Should I take my lottery winnings in a lump sum or annually?

I recently won $1,000,000 in the lottery. If I take the lump sum option, I'll get about $500,000 after taxes. If I take the payments over 20 years, I will get about $37,000 a year for 20 years after taxes. Which is the best option?

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October 2016
78% of people found this answer helpful

There is no simple answer. But congratulations!  Let's see if you can avoid the fate of most lottery winners who go bankrupt in 5 years . . . or less. Here is the missing information I would need to give a reasonable answer:

  1. What is your age?
  2. Are you single or married? Children? Are you happy with your current lifestyle and is taking care of your family after your death more important than living it up now?
  3. In which state do you live? It's essential to know your total tax hit.
  4. What is your life expectancy? Here's a good calculator for that purpose:  https://livingto100.com/calculator  This is a difficult but important number because if you're 75 and the calculator says your life expectancy is 74, have a big party!  If you're 35 and expect to live to 95, hire a financial planner.
  5. What are your debt details, i.e. amounts, terms & interest rates? Paying off debt is an investment that cannot be taken away from you (unless you carelessly acquire more!).

Depending on all of the above, there are various tax-advantaged options you could consider. This is not a -do-it-yourself issue!  You need an impartial, experienced 3rd party to see through the euphoria, to soberly reflect back to you your current financial situation, and realistically project what's possible- and not possible -with this windfall.

October 2016
October 2016
October 2016
October 2016