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Lump sum or annual payments?

To compare money now with money over time, bring the payments back to today’s value.

Problem

You can take $700,000 now or $50,000 a year for 30 years, starting today. If you could earn 5% a year, which is worth more?

Keystrokes

  1. fFINx≷y
    0.00

    Start clean.

  2. gBEG7
    0.00

    The first payment comes today.

  3. 30n
    30.00

    Thirty yearly payments.

  4. 5i
    5.00

    What you could earn yourself.

  5. 50000PMT
    50,000.00

    Each payment, positive because you receive it.

  6. PV
    −807,053.68

    What the payments are worth today.

  7. gEND8
    −807,053.68

    Back to end-of-period payments.

Answer

The payments are worth $807,053.68 today, more than the $700,000 lump sum, so at 5% the payments win.

Why it works

PV is the amount you’d have to invest today at 5% to pay yourself the same $50,000 a year. If that’s more than the lump sum, the payments are the better deal at that rate.

The break-even rate

To find the rate at which the two are equal, key 700000CHSPV and press i. If you expect to earn more than that, take the lump sum.

Questions

What about taxes?

Taxes often differ between the two. Compare after-tax amounts for a fair answer.

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