Lump sum payment - Financial definition
Concise definition of the term lump sum payment
A lump sum payment is a one-time payment of money, as opposed to multiple payments made over time. It is often used in contexts like retirement payouts, settlements, or large purchases.
Comprehensive definition of the term lump sum payment
In finance, a lump sum payment is typically made in situations such as retirement fund withdrawals, where retirees may choose to receive their entire pension amount at once rather than in periodic installments. This type of payment can also occur in legal settlements, where a party receives a single payment to resolve a dispute, or in real estate transactions, where a buyer pays the full purchase price upfront.
Lump sum payments are advantageous for immediate liquidity and investment opportunities but can pose risks if not managed properly, such as spending the amount too quickly or facing significant tax implications. For example, lottery winners often choose between a lump sum payment or annuity payments over several years, weighing immediate gratification against long-term financial stability.