Many people like to invest their retirement package in an insurance company, on the condition that their money is paid to them back on a regular basis. They `buy’ this arrangement, known as an `Annuity,’ from the insurance company. By going in for an annuity, the investor is assured of a regular income through retirement, or thereafter to his heirs. But this income, usually monthly, is based on the payment option that he chooses.

Though an annuity offers a regular monthly income to the investor, it cannot meet his immediate financial needs, like buying a home. In such circumstances people think, “Which is better, receiving a large amount of money today after paying taxes, or receiving an annuity as monthly payments for many years and paying taxes each year?” Let’s sort the dilemma out by considering an example as follows.

James wins $1 million in a lottery. The lottery company asks him to choose from the two options: a lump sum payment once, or annual payments of $75,000 for 30 years. Let the rate of income tax be 30%. If he chooses the first, his after-tax amount is $700,000. If he chooses the second, receiving $75,000 every year for 30 years, its income is far less considering inflation, tax and other unpredictable factors for the 30 years period. Obviously, the first option is better.

Accredited banks, insurance firms and finance companies and their websites have ready online annuity calculators to help investors make a good choice.

Although by buying an annuity the investor [retiree] is guaranteed periodic income, there’s one problem. Can the retiree use his annuity for an immediate financial need, like medical treatment? Although his whole retirement benefit package is with the insurance company, he cannot withdraw any part of the amount during the agreed time period, known as the ‘surrender period’, without paying ‘surrender charge fees’ as a penalty. Suppose he bought an annuity with a 5-year surrender period. If he wants to withdraw some amount, he may have to pay a 5 percent fee in the first year, 4 percent during the second year, and so on.

Considering this difficulty, the Federal and state governments have introduced provisions so that retirees can sell their annuity payments and obtain immediate cash. There are several finance companies that can buy a person’s annuities and pay them back in terms of immediate cash. The process works as follows:

The person approaches any appropriate finance company that can buy his annuity. The company offers several options that meet the person’s financial needs. Once the person selects the option, the company completes the application process. The applicant is provided with a disclosure statement and a contract, which he will sign and get notarized. The finance company collects the contract along with relevant documents, processes the application and submits it for approval to the court. The court reviews the application to confirm if it is in the best interests of the applicant. The companies are expected to follow all relevant state and federal laws in the process.

Once the court approves the application, the finance company notifies the applicant’s insurance company of the transfer. Cash is transferred to the applicant in just a few days. The retiree can use this money to meet any of his immediate or unexpected financial needs.