I am very excited to co-host a HUGE giveaway today, check out at the end of the post how you can win entries by liking Reach Financial Independence’s FB page, subscribing to my RSS feed and many more! There is $1000 to win, yes, you read that right 🙂
If you are the victim of an injury, or have filed a tort claim against a company, instead of receiving a lump sum from said company, you can agree to a structured settlement, where you would receive an annuity for a set number of years.
Now, without seeing the numbers, I would say that having $1 today is better than hopefully having $2 tomorrow. Here are a few reasons why.
- I can invest my money as I please.
I am no expert in investing but at least I would be free to make my own mistakes. I would probably pay debt, and save quite a bit on interest, then buy a house to live rent free and invest the rest in different assets. Having just an annuity may cover living expenses year after year but leave no room for improvement. I can turn my lump sum into passive income that may one day be greater than the annuity!
- I don’t negotiate like they do
We are talking about a company that did me enough wrong to be willing to pay me yearly for the rest of my life, or many, many years. That has to be a lot of money. And they have amazing lawyers to make sure I get as little money as possible. If they try to push for an annuity, it means I am probably better off with a lump sum.
- I don’t know how long I will live
What if I die tomorrow? My heirs could inherit my lump sump while I doubt my annuity would be passed on to them. Since we are talking about injuries, or birth defects from taking pills, and other kind of physical harm, I may not live until I am 90. Getting the money now is a safer bet.
- I don’t know how long the company will be around.
I get that a multi million settlement is usually peanuts for a company, but what if they go bankrupt and suddenly can’t pay my annuity?
- Inflation reduces my annuity
Even with low rates of inflation, $1 today is worth about $1.02 in a year. I would rather have less today and inflation-proof my investments.
If you already have an annuity, there are options to sell your annuity for a lump sum.
You may not get such a good deal as the first time around but if you want to dispose of more cash today, it can be a good option.
Now what would I do with $1000000? Good question, I don’t think my life would change much, actually. Well, on second thoughts it would depend of the kind of wrong that company did me. I guess I would still want to live a simple life, costs may go up with medical care, but otherwise I don’t dream about fancy this and fancy that, pretty happy to be where I am!