Some lucky person in Illinois gets to answer this $1.4 Billion question. Winning the lottery changes each winner’s life in a unique way, but each person must answer the same first question: how do you want to be paid?
Option 1 or Option 2?
A $2 Mega Millions ticket contains odds of 1 in 302,575,350 to win the jackpot … winning the jackpot is a big deal. One day when you win the lottery, you will receive life-changing amounts of money.
However, you will be faced with a crucial choice: how do you want to be paid? There are two options to consider before your new life post-lottery-winnings begins. Do you want to be paid through?
· Option 1 — the lump sum, or
· Option 2 — the annuity.
First Things First, Which Option Pays You More
What the heck is the annuity option? Option 2 is less heralded than the famed big check of Option 1, but it is a legitimate option for any lottery winner to consider.
Option 2 allows you to receive a portion of your lottery winnings in one immediate payment, and the remaining winnings over an additional 29 years of annual payments.
The total money you receive from the lottery is the same, but these two options are not equal.
Mega Millions explains that each subsequent payment in the annuity option is 5% larger than the previous payment. This increase protects the lottery winner’s lifestyle and purchasing power from inflation.
However, the annuity option does nothing to shield the lottery winner from the opportunity cost. A lottery winner could invest the lump sum into the stock market.
You can then earn passive income before withdrawing the same amount of each annuity payment in option 2.
Which Option Do You Want More?
The math is clear, but that does not mean Option 1 automatically wins out in the great lottery debate. There are many relevant psychological concerns to consider before deciding the fate of your lottery winnings.