The Lump Sum vs Annuity – Just Show Me The Money!

Help Me, and I’ll Take Whatever You Want

One of the biggest decisions you may have to make once you win the lottery is if you want your money now in one lump sum, or if you’d rather take payments over a certain length of time. Ultimately, your financial advisor would be able to best tell you what your best option is; however, if you opted not to hire a financial advisor (not recommended, by the way), then you’ve come to the right place!

Benefits of Lump Sum – I’ll Take the Lump!

When you come into a large sum of money, you’ll be able to invest a large portion of it into high-yield accounts. Essentially, your lottery winnings will continue to make you money. Also, if you take a large payout, you’ll be able to pay off all of your debt at once. This can be quite a liberating feeling! Just imagine how good it would feel to have your mortgage paid off, and any loans, credit cards, or medical bills to be paid for in full.

Drawbacks of Receiving a Lump Sum

A large payout of cash means you’ll be subjected to more taxes being taken out of your winnings. Most tax rates that are applied are about 39%. Granted, it may seem like chump change if you win a large amount of money, but even still. It greatly reduces your prize money. Another drawback of taking a large lump sum is that you’ll have all that money at your fingertips. Like most people, you may be tempted to spend a large portion of that money on things that you probably don’t need. There are hundreds of stories where lottery winners have wasted their money on drugs, gambling, and other things.

Benefits of Annuity Payments – Annuity, Please!

Aside from the fact that you will have a steady stream of money coming in every month, you may also fall into a lower tax bracket. What this means is that you will be paying less in taxes over the lifetime of your payments, rather than if you took it all out in one lump sum. Another benefit of payments is the simple idea that you are already used to money coming in (paycheck, social security, etc.). Think of it as a sudden jump in pay grade.

Drawbacks of Receiving an Annuity Payment

Depending on the size of your payments, you may not be able to pay off all your debts as you would be able to if you had taken out the large sum. Also, your future goals may warrant more money than your payments would allow for; such as getting married, buying a new home, or starting a business. Granted, an annuity payment will help your goals come to fruition much sooner than if you were relying on a paycheck from your job… But who wants to wait?

Which Is Right for You?

It all comes down to what you want for your future. Are you okay with achieving your goals slower than if you had taken a lump sum? Are you willing to lose a larger portion of your winnings in taxes if you take the lump sum? It all depends on you.

No matter what you decide, make sure that you have a plan and someone who can support your decision. You’ll need an advisor to keep your money situation straight. You don’t want to run out of money quicker than you can decide what to do with it!