I have a lottery question. I hear many lottery players talk about deciding between receiving 26 annual installments or a lump sum in cash. Which one is better? Thanks.
-- Angelo Accumulate
I hope this isn't just a hypothetical question for you. The lump sum payout is, for most winners, the best choice. You know the tax consequences, you know the lump sum payout and you often have the opportunity to invest the proceeds to earn more than you could with the guaranteed return from the annuity payments.
The Bankrate feature, "You won the lottery! Now what?" explains the choice in greater depth, but the emphasis is on financial flexibility and controlling the tax impact.
There are quite a few people who have won the lottery but weren't able to stay rich for long. The Bankrate feature, "Unlucky lottery winners who lost their money," chronicles the sad stories of lottery winners that couldn't hold on to the brass ring once they won it.
Playing the lottery isn't a substitute
for sound financial planning. A 2006 survey, jointly
sponsored by the Financial Planning Association,
or FPA, and the Consumer Federation of America,
or CFA, found that about 21 percent of Americans
believe that winning the lottery is the best way
to accumulate several hundred thousand dollars.
That number jumps to 38 percent of people with
an annual income less than $25,000.