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Cash ValueWhen you sell an annuity, you will not get back 100 percent of the remaining value in cash. However, you can get a good amount of it, so it really comes down to striking the right balance between your current and future financial needs. How much cash do you need on hand today?
What Is Your Annuity Worth?There are a number of different factors that go into determining what your annuity is worth in cash right now. That will include the current interest rates, the demand for annuities and the amount of money that you need. Depending upon the current value of your annuity, you may be better off selling more or less of what you have remaining. The combination of these factors will determine how much you will receive when you sell your annuity payments, as well as how much you will owe in taxes.
How Much Money Will I Receive?There are a few variables in your control as well. You can’t do much of anything about interest rates, the demand for annuities and the rate of inflation. However,you can decide whether you want to sell all of your annuity payments, part of your annuity payments or just a couple of them. This will help you to balance your current financial needs with your future financial needs.Demand The more people who are interested in buying annuity payments, the more money you will receive to sell yours. This comes down to the laws of supply and demand. The current interest rates will also impact the amount that you can expect to receive.Lump SumIf you have lump sum payments that are built into your annuity in the near future, that can affect how much you will receive. The length of time before those payments are scheduled is one of the biggest factors that will cause the offers you are going to get to fluctuate. The closer they are to present-day time, the more money you are going to receive in your offers.PaymentsThe number of payments that you have remaining in your structured settlement, as well as the number of them that you have decided to sell, will impact the amount of money that you are going to get in the offers, as you would expect.
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Why Don’t I Get 100 Percent of the Value of My Annuity?This is a common question. Because annuities are set to pay money out over the long-term, the value is often well into the future. They don’t pay out money until they have reached their maturity, so people who are going to wait to receive the money are not going to give you full value right now. It comes down to balancing your needs in the future with your needs right now, and finding someone who is willing to wait to receive those payments. You’re essentially giving up some value in the interest of time.
Purchase Not TradeKeep in mind that in order to continue to offer this service as a structured settlement buyer, we have to make a little profit on each of our purchases with clients. This is the cost of doing business, and it is a lot like working with your standard banks or lenders.
Cash Now Versus Money in the FutureThe money that you have on-hand right now has more value than it will in the future, because of interest rates and inflation. In addition, it has earning power if it is invested. Combining these factors together determines what the tradeoff is between current dollars and future dollars, and then you have to factor in your needs.
What about Taxes?When you have money growing in an annuity, it is tax-deferred. However, once you decide to go ahead and sell it, you will have to pay taxes on it just like regular forms of income. There may be an exception to this rule if you are selling payments in a structured settlement that is tax exempt.
InflationThis is the increase of the value of something over a period of time that is not met by an increase in the value of currency. For example, if you bought an annuity right now that had a guarantee of $1,000 a month for the rest of your life, you’d have to consider inflation. Right now, $1,000 a month would likely cover all of your rent, your utility bills and perhaps some money for groceries. However, in 10 years, the monetary costs of those goods will be greater. You might not be able to afford all of it with $1,000.
Money over TimeFor most people, it is better to have money on hand than to be waiting for it in the future. This is due to the fact that current money can be invested and grow in order to provide a greater amount of money in the future. If you invest $1,000 and get a 5 percent return per year for 10 years, you’ll end up with $1,628. If you were only to get that same amount through a fixed payment in a decade, it would still only be $1,000.
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