The Advantages of Selling an Annuity
Many people set up an annuity because they believe it is a secure source of income for the future. However, once it is set up, you may have realized that those monthly or yearly payments are not as advantageous as you thought they would be. In fact, you may have come into a situation in which you really need your money now instead of waiting for all of those individual payments. What are the real advantages of selling an annuity?
The primary reason most people sell an annuity is to receive cash when they need it. You may have bought an annuity believing it was a good investment vehicle or it may have been purchased for you as part of a structured settlement. Whatever the case, after you get into it, you may have come to realize that a lump sum of money is what you really need. Often, people do not mind receiving payments from an annuity until the need arises for a larger portion of money. When this is the case, selling your annuity can provide cash in a crunch.
Another benefit to selling an annuity is the potential to increase the amount of money the investment is earning. Depending on how the annuity is structured, you may not be earning much, if any, interest. Even if complicated investment strategies are not for you, this money may easily earn more interest if placed in another type of investment where it can grow and be more profitable. Even if you do not need a lump sum of money right now, selling the annuity may be worth it, in order to provide more earnings for your coming years.
Inflation is another reason why selling your annuity for a lump sum payment make sense. Inflation rates have steadily increased over the last several years, reaching over 4% currently. This means that every dollar you have is depreciating by this amount on a yearly basis. How does this relate to your annuity? $1,000.00 ten years from now will not be as valuable as $1,000.00 today. This concept is known as present value. Every day that you wait to receive your money, it is losing value. If your annuity is in a strong enough investment vehicle, it may be earning enough interest to counteract this inflation rate; however, it is far more likely you are losing money by leaving it in a structured payment annuity. Therefore, many people find it beneficial to sell their annuity and take advantage of today's values rather than wait to see what the future brings.