Thursday, October 3, 2013

The Pros and Cons of Taking a Lump-Sum Payout after Winning the Lottery

After winning the lottery, you will often be presented with two options of how to receive your winnings. You can either claim your winnings in one, lump-sum payout, or as a structured settlement, receiving the payments over a set period of time. There are pros and cons to both options, so make sure you explore each and know which is best for you.

Lump-Sum Payout
A lump-sum payout is a one-time payment of a partial or total value of an asset. In the case of lottery winnings, this option would give you one immediate payment of your total lottery winnings, after taxes have been taken out. For some, this is an attractive choice, but it also has some disadvantages. Here are the pros and cons of taking your lottery winnings as a lump-sum payout:

·        You get more money upfront, immediately.
·        You can invest your winnings.
·        You can spend however little or however much you want to at any time
·        Easier to spend all of your money quickly and unwisely.
·        May become a target for friends, family, charities, media and anyone else looking to get some extra cash.
·        You will pay more taxes than if your winnings were taken as a structured settlement.
·        You must pay taxes, immediately, on the entire amount of your winnings.

Structured Settlement Payments
A structured settlement is a legal settlement paid out as an annuity rather than in a lump sum. It is often used to settle wrongful death or personal injury lawsuits, but it can also be used in the event that you win the lottery. Here are the advantages and disadvantages of receiving your lottery winnings as a structured settlement:

·        Payment schedules are flexible. You can schedule payments for almost any length of time, beginning immediately or in the future.
·        Guaranteed income.
·        It provides beneficiary protection. In the event of the recipient's premature death, the contract's beneficiaries can continue to receive future payments.
·        You can sell your annuity in the future, if you decide you need more money at a given time than what your regular disbursements provide.
·        You can withdraw from an annuity early, but some fees may apply.
·        You are only taxed as you receive each payment.
·        Once the recipient agrees to the terms and conditions, they are stuck with them. Terms and conditions cannot be changed.
·        Since the funds inside an annuity account may not be accessible, they are not available for purchasing other types of investments.

One of the most important decisions you can make after winning the lottery is deciding how the money will be given to you. Make sure you understand the advantages and disadvantages of taking a lump-sum payment or a structured settlement before making any final decisions. You could be dealing with a lot of money, and it is important to take care of it.

About the Guest Author
Kaitlyn Fusco is a content writer for She combines her interests in writing and overcoming debt to inform the public about issues related to credit, debt, annuity and personal finance.