what is a lump sum

A lump sum is a single payment of money, as opposed to a series of payments made over time. It can refer to a one-time large payment of money given to an employee, usually instead of a series of payments made over time. Lump sum payments are commonly associated with pension plans and other retirement vehicles, such as 401(k) accounts, where retirees accept a smaller upfront lump-sum payment rather than a larger payment issued in installments over time. In mortgage lending, a "bullet repayment" is the lump-sum of the outstanding loan paid to a lender. Lottery winners will also typically have the option to take a lump-sum payout versus yearly payments. The lump sum payment has a lower value when provided to pay for an asset or service because the sum total of the funds is being paid upfront. The main benefit of a lump-sum payment is that an individual gets a large sum of money upfront and can use it to invest in something of his/her choice. The biggest risk is the possibility of losing the money if invested wrongly.