Should I Take Lump Sum or Annual Lottery Payments?
How to choose between lump sum and annual (annuity) payments. Hitting the lottery can change your life. Now that you have won the lottery, you are faced with your first big question, “Do I take the lump sum or annual payments?” The answer is really a mathematical question and a risk premium question. Do you think you can do a better job investing your lottery winnings than the lottery commission can? When you choose annual payments, the lottery commission is investing your money. They guarantee you that you will earn a certain amount of money each year over the life of your payments. They are banking on the fact that they can invest lottery premiums and earn a better return than you could on your own. My advice is to take the lump sum and hire a professional to invest the money for you. Any competent professional should be able to earn significantly more than the lottery commission can.
However, some people decide that they just don’t trust themselves with all that money at once, so they choose the annuity payment. They mistakenly think that by taking the money in installments, they will not be tempted to spend it all and will do better that way. Unfortunately, taking the annual payments just means that for the next twenty years, companies will continue to barrage you with offers to sell your payments and take a lump sum buyout. These companies will pay you in one lump sum part of what your annuity payment is worth over time. And boy, do they make a killing off of you! Selling your annuity payment is a big mistake, but sometimes, it can be your only choice. You may find that even though you have your money coming to you over time, plenty of companies will extend you credit knowing you will be paid out or you will over commit on investments knowing that the money will eventually come to pay it off. However, trouble will always find a way to find you, if it can!
That’s the beauty of taking an initial lump sum payment. If you win the lottery, take the lump sum payment. Hire a professional and invest it wisely. That way, you are in control of your own fortunes. You can control where your money goes, where you invest it and how much risk you are willing to take. Companies will not hound you to sell your lottery payments, because you will have already cashed them in. Once you control your own money, you can set up safeguards like investment vehicles that mature over time or long term investment options that lock your money up for years. These tools will keep your money working for you.
Winning the lottery will change your life. Just make sure it’s a positive change!
