Lump sum vs monthly checks: what would you choose?
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So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
For your situation maybe monthly is better since you're concerned about managing money, but for me I'd 100% go for the lump sum and then invest whatever portion of it I don't immediately need in a safe investment like a CD or something where there isn't any chance of losing anything. You already have the money why not have it grow while you're not using it.
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So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
IMO the lump sum is the better option for these reasons; a lump sum could be invested in a way that could give you a source of passive income, or grow into a sizeable nest egg. Monthly payments will by and large go to living expenses, and yeah, that will make things easier, but when the payments run out, you may be SOL.
Also, a dollar right now is always worth more\has more purchasing than a dollar in the future due to inflation. By taking monthly payments, you will ultimately get 'less' overall. What seems like a nice monthly alimony check today, may not even be able to cover rent 10 years from now.
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So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
wrote last edited by [email protected]Let's say your monthly is $1000 and the lump sum is $100000. Let's say you need that $1000/mo to fund your lifestyle.
January you get $1000 under the monthly plan.
Or, you withdraw $1000 from your lump whilst the remaining $99000 easily earns 5% in dividends/interest.After 1 year under monthly payments you have $0 in liquid equity.
After 1 year under lump sum you have $93000+ in liquid equity.The monthly payment scheme might work out better from the 15 year point onwards.
The lump sum IS better for at least the next 15 years.edit: I just saw your reply that it's 210 months! That gives you 25 plus years before monthly might be better....
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So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
Reading other comments, I see this amount would equal to 17 years of payments. There is no right answer. If it were me, I'd go for the lump, but I'm well aware that I am good at managing my own money in the sense that I don't overspend, no matter what the bank account says. I'm naturally frugal.
I think the main considerations you need to take are: your personality, which you suggest you can't trust yourself with that much money; on the other hand, the payee's personality and the unexpected, ie., are they reliable enough to pay monthly or will they owe you? What if they die in a couple years? What if they go bankrupt? Etc. (not sure if there are system failsafes for these scenarios where you live).
I would suggest get the lump, deposit 80% of if or so in a fixed account with a high rate that won't let you withdraw in a couple years, use the remaining 20% to keep yourself alive until you find a job. Once you get a bit more used to managing your own money you can decide what to do with the rest.
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So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
wrote last edited by [email protected]There are a lot of questions that would influence my answer.
For example: Who did the calculation? Do you trust them to have calculated the lumpsum as a fair representation of the payments?
Who is carrying the death, disability and unemployment risk? In particular, if your ex-husband dies or becomes unable to work, who will continue to make the payments? What if he married in the meantime and his new wife fights the settlement due from his estate? (Happened to someone I know. She won eventually but had a very hard time for years until the money was released.)
How large an amount are we talking about? Can you survive on 1% of the amount per year? For example, if the lumpsum is USD 10m, then hire a wealth manager to invest it and have yourself paid 1% a year, in this case USD 100k a year, or USD 8.3k a month. The invested lumpsum will increase with inflation and so your 1% will also increase each year. This setup will allow you to live off the lumpsum indefinitely.
Based on the limited information you provided I assume the amount isn't that big, in which case I would advise that the monthly amounts are paid via an annuity purchased in your name from a life insurance company.
This solution has a number of advantages:
- The insurance company will calculate the lumpsum (which would be the price of the annuity)
- You aren't subject to any risk from your ex-husband's life
- If this is payable for life, the life insurance company takes on the risk that you become very old and run out of money.
You will have the risk that the insurer goes bankrupt but provided you select a reputable, well-funded company that's been around a long time, the risk is relatively low - life insurance companies are heavily regulated. Also, you would get some money back from a bankruptcy. Many annuity products also pay back part of the annuity price if you die within the first few years, so in that case there should be something to inherit for anyone you leave behind.
Edit: I see from your comments that the payments are not meant for life but only a limited few years that will end before you reach retirement age. Is that correct?
If so, that raises new questions. Importantly, do you have any additional retirement savings or is this settlement meant to cover that? If you were married for 20 years you should be entitled to a portion of his retirement savings if you don't have any of your own.
If this money includes your share of your retirement savings, then take the lumpsum and put the amount that represents your retirement money into a suitable (tax advantageous) retirement fund that you can not touch. At your age (nearing 40?) you should have saved up a sizeable retirement amount already, so that will easily be half the lumpsum I would assume. The actual numbers depends on all sorts of things I don't know.
My qualifications are suited to helping you with calculations. If you are willing to give more personal information, pm me and I can give better, more tailored advice.
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Let's say your monthly is $1000 and the lump sum is $100000. Let's say you need that $1000/mo to fund your lifestyle.
January you get $1000 under the monthly plan.
Or, you withdraw $1000 from your lump whilst the remaining $99000 easily earns 5% in dividends/interest.After 1 year under monthly payments you have $0 in liquid equity.
After 1 year under lump sum you have $93000+ in liquid equity.The monthly payment scheme might work out better from the 15 year point onwards.
The lump sum IS better for at least the next 15 years.edit: I just saw your reply that it's 210 months! That gives you 25 plus years before monthly might be better....
That's such bs. You don't know how old OP is so you don't know her expected lifetime. You're advising her to take on longevity risk, specifically the risk that she runs out of money when she's old and probably unable to work.
Living off the lumpsum only works if her drawdown is 1% a year, not 1% a month.
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How many months would the lump sum be equivalent to?
The payment period alone is not sufficient information, it also matters how old OP is and what their expected lifetime is. Plus how do you know the lumpsum was calculated correctly?
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That's such bs. You don't know how old OP is so you don't know her expected lifetime. You're advising her to take on longevity risk, specifically the risk that she runs out of money when she's old and probably unable to work.
Living off the lumpsum only works if her drawdown is 1% a year, not 1% a month.
wrote last edited by [email protected]lol. OP gets $210,000 today but in 25 years is fucked for life under your scenario!
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lol. OP gets $210,000 today but in 25 years is fucked for life under your scenario!
You don't know what my scenario is. I didn't say in this comment what I recommend, only that his advice is poor, which it is. This stuff is literally what I do for a living.
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You don't know what my scenario is. I didn't say in this comment what I recommend, only that his advice is poor, which it is. This stuff is literally what I do for a living.
I feel sorry for your clients.
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I feel sorry for your clients.
You feel sorry for insurance companies? Huh.
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You feel sorry for insurance companies? Huh.
Your clients.
Huh. -
So, I’m currently in the process of divorcing my husband, and one of the issues to settle is alimony. I can choose either a lump sum payment or monthly checks (indefinite unless I remarry, with adjustments for inflation). Opinions from people around me vary: some say the lump sum is better because it’s guaranteed, secure, and puts all the money in my hands right away. Others argue the monthly payment is better because it provides stability and consistent support. Personally, I’m leaning toward the monthly option, since I married young (at 20), never worked, and haven’t had much experience managing money. I worry I wouldn’t be “proficient” enough to handle a lump sum wisely.
Take the lump sum. Speak with a financial expert. Manage your budget.
Most of humanity isn't going to last more than a few more years. Take the $$ and run.
