Winning the Lottery: What are Lump Sum Payouts?

Last UpdatedJanuary 11, 2018

A lot of people—especially those new to lottery—think that when you win, you get your money, and that’s it! It’s nice to think that it’s that simple—but the reality is that it’s a lot more complicated. Before you can even touch a single cent of your winnings, lotteries often give you two choices: receive your winnings as a lump sum or as annuity payouts.

I already covered the basics of annuity payouts as far as lotteries are concerned, so in this article I will be talking about the lump sum option. What is it exactly? And why should, or shouldn’t, you go with it? Join me as I take a closer look!

Lump Sum Payouts – The Basics

Lump sum payouts

As the name suggests, lump sum payouts mean that your winnings will be given out as a single cash transfer, as opposed to annuity payouts where payments are made over time. To put it another way, lump sum payouts allow you to get full, immediate access to your winnings.

It isn’t much of a surprise then, that most winners tend to go for the lump sum option. After all, who wouldn’t want to immediately enjoy all their winnings, right? The beauty of choosing the lump sum option over annuity payouts, however, go beyond simply getting all your money all at once.

While you do get to take home a much smaller prize amount (due to taxes et al.) when you go for a lump sum payout, if you invest it wisely your money could grow bigger than the entire amount of an annuity payout. What other benefits do lump sum payouts offer? Alternatively, what disadvantages can you expect? Let’s find out.

Why Going for Lump Sum Payouts is Advisable

Why Going for Lump Sum Payouts is Not Advisable

The Bottom Line

If you prefer taking home all your winnings and don’t like waiting for two or three decades to get everything, choosing the lump sum option on your lottery win is a good idea. Sure, because of hefty taxes, you’re more likely going to get a fairly small sum compared to the entirety of what you’d get if you chose the annuity option. But then again, you could invest that lump sum and easily make it grow.

On the other hand, getting all your winnings as a lump sum might not be advisable if you’re the type who has a hard time controlling your urge to go on a lavish shopping spree. Having the entirety of your prize readily available is a huge temptation—one that could drive you to bankruptcy in no time. As always, it is better if you get help from a financial adviser after winning and plan out your finances.

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