You Just Won The Lottery, How Do You Want To Be Paid?
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.
Luckily for you, lottery winnings are often so large that they are life-changing levels of money regardless of the option that you choose.
Therefore, you do not need to make a purely economic decision and should consider any emotional reactions before deciding between your two options.
There is a lot of pressure involved with receiving a large check for all of your winnings. Do you want to deal with all of your family to friends (especially those that you have not spoken to since high school) reaching out about their debt or great new business idea?
Do Not Let History Repeat Itself
Winning the lottery is a dream come true, but there are many hidden consequences. Lottery winners are surprisingly more likely to declare bankruptcy in the years immediately following their win than the average American.
Learn from the history of your peers and allow the stories of past winners to influence your decisions.
The First Step In The Rest Of Your Life
The lottery provides unimaginable wealth, but no one can get you out of the first question that you need to answer: lump sum or annuity? The math clearly pushes you in one direction, just be sure your psyche is comfortable following through before you make it official … so what would you do?
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