Lump sum
Encyclopedia
A lump sum is a single payment of money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

, as opposed to a series of payments made over time (such as an annuity
Annuity (finance theory)
The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money...

).

The United States Department of Housing and Urban Development
United States Department of Housing and Urban Development
The United States Department of Housing and Urban Development, also known as HUD, is a Cabinet department in the Executive branch of the United States federal government...

 distinguishes between "price analysis
Price Analysis
In marketing Price Analysis refers to the analysis of consumer response to theoretical prices in survey research.In general business Price Analysis is the process of examining and evaluating a proposed price without evaluating its separate cost elements and proposed profit/fee.Price analysis may...

" and "cost analysis" by whether the decision maker compares lump sum amounts, or subjects contract prices to an itemized cost breakdown.

In 1911, American union leaders including Samuel Gompers
Samuel Gompers
Samuel Gompers was an English-born American cigar maker who became a labor union leader and a key figure in American labor history. Gompers founded the American Federation of Labor , and served as that organization's president from 1886 to 1894 and from 1895 until his death in 1924...

 of the American Federation of Labor
American Federation of Labor
The American Federation of Labor was one of the first federations of labor unions in the United States. It was founded in 1886 by an alliance of craft unions disaffected from the Knights of Labor, a national labor association. Samuel Gompers was elected president of the Federation at its...

 expressed opposition to lump sums being awarded their members pursuant to a new workers compensation law, saying that when they received lump sums rather than periodic payments the risk of them squandering the money was greater.

USA Today
USA Today
USA Today is a national American daily newspaper published by the Gannett Company. It was founded by Al Neuharth. The newspaper vies with The Wall Street Journal for the position of having the widest circulation of any newspaper in the United States, something it previously held since 2003...

reported in 2003 that experts said that retirees tend to handle lump sum payments to them by either being overly frugal, or alternatively by using a lot of the lump sum payment quickly for travel and big-ticket items.

The Financial Times reported in July 2011 that research by Prudential
Prudential plc
Prudential plc is a multinational financial services company headquartered in London, United Kingdom.Prudential's largest division is Prudential Corporation Asia, which has over 15 million customers across 13 Asian markets and is a top-three provider of life insurance in mainland China, Hong...

 had found that 79% of polled pensioner
Pensioner
In common parlance, a pensioner is a person who has retired, and now collects a pension. This is a term typically used in the United Kingdom and Australia where someone of pensionable age may also be referred to as an 'old age pensioner', or OAP. In the United States, the term retiree is more...

s collecting a company or private pension that year took a lump sum at their retirement, as compared to 76% in 2008. Prudential was of the view that for many retirees, a lump sum at the time of retirement was the most tax-efficient option. However, Prudential's head of business development, Vince Smith Hughes, said "some pensioners are beginning to regret the way they used the tax-free cash. The days of buying a shiny new car or going on a once-in-a-lifetime holiday may be gone."

See also

  • Lump-sum tax
    Lump-sum tax
    A lump-sum tax is a tax that is a fixed amount, no matter the change in circumstance of the taxed entity....

  • Lottery payouts
    Lottery payouts
    Lottery payouts are the way lottery winnings are distributed. Payouts can be over years, such as with US lottery winnings.Legislation varies by US jurisdiction; much attention has been given to payout rates. Many statutes specify minimum payouts. To make lotteries competitive, some jurisdictions...

  • Structured settlement
    Structured settlement
    A structured settlement is a financial or insurance arrangement, defined by Internal Revenue Code as periodic payments; a claimant accepts to resolve a personal injury tort claim or to compromise a statutory periodic payment obligation. Structured settlements were first utilized in Canada after a...

  • Distortions (economics)
    Distortions (economics)
    A distortion is a condition that creates economic inefficiency, thus interfering with economic agents maximizing "social welfare" when they maximize their own welfare....


External links

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