Lump sum versus annuity. Chances are if you’ve just won the lotto, the first question on your mind isn’t: I wonder if I should defer some of this money? That is in essence what taking lottery payments in annuity means, as opposed to a lump sum where you receive all of the money at once. There are benefits to lottery annuity that many people fail to realize once they see the dollar signs. Here are three important factors to consider.
1.) Taxes: One of the first things you should think about if you are fortunate enough to win the lottery is how to keep the government from stealing, sorry taxing, as much of it as you can. When it comes to structured settlements you can usually save between 25%-35% on federal and state taxes. Selling a structured settlement is a little different than collecting lottery payments, but the idea is the same. If you spread out the money in time and smaller increments, the overall amount you pay will usually be less in the long run.
2.) Management: Forget about millions, most people wouldn’t know what to do with $100,000 if they were given it today. Coming into a large amount of money solves many problems, but it can also cause a good many of its own. The desire to buy luxury comforts, travel the world, vices such as gambling and substance abuse. By taking your lottery payments over time you will still receive enough money to take care of your immediate personal finances, but also allow yourself to ease into this new lifestyle. An average Mega Millions jackpot of $50 million pays about $750,000 initially, and steadily grows each year maxing at about $3.1 million.
3.) Safety Net: Similar to proper management, having the safety net of lottery payments in perpetuity provides for an invaluable safety net. Sadly, 70% of all lottery winners will spend all of their money in five years or less, regardless of how much it was for. When you consider just under half (48%) of winners remain at their place of employment anyway, it’s not the worst idea to do so while also receiving payments. This allows for you to continue living a very similar life, just perhaps with a couple more vacations each year, a new car, and bigger flat screens.
Winning the lotto should be a time of joy and celebration. You should allow yourself to make some guilt pleasure purchases, but don’t make the irresponsible mistakes so many do. Set yourself up for a lifetime of success and carefree living by taking your lottery payments in annuity, and being smart with your new found wealth.