Winning the lottery can be a life-changing experience, and if you win a large enough amount, you will have to make a decision on whether to take a lump sum lottery payout or accept an annuity, which will pay out your winnings over a period of years. Each choice has pros and cons, and you will have to weigh the benefits and drawbacks of each to decide which is right for you.
When you see lottery payouts advertised — the amounts they put on the billboards, for example — it is the amount of the winnings if you take them in the form of an annuity. For instance, if the lottery jackpot is $100 million, it’s that much — minus income taxes, which are usually about 25% — paid out over a number of years — whatever schedule the lottery uses. As an example, the Mega Millions lottery pays out over 30 years, with the annuity payment growing by 5% each year.
A big advantage to taking the annuity is that you get more money. Another advantage is that you have a guaranteed payment yearly for up to 30 years. That ensures that you won’t run out of money for a long time. However, there can be drawbacks to taking the annuity. One is that many lotteries don’t allow the annuity payments to be made to survivors if the winner dies.
There are advantages to taking a lump sum lottery payout as well. When you take the lump sum payment, you can invest the money any way you want and may be able to get a better return on your money than having it in an annuity. Another advantage of getting the money all at once is that you can use it to pay off debt. The average household has almost $130,000 in debt, and if you are having trouble paying yours, you may need all the money right away. While an annuity payment from a very large jackpot may be plenty to pay off your debt, a smaller jackpot may not provide you enough money unless you take the lump sum lottery payout. The drawback to taking a lump sum versus annuity payments is that you ultimately get less money.
How you decide to receive your lottery winnings is likely to be a personal choice based on your own individual situation, and you should consider all the pros and cons before making your choice.
