It’s never too early to start planning for your millionaire status.
A lot happens once you become a lottery winner, there’s suddenly so much to take in and so much to consider and your lottery jackpot payment is one of them. Whether lottery winners are embarking on their new millionaire status by themselves, or with the help of financial advisers, every winner has one very important decision to make at the beginning of their journey; lump sum or annuity payout? It’s never too early to start planning, so if you have your eye on a jackpot, get familiar with the payout options so you can start thinking about it today.
While every lottery and state have different laws for lottery payouts and the specifics that each entails, there are two payout options; lump-sum and annuity. Like most options, both have individual pros and cons. Let’s get into those now.
As the name suggests, a lump-sum is made in one payout. Winners will not walk away with the full total of the jackpot prize, but will receive their money after tax deductions are applied.
Advantages of a lump-sum payout:
Instant cash: a lump-sum payout provides winners with sudden access to cash, this is a win in itself.
Immediate opportunities: Following on with point 1, a bulk payment leaves winners with the financial freedom to invest in high-yielding financial opportunities.
Disadvantages of a lump-sum payout:
Temptation: a lump sum payout is also a key to extravagant purchases or investments. Having instant access to millions means having instant access to spend millions, and if winners are not careful, lavish purchases and investments will leave them broke earlier than they imagined.
Robberies: lotto winners usually become instant celebs with their photo and name making it to newspapers and even on the news. The attention and support are great until it starts attracting the wrong crowd. Once people know that winners have an influx of money, the risk of being robbed increases because the chance of robbers walking away with valuables are high.
This payment is a long-term agreement which winners enter into. Annuities allow winners to receive a constant stream of payments over decades. The time period and specific amounts are agreed upon upfront, and received from an account set-up by the state lottery commission.
Advantages of annuity payments:
Pay less: by choosing the annuity payment option, you will most likely fall into a lower tax bracket because you’re ‘earning’ less than someone who chose the lump-sum option.
Earn more: following point 1, by choosing the annuity payment option, you will most likely earn more money in the long run because you’re saving on taxes.
Disadvantages of annuity payments:
Winners could still have debt: receiving multiple payments over decades means you have less access to massive amounts of cash. Winners with debt or student loans won’t be able to repay them as quick as winners who choose the lump-sum option.
No flexibility: receiving yearly payments also has the drawback of not being able to change the payout terms. If winners do experience unexpected financial family emergencies, money cannot be released.
Now that you know what all the lottery payout options include, which one will you choose when you become a winner? Comment with your thoughts below.