Won The Lottery? How To Choose Between The Annuity And The Lump Sum Payments


Everybody dreams of winning the lottery, but when you actually and finally do, you will be faced with some difficult choices. The first major choice that you will have to make is do you choose the annuity payout or do you choose the lump sum? Here is how a financial consultant may advise you, based on your personal situation.

Lump Sum

Most people, who are either impatient or have a lot of debt, are unwilling to take the annuity payment of their lottery winnings. Therefore, they choose the lump sum. The benefits to choosing the lump sum payment is that the state and federal taxes are drawn out of the total amount won prior to being delivered into your hands. However, you might have to continue paying taxes on any interest you incur when you place the lump sum of money in the bank for safe keeping. Still, if you win millions of dollars, it is nice to get a big chunk of that all at once.

Annuity Payments

Many state lotteries with huge cash prizes offer annuity payments. This means that your winnings are divided out over a period of twenty, twenty-five or thirty years, and deposited annually into your account. Even if you win a "small" prize of about five million dollars, that is still more money than most people see in a year, every year. Additionally, when you select the annuity payments, you get the full amount of the lottery winnings because you allow the state to hold onto a big part of the money in a bank account that collects interest. You still have to pay taxes on the winnings, but those taxes are usually paid when you file your annual income taxes. A separate document for lottery winnings is available for special cases like yours.

Financial Planning for the Lottery Winner

Finally, it should be stated that whichever of these two payout methods you choose, you need a financial consultant/adviser/planner. You can make your lottery winnings grow if you invest even a little of your winnings, and you can make your money stretch farther if you are frugal and thrifty with your purchases. Just because you won millions does not mean you should spend it like the dollar will have no value tomorrow. Even billionaires do not spend money willy-nilly, which is is why they are billionaires. A financial consultant or adviser can help you create a balance between the excitement of having money to spend and holding onto enough money that you will not be broke in five years.


13 September 2016

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