Lottery Winners Should Consider Annuity Or Lump Sum Payments

lottery winner

A lottery winner has the opportunity to change his or her life. For some, that means buying a new home, finding a job they love or opening an organization that supports a cause they believe in. But for many, the thrill of hitting the jackpot quickly takes a turn for the worse. In fact, 70 percent of winners lose or spend all their winnings within five years.

Lottery winnings can be incredibly tax-expensive, depending on state laws and how the winner chooses to take their money. If a winner elects to receive a lump sum, they’ll be propelled into the highest federal income tax bracket and will have to pay taxes each year, according to AARP. By choosing an annuity, which offers annual payments that increase each year, a winner can spread out the tax burden over decades.

The choice between a lump sum and annuity can also come down to a winner’s ability to manage a tremendous amount of wealth. Pagliarini says that it’s important for lottery winners to be honest with themselves about whether they can responsibly oversee such a large sum of money. But she adds that many young people may benefit from an annuity because they’ll have more time to learn how to handle the financial responsibility of winning the lottery. Whatever option a winner decides on, it’s crucial that they hire an experienced team of financial experts to help them manage their money. This includes an accountant, a lawyer and a financial advisor.