9 Responses to “ I just won a lottery prize. Should I get go for the lump sum option or the yearly payments? ”

1. David M on September 20th, 2010 9:37 am

   Take the payment over time.
   1) You’ll get more money.
   2) None of it will be taxed at the highest marginal tax rate.

2. Jessica V on September 20th, 2010 9:37 am

   I would take the million over 20 years. That’s like about 4k per month for the next 20 years. You could live off of that. You would know that you would be taken care of. And only a million dollars??? You’re set. I’d say it’s in your best interested to continue to work. But imagine everything you could do. And if you have kids or family that would be able to help them out as well. There would never be any financial stress. If you plan on living for awhile and you’re in good healthy take the yearly. I suppose if you have plans that can’t be put on hold then take the lump. But take these answers and also weigh your pros and cons. Hope this helped.

3. Purple Crayon on September 20th, 2010 9:37 am

   I would go with the million. Without subtracting tax that would be like 50 grand a year right? Thats some pretty good extra income.

   I don’t know if you’d be able to live off of that considering that a lot of it would be taxed. But even so, if you continued working while you were getting this extra income you would be making a lot of money. Put some of it away definetly and you can retire early =)!

   GOOD LUCK!

4. Hope713 on September 20th, 2010 9:37 am

   Good for you! Congratulations! I’d take the yearly pay out unless I was in dire need of the money right now. Plus, I wouldn’t tell anyone unless I had to that I had won. Enjoy your winnings!

5. Jen M on September 20th, 2010 9:37 am

   Wow. The most I ever won was a little over 4800.00. And wound up paying the FL lottery about a fourth back in taxes, even though I didn’t make much at the time. I would take the lump sum, let them take what they wanted off the top or pay taxes on it and be done with it. Nothing is for sure. They could decide not to have a lottery anymore and your money would not be there – unlikely, but possible. I would want to end my dealings with them as soon as I could. And you’re wrong, it IS a lot. A good site to ask questions about this would be http://www.lotterypost.com. They have an administrator that could probably give you really good advice.

6. Jay S on September 20th, 2010 9:37 am

   Normally you’re better off taking the lump today and investing. Reason is you can bank 500,000 and spend 100% of the interest it earns each year. You get to spend that every year and still have 500,000 in the bank FOREVER. Versus a payout of 50,000 per year that eventually runs out if you’re spending it.

7. Z on September 20th, 2010 9:37 am

   I would take the lump sum of $500,000. Say for example you invest it into a savings account or CD and you earn 4% anually. If you took the payments spread out over 20 years you wouldn’t earn as much interest, and the state where the lottery was won would have a 20 year interest free loan to you. Time value of money. A dollar today is worth more then a dollar in the future.

   MBA CPA

8. havo_FINA4242 on September 20th, 2010 9:37 am

   Using the Present Value function and a discount factor of 5% the $1,000,000 is worth around $623,000 today and the $500,000 is worth the face value today or $500,000. So if you were to spend every dollar the instant you receive it, you should take the payment over twenty years. If you invested the $500,000 from the beginning you would be able to compound your interest faster than taking the twenty year payment.

9. AB on September 20th, 2010 9:37 am

   It depends on what rate you think that you could earn on the lump sum versus the rate that they use to discount the payments to you. Usually their discount rate is pretty low (like the rate of treasury bills), so you can probably make more in the long run with the lump sum.

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