Lottery Winnings Lump Sum or Annual Payments?

Lottery lump sum payout

Most people have very different ideas about what to do when you win the lottery. Some may want to go on perpetual vacation, others will want to start up a business, plan for retirement or pay off medical bills or college loans. Whatever their plans for their money, most people agree that they prefer to receive it as one lump sum payment instead of an annuity. Lottery payments are typically made as structured settlements, with annual payments made year after year. But you may choose to sell your lotto win for a lump sum and receive all your money at one go.

So what are the relative advantages and disadvantages of a lump sum versus annuity?

Lump sum v annuity

With a lump sum payment, you’re in charge of your money. A lump sum gives you the freedom to invest the money as you wish, without waiting for annual payments for years. Most lottery annuities are paid out over 29 or 30 years. For instance, the Powerball payout is made in 30 annual payments that increase over time.
Your winnings will be taxed no matter the form of payment you choose. But you may also have to pay surrender charges of up to 10% if you choose to sell your annuity. However, a survey found that 92% of those who sold their structured settlements were very satisfied with their choice.

So what would you do with the money?

If your mother told you that it always helps to have a plan, she was right. And when you’re talking about millions of dollars, a plan is essential. If you opt for a lump sum payment, make sure that you sit down and come up with a plan for how you’re going to spend the money over the next five or ten years. Fine tune your plan with advice from family, friends and financial experts.

One of the great advantages of receiving your lottery payments in a lump sum is that it gives you the freedom to follow your dreams. Given a large sum of money, here are some of the choices that people make:

  • Buy a house
  • Buy a luxury car
  • Pay off your debt
  • Get rid of those high interest rate credit cards
  • Pay off medical bills
  • Travel
  • Invest in your own business
  • Invest in bonds and stocks
  • College tuition, or create a college fund for your kids

So no matter how you decide to receive and spend your lottery payments, make sure that you have a plan to spend it wisely, in your best interests.

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