Winning the lottery can change your life. After the initial euphoria subsides, you begin to think about the first major decision you have to face, “Do I take the lump sum or annual payments?”
The answer depends on a mathematical question and a risk premium question. Do you think you can do a better job investing your lottery winnings than the lottery commission can? When you choose annual payments, the lottery commission is investing your money. They guarantee you that you will earn a certain amount of money each year over the life of your payments.
They are banking on the fact that they can invest lottery premiums and earn a better return than you could on your own. What you may want to do instead is take the lump sum and hire a professional to invest the money for you. Any competent professional should be able to earn significantly more than the lottery commission can.
If you change your mind about receiving annual payments, selling lottery winnings may cost you dearly.
However, some people decide that they just don’t trust themselves with all that money at once, so they choose the annuity payment. They mistakenly think that by taking the money in installments, they will not be tempted to spend it all and will do better that way. Unfortunately, taking the annual payments just means that for the next twenty years, companies will incessantly bombard you with offers to sell lottery payments for cash.
These companies will pay you in one lump sum a significant part of what your annuity payment is worth over time. Sometimes, even if you have no other alternative, selling lottery payments may turn out to be something you’ll regret later. You may find that even though you have your money coming to you over time, plenty of companies will extend you credit knowing you will be paid out or you will over commit on investments knowing that the money will eventually come to pay it off. However, trouble will always find a way to find you, if it can!
You can do so much more with a lump sum now than with annual lottery payments.
That’s the beauty of taking an initial lump sum payment. If you win the lottery, take the lump sum payment. Hire a professional and invest it wisely. That way, you are in control of your own fortunes. You can control where your money goes, where you invest it and how much risk you are willing to take.
Companies will not hound you to sell lottery payments, because you will have already cashed them in. Once you control your own money, you can set up safeguards like investment vehicles that mature over time or long term investment options that lock your money up for years. These tools will keep your money working for you.
Winning the lottery will change your life. Just make sure it’s a positive change!
