Is a Lump Sum or Annual Payout Smarter?
Is a Lump Sum or Annual Payout Smarter?
August 31, 2023 By Nicole Spector
Lottery Winners Could ‘Make Bad Decisions,’ Says Financial Advisor — Is a Lump Sum or Annual Payout Smarter?
Lottery jackpots can reach epic heights. Case in point: the Mega Millions jackpot that surpassed $1.2 billion after the Tues, August 1 drawing. Someone (or some people) will win eventually, and the burning question for them will be, “What will you do with the money?“
The better question may be, “How will you safely and effectively manage this money?” Unfortunately, lottery winners are notorious for making poor decisions with their winnings. Some people have even ended up in even worse financial shape after landing a jackpot than they were previously. Where did things go wrong? It may have all started in the way they accepted their winnings: Lump sum (meaning getting all the cash in one fell post-taxed swoop) or taking an annuity, where the winnings are distributed over a number of years.
“It’s the most important financial decision you’ll ever make in your life,” wealth planner Robert Pagliarini of Pacifica Wealth Advisors told The US Sun. “Right off the bat, you’re making a life-changing decision that you cannot change your mind on.”
Pagliarini added that by taking a lump sum, “The advantage is they get to control the funds now, but that’s also the biggest disadvantage.”
Once you get the lump sum, you’re forced to manage a possibly unbelievable windfall in an instant. This means if you’re not making every financial move 100% correctly, you’re putting as much as your entire new fortune at stake. Unless you have an army of smart financial experts and lawyers at the ready, an annuity may make the most sense.
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