Also, an annuity's guaranteed income simplifies financial management, which is especially valuable later in life, when people are less likely to be capable of managing money.Your cash needs

When the offer is between $10,000 and $50,000, the majority of people accepting it just cash it out, said McDaniel. That means paying income tax, and a 10 percent penalty if you cash out before age 59 1/2.

Cashing out early is a cardinal sin of personal finance. Tax-deferred investment vehicles let the earnings on money compound, year after year. Also, income from cashing out could push you into a higher tax bracket.

Littell, who isn't a fan of the lump sum, points out that one good use of it would be to defer tapping Social Security until you're old enough to get the maximum benefit. And when the cash is in your investment account, you can leave it to children, other heirs, or charity.

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