Were you one of the rare and lucky people who actually won a substantial amount through the lottery? Many people buy lottery tickets, but very few actually win enough money to change their lives. Of those who do win a large amount of money, many of them are encouraged to receive monthly annuity payments rather than getting a lump sum of money. This option may be best for some people are unable to control how much money they spend, but for many, it is not the best option because of the things it limits you from doing with your money. The moment that you saw that last winning number, you probably had a hundred things cross your mind of what you would like to do with your money, but how do you really choose what is best?
A lottery annuity is the agreement to receive smaller monthly payments for a set amount of years. Different lotteries pay out different ways. For example, the Mega Millions annuity is paid out as one immediate payment followed by 29 annual payments. Each payment is 5% bigger than the previous one. This type of payout may work for some, but it will not work for everyone. Some people would prefer to have payout options, since it is their money. They may choose to opt for a lump sum of money rather than the monthly annuity payments. Sometimes the monthly payments are not enough to make larger purchases, such as a house, a car or a business investment.
Lottery winners should also keep taxes in mind. They will have to pay a large amount of taxes on their lottery winnings. Getting a lump sum of money will still require you to pay taxes, but it will be all at once and up front, making it less of a hassle. When you are getting lottery payments, you may have to pay monthly taxes or you may have to pay a lot of it up front, not getting as much in annuity payments each month in the beginning. Off the top, the lottery withholds 25% for federal tax, then, depending on where you live and your tax bracket, another 6 to 9% state taxes. It is important to keep these taxes in mind when calculating your winnings and what you plan to do with them.
One of the best things that getting a lump sum of money can help with is debt elimination. When you receive cash in structured settlement payments, you may not have enough money to purchase a home or a car with cash. You end up taking out a loan, paying interest on the loan over many years. If you were able to purchase those things without a loan, you would save hundreds of thousands of dollars over the lifetime of the loan. Personal loan rates are often 10 to 20%, but can sometimes be as low as 5 to 6% if you have very good credit. Moving from 18% interest on a credit card to 10% on a personal loan is a good deal for you. You will also get one set monthly payment and pay off the whole thing in 3 to 5 years. To have the ability to do this, you may be getting a lump sum of money.
Winning the lottery is an exciting and rare thing. You have a lot of money that you may have never had access to and you have the option of receiving all of your money at once, or receiving smaller monthly payments. What works for one person may not work for another. However, getting a lump sum of money allows you to purchase large investments without having to take a loan out and having to pay outrageous interest charges on it.
Monthly Annuity Payments Versus Lump Sum Payments
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