Lottery Payouts - Selling your Lump Sum Payment

Lottery winners who consider themselves savvy investors typically pick the lump-sum option so they can beat the long-term market returns by immediately investing the money in high-yield financial options, including real estate, commodities, precious metals, stocks or bonds.

On the other hand, taking the money now means they can make extravagant purchases or pay off large amounts of debt with their newfound, upfront cash.

The downside of an immediate influx of cash is that the actual payout is significantly less than the amount won in the lottery.

For example, when three Powerball winners split a $448 million prize in 2013, they didn’t individually collect a third of that jackpot – roughly $150 million. Instead, the federal government first applied its tax rate of 39.6 percent

to the winnings. Many states also tack on their taxes to the remaining total. Each winner in this example was left with about $90 million dollars – hardly a bad pay day.

Another downside is temptation — the financially illiterate may squander the funds all at once or not invest it properly, leading many lottery winners to bankruptcy or a financial loss. In 2002, West Virginia lottery winner Andrew Whittaker took a $170 million lump-sum payout and was robbed several times. Now, at 70 years old, Whittaker still has to work to pay his bills. In another example, 1981 lottery winner Lou Eisenberg is now living on his pension in a trailer because several divorce settlements separated him from his $5 million winnings.

Category: Annuity

Similar articles: