You turn on your TV to watch the lottery draw or visit the website to check on the lottery results... then boom! Lady luck smiles your way and in one life-changing moment you got the winning lottery numbers!
Enormous lottery prizes make for excellent headlines and billboards, but you never see winners holding checks for the full amount. This is because the jackpot in most lotteries is actually an annuity.
An annuity pays out a set sum every year, often for 20 or more years. The total payout equals the value of the lottery prize, with each installment representing only a small fraction of the total.
The lump sum option for a lottery payout offers a substantial prize up front, but it is considerably less than the jackpot amount. Generally, if you accept a lump sum payment, you can expect to receive about half of the stated prize amount.
Which To Choose?
While there are good reasons to pick either option, most people choose a lump sum payment, both for the large, immediate payout and for the investment opportunities available.
No matter the style of payout, any lottery prize has significant tax implications and should be discussed with a tax professional.
