A 66 year old woman is offered a lump sum of $106,...
# generals
stocky-school-89127
09/19/2023, 5:25 PMA 66 year old woman is offered a lump sum of $106,000 or an annual payment of $18,300 for life. Which should she take?
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mysterious-tomato-10057
09/19/2023, 5:28 PMAnnual payment... Even in the first year, the investment benefits from the lump sum are less than the annual payment...
mysterious-tomato-10057
09/19/2023, 5:31 PMAnnual payment after 20 years at 8 percent: 873k
Lump sum after 20 years at 8 percent: 494k
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stocky-school-89127
09/19/2023, 6:41 PMThought so. But there's the fear of who knows what will be in the future
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mysterious-tomato-10057
09/19/2023, 6:42 PMyou win pretty quickly with this one
mysterious-tomato-10057
09/19/2023, 6:42 PMif everyone is healthy…
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nutritious-raincoat-28876
09/19/2023, 6:44 PM@mysterious-tomato-10057 if the investment benefits from the lump sum in the first year are greater than the annual payment, then the question is absurd, but even if it's lower, the lump sum could be the better option, because there is the lump sum itself. Only disagreeing on the implication of your first point.
nutritious-raincoat-28876
09/19/2023, 6:45 PMOther points to consider:
Is collection guaranteed?
Are there tax ramifications?
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mysterious-tomato-10057
09/19/2023, 6:45 PM@nutritious-raincoat-28876 agreed. I wasn’t confident with my reasoning so I ran numbers. My intuition was correct but I couldn’t come up with the right intuitive reasoning, any suggestions how to eyeball the answer ?
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nutritious-raincoat-28876
09/19/2023, 6:46 PMI'm not aware of any. TVM calculations are hard to eyeball.
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mysterious-tomato-10057
09/19/2023, 6:47 PMI’ll stick to using my calculator lol
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nutritious-raincoat-28876
09/19/2023, 6:54 PMThe first annual payment would be paid at the same time as the lump sum would have been paid? Or a year later?
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stocky-school-89127
09/19/2023, 7:10 PMProbably a year later
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nutritious-raincoat-28876
09/19/2023, 8:38 PMEven assuming a high return rate of 10%, the annual payments outpace the lump sum in a little over 9 years.
nutritious-raincoat-28876
09/19/2023, 8:39 PMAt 8%, it's a little over 8 years.
nutritious-raincoat-28876
09/19/2023, 8:39 PMb
brash-dress-51749
09/20/2023, 2:24 PMAre these amounts tax free? If not, another reason to take the annual payment as the lump sum will be taxed at a higher rate..
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rich-insurance-32675
09/21/2023, 2:20 AMWhichever company is supplying the payment, will they be around for the next 20 years to make the payments? And how long is the person expected to live?
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stocky-school-89127
09/21/2023, 5:09 AMGood questions, no answers