Do you receive annuity settlement payments from a lottery winning or a lawsuit? Receiving annuity payments are a nice padding to your monthly budget but might not be enough to change your life. Sometimes you can do more with the cash for annuity payments by selling all or part of your structured settlement.
You might feel concerned that the value you could sell it for today won’t be as much as the amount you’d get over the life of the payments. It’s true. Companies who buy structured settlements are doing it to make money, if they paid the entire value of the annuity, they wouldn’t be in business for long. However, there are times when it makes more business sense to get cash for annuity payments now rather than collecting small payments over time:
- To avoid inflation. The value of your structured settlement won’t go as far by the time you get all the money as when it was awarded to you. For example, the price of a gallon of gas in 1995 was $1.09. Just 20 years later, the price has risen to $2.60 per gallon, a 238% increase. If you received an annuity 20 years ago, you can by less than half of the amount of gas now than the same amount of money would have gotten you in 1995. On the other hand, if you had decided to get cash for annuity payments 20 years ago, the cash would have gone a lot further than it does now.
- If your tax implications change. When you receive structured settlement payments, it is considered taxable income. Some people are concerned that as their income increases, they reach a higher tax bracket and more of their annuity payment goes to Uncle Sam. This is especially common if you are getting annuity payments in addition to pension, 401K retirements, and social security after you reach the age of 65. If you make little or no income outside of your annuity, you might only have to pay taxes in the lowest tax bracket, which is 10% (and less if you have children or other deductions). If you anticipate having additional income and less deductions when you’re older, you could be taxed at a rate as high as 39.6%. Talk to a tax adviser to determine if it is more financially beneficial to sell your annuity payments now rather than waiting.
- To start a business. As the saying goes: “Give a man a fish, he’ll eat for a day. Teach a man to fish and he’ll eat for a lifetime.” Getting an annuity payment might help you eat for a day, but if you are able to use the cash for your structured settlement to start a business that generates more money than your annuity payments, you’ll eat for a lifetime.
- To make a higher yield investment. Look into the interest rate your annuity grows at. Many times, annuities gain interest at rates as low as 2%. If your annuity has a really low interest rate, it might make more sense to sell it so that you can put that cash in an investment that offers higher returns in dividends and distribution, such as stocks.
Have you ever sold a structured settlement? What did you do with the cash that you got for it? Please leave us a comment with your experience.