate annuity you are locking in the current base interest rate on your monthly payment. In the current economic climate interest rates are very low, so you will be stuck with a low interest rate for the life of your payments. With a lump sum you can consider short-term investment until interest rates increase. In this scenario you will have some other sort of income to cover your personal expenses.

Annuity payments are taxable payments. On each monthly payment you receive you will be held responsible for paying a tax on it. When taking the entire amount you can invest in an IRA and pay no tax on the entire amount, only on what you withdrawal. Even the taxes you pay on an IRA account will be lower than on annuity payments. These are just some of the factors that will play a role on your lump sum annuity decision.

Enrique Castillano also writes about Retirement Planning and Annuities including Lump Sum Annuity and Sell Structured Insurance Settlement