Should you take the Annuity option or the Cash alternative?
Most of regulars that I have talked to have already made up their minds about this. But newbies may be taken aback by the query of the teller as they ring up your lottery numbers. Would you like all the money lump sum? Or spread across the many years of your life? This is more difficult to answer as you dig into the details but basically it depends on how you intend to live out your post-winning life.
Take the Cash and Run
Lets use Mega Millions as an example but keep in mind every lottery is slightly different in terms. Let’s say the you alone won $60 million. The approximate cash value would be ~$32 million going into your bank account. That be AWESOME! But not so fast. The US government treats buying (and subsequently winning) the lottery as a job and you will be taxed for that income. You would have to pay about half in taxes for that year! This leaves you with a cool 15 million in your account. Not the price advertised, but not too shabby either. Taking a modest 3% yearly return on your investments after taxes would give you $450,000 per year to live off of for the rest of your life. And you can pass down that legacy for years to come. After 26 Years, you would have earned $26.7 million (after tax) following this plan.
Taking the Annuity
Now let’s say you took the more prudent approach and would like the winnings to come in yearly installments. Well in this example, you would get $2.3 Million per year for 26 years. Again, about half of that when considering taxes. Still, this leaves you with $1.15 Million after taxes. Taking this route, you would have earned $29.9 million after 26 years.
So what to do when the cashier asks cash or annuity?
Personally, I’d go for the cash. And I am not alone, the overwhelming majority of fellow lottery players take the lump sum.
The most important thing is to make up your mind before making the purchase. We don’t want you holding up the line