If you are one of the 50% of Americans who play the lottery you have probably heard it all from friends and family before:
- You have a better chance of getting hit by lighting, twice!
- You Are wasting your money!
- No body ever wins!
Baring all the objections in mind have you ever thought about what you would do if you actually did win? Many people might not be aware that if you win the lottery, it is only the beginning of the process. For example the local and state government both take out taxes from the winnings right off the bat.
Lump Sum Versus Annuity
Assuming you were to win Mega Millions, the lottery payments would be paid out yearly over the course of 29 years with the payments being incrementally more each year. If you choose to receive a lump sum lottery payout, you can expect the government to take a healthy cut to the tune of 54%. So, what is the right choice for you, letting Uncle Sam give you a present each year or asking for the whole kit and caboodle right away?
Advantages of A Lump Sum Lottery Payout
The biggest advantage of receiving a lump payment is that you don’t have to wait for the government to give you money each year, you’ll have a large amount of money right off the bat, without the waiting. The obvious downside is that you take a significant tax hit when receiving your money. The government will basically half your winnings. If you are in immediate need of a large amount of cash to take care of yourself and your family taking the lump sum lottery payout might be the best option for you.
Advantages of a Lottery Annuity
As the old saying goes patience is a virtue. By electing to receive yearly lottery payments you will increase the amount that you will receive over your lifetime. By letting the government take it’s time in paying, you will deal with less taxes. The downfall of this is that the payments are over several decades so, depending on your age or lifestyle you may not be around to see the last of those dollars hitting your bank account. This means that you will have to do a little bit of planning in selecting a beneficiary for the remainder of your winnings.
Don’t Only Plan on Winning the Lottery
Let’s be honest winning the lottery is a long shot, but it still is a good way to think about money. Let’s assume that you were injured in an accident and awarded a settlement or if you are planning on receiving a pension; these questions of structured settlement annuity vs lump sum payments still apply. Talking with a financial adviser could be the best investment that you can make in for your future ever. Nobody is saying you have to stop buying your weekly lottery ticket, but just hedge the bets more in your favor.