Although it might be one of the toughest decisions you’ll ever have to make in your entire life, it’s also one of the best ones: do you choose a lottery annuity settlement or a lottery lump sum payout after you hit the jackpot?
The Annuity Option.
If you choose an annuity, you’d your winnings over the course of a few decades in the form of annual lottery payments. That way, it won’t burn a hole in your pocket. Instead, it can be used as supplemental income to help you pay your bills. It can even afford you the opportunity to pursue your passions. Best of all, this option allows you to save money on taxes. Because tax laws change every year, you’re more likely to pay fewer taxes some years than others, which means you’ll get even more of your winnings.
That being said, life happens when you least expect it. An annuity will not be able to help you cover any large bills that may come your way, such as medical bills or college tuition. It also won’t be able to really help you pay off your debt, which should be your first financial priority. However, you can always sell your annuity for a lump sum to pay off whatever unexpected bill may come your way.
The Lump Sum Option.
A lump sum payout is exactly what it sounds like. It’s all of your winnings in one lump sum. This method is the best way to go if you plan to use the money as an investment. Perhaps you want to pay off some debt you have, or maybe you want to buy a new home or car, or maybe you even have a business idea. You can also put the money away in a savings account for some years, where it’ll accrue interest much more quickly than the annuity option will allow.
However, as previously mentioned, this option gets more taken out in taxes. Luckily, it also affords multiple opportunities to recoup those losses, as previously mentioned. Whether you put it away in a savings account to collect interest quickly, invest it in a business that could continue to make you money, or even invest in the stock market, this method is a good choice for a savvy someone who is willing to take a risk. (The keyword there being risk.)
The decision is a hard one with no real upside. It ultimately depends on what the winner plans to do with his or her new found fortune. No matter what choice they make though, one thing is guaranteed: they’ll be set for life.