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    Lump sum or an annuity

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    If you won the lottery should you take a lump sum or an annuity? Why?

    © BrainMass Inc. brainmass.com October 9, 2019, 6:15 pm ad1c9bdddf

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    In deciding whether to take an annuity or a lump sum, includes the following considerations:

    What assumed interest rate is underlying the calculations? Do you think you can earn significantly more than that rate on your own? If so, take the lump sum cash value. If not, go with the annuity.

    What are your financial needs, both immediate and over the next twenty years? Do you need a steady flow of income? If you take the lump sum and invest it poorly or lose it, how much will it hurt you?

    If you give up your job to enjoy your wealth, what will happen if you're still alive when the annuity payments stop? You don't want to blow it all in a spree and then find yourself in poverty in your old age.

    What happens if you die before the annuity has been fully paid?

    As noted, there's the question of whether to ask in advance for an annuity - the tax treatment alone could overwhelm any other considerations.

    The question of which is better, cash value or annual payments, doesn't depend on the jackpot amount; it depends on the interest rate reflected in the annual payment. Since lottery rules are ...

    Solution Summary

    If you won the lottery should you take a lump sum or an annuity? Why?