Would you take a Lottery Lump Sum Payout?

The multi-state Mega Millions lottery game holds at $266,000,000 (at the time of writing this post). If you became the lucky recipient of the Mega Millions (or Powerball), would you take an annuity payment or a lottery lump sum payout?

If you take an annuity payment, for the next 26 years you’re looking at about $39,500 for every million dollars won.

If you take a lump sum payout, payment varies state to state. For the sake of this article, we will consider taking a lump sum payout.

Because according to Craig Wallace, a senior funding officer who buys annuities for lump sum payments, states that its a better choice:

“People are far better off taking a lump sum and investing it than taking the annuity. It’s bad for my business, but it is definitely the way to go.

“If you choose the annuity, what you’re choosing is a fixed amount of money a year for 20, 25, even 30 years down the road. In some states the money will escalate somewhat. For example, in Colorado, the money grows at 3.7 percent a year on a 25-year payout. In Florida, the payments are stretched out for 30 years, that’s the worst in the country,” he says.

“You are subject to a change in the tax rate. You know what the tax consequences are now, but you don’t know how it will change. The value of your money decreases over time. I wouldn’t take that bet.”

“Take the lump sum. That’s definitely the way to go. You’re better off investing the money and taking charge of your own destiny.”

You’re the Winner

If you take a lottery lump sum payout, you are looking at a cash value of $165,200,00 (for this particular drawing in the state of CA).

*Woosh* That’s an overwhelming amount of responsibility. Do you know how you would handle that amount?

Don’t end up like these winners

  • Suzanne Mullins won $4.2 million in the Virginia lottery in 1993. Now she’s deeply in debt to a company that lent her money using the winnings as collateral.
  • “Winning the lottery isn’t always what it’s cracked up to be,” says Evelyn Adams, who won the New Jersey lottery not just once but twice (1985, 1986) to the tune of $5.4 million. Today, the money is gone and Adams lives in a trailer.
  • Ken Proxmire was a machinist when he won $1 million in the Michigan lottery. He moved to California, went into the car business with his brothers and within five years, Ken had filed for bankruptcy.
  • William “Bud” Post won $16.2 million in the Pennsylvania lottery in 1988 but now lives on his Social Security.

Play it Smart

As a personal finance blogger or reader, you are hopefully implementing the steps to become a financially independent person:

  • Not Spending on Impulse
  • Paying down debt
  • Building an emergency fund to cover 6 month’s worth of expenses
  • Investing in your 401K or Roth IRA
  • etc…

Those things don’t stop if your win a large sum of money. If you decided to take the lump sum payout then you may also need to consider hiring a Certified Financial Planner to help you manage such money.

What to spend it on

If you are a regular reader of my blog, you know it drives me bonkers that my husband spends $10 per week on lottery tickets. And we had that discussion again this morning. I ranted that for, ‘someone who thinks they are financially saavy… you could make a lot more saving and investing that $10 per week’. His response, ‘there is no gaurantee that a business is a safe investment either. Especially in this economy.’

It’s his little bit of joy to dream upon in life. I just chose to give him a hard time about it. πŸ˜‰

And he has his ongoing list of how the money would be spent: a ranch house, a big European vacation for his wife, a truck & bass fishing boat, and to help certain family members.

What would you do?

So as the lucky recipient of Mega Millions lottery winnings, would you take annuity payments or a lottery lump sum payout? And what dreams would you secure with your winning?


44 thoughts on “Would you take a Lottery Lump Sum Payout?

  1. Cheapskate Sandy

    I’ve had this very discussion with BF many, many times. We too would take the cash payout and invest very conservatively. We planned to live off the interest after making some purchases.

    1) Savy, trustworth (oxymoron) CPA at a major investment bank
    2) Pay off all bills
    3) A home somewhere, probably Florida, Delaware or Colorado
    4) Rent the current home out
    5) Two major franchise on two ends of the spectrum (i.e. McDonald’s vs. GNC)
    6) Set his mom up with an annuity for her to live off
    7) Do the same for my parents
    8) College funds and trusts for any kids we might have
    9) One luxury car for BF
    10) One family SUV
    11) Trip to Europe
    12) Trip to Asia

    I’m pretty cheap and so is he but we agree on everything above in that exact order. We would NOT lend money to a bunch of family members because we know that once you open that door you can never close it again. The franchises would be income streams for the both of us and we would hedge losses by having a fast food place versus a health food store in case people’s tastes shift from one to the other.

    1. money funk

      That it is a great list! I like the annuity for the parents. And I hear Subway is a very good franchise to open (they are so yummy, too). Something to consider.

      I just wonder in the face of 166,000,000 we can hold to our financial values. That’s a LOT of $$$$. πŸ™‚

  2. Mom

    I would buy myself and each of my daughters a home, also one for my ill brother, travel and invest the rest. I would love to have a home so I could make a wonderful jungle of a garden, gardening in pots on a patio just doesn’t make it. I want a peaceful, overgrown sanctuary.

    1. money funk

      I would love a quaint home (not too big) but with an awesome outdoor living area. It is good to dream. Never know, it is always a possibility it could come true.

  3. Evan

    There are always shows that highlight the lottery winners who lose in life, but what about all those that win and they just go on living? or do great things.

    I want those stories!

    When I do play the lottery, its weird I never think about winning the jackpot. Rather I dream of winning 50, 100, 250k because it seems more realistic.

    1. money funk

      I think the same way. That maybe I will be one of those that comes in a winner minus the mega number. I’d be okay with that, too. Let me see if I can dig up some positive lotto stories. It would be good to hear some successes.

  4. Mom

    I forgot to add that it will never happen to me as far as winning the lottery, I never play it.

    1. money funk

      Of course, that is if you invest in your luck! I only play if is a rather significant amount to win. This was one of them. πŸ™‚

  5. RainyDaySaver

    We only play the lottery when the jackpots go over $100M (we have both MegaMillions and Powerball now in NJ, lucky us). I used to think the annuity was the way because you get more money, but there’ something to be said for getting the lump sum and investing it — I bet you could make up the difference in payouts.

    1. money funk

      Hear ya there. I do the same (as my husband fills in the rest :)). Being a bit more financially savvy than a lot of peeps, I bet the rate of return good be more positive. Maybe I’m just uncomfortable with the government holding my money. It runs the same argument as getting a big return during tax season – that it’s the government holding your money tax free.

    2. Futri

      We own our home right now, but I think I enjoy rneitng too. Especially given that we move every 3 or 4 years (military). I am thinking I don’t want to own again, if we can even sell our home.

  6. Aaron @ Clarifinancial

    Statisticians call winning the lottery a “good consequence from a bad decision.” While it’s true businesses aren’t always good investments, it’s pretty certain the lottery always is.

    I have to put up with this some too Christine. Whenever we go to Vegas, my wife gambles a dollar. Then I take a picture of her loosing a dollar – it’s kind of funny. It’s not that I don’t like to have fun, it’s just that loosing money is not fun to me.

    My investments are up. I’ll put my dollar there and then go do something I care about.

    1. money funk

      I’ve only been to Vegas a handful of times (even if I am not that far away) and I have been fortunate to always come back even. Thus, the trip has been free due to slight winnings. πŸ™‚

      But for the most part, gambling bores me. And I put a set limit of $200 for a weekend to blow at the machines. Gotta let loose a little.

  7. Aaron @ Clarifinancial

    Oh, I’d either take the annuity option or design something similar for myself with the lump sum. Creating psychological barriers on purpose can be a good thing. I’d probably talk with a CFP (among other advisors), but it’s more important to me that they are fee-only than they have a fancy designation.

  8. Abigail

    In the unlikely event that I won — apparently you have to remember to buy a ticket to win, who knew? — I would definitely go for the lump sum. At some point my mom and I talked about it when I was growing up and she said that, if she ever did magically win, it made more sense to take the lump sum.

    It’s the whole Present Value of Money equation that you have to deal with in accounting. $1 in my hand now is better than $1.50 in my hand in a week. Usually, anyway.

    I’d pay taxes first, because I’m boring.

    Then, I’d pick a moderately nice house — nothing too big because you only need so much space.

    I’d also buy my mom a house wherever she chose, though it’d probably be Seattle.

    I’d buy my cousin a house, since she’s actually just announced she and her husband are filing for divorce. Then I’d set up college funds for her two kids.

    I’d put away a whole bunch for retirement, of course, and set up some college funds for kids we would have.

    My husband would get his dream car(s): a mustang, a challenger and a camaro. I still wouldn’t buy a ferrari or tesla or lotus though. It’s just silly to spend that much on a car.

    I’d probably spend a lot of time traveling with him and enjoying the exploration of our world. Oh, and we’d have a personal cook because I really and truly hate the pressure of worrying about what we’re going to eat.

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  11. Brandy

    We did win some money. several hundred thousand. we took the lump sum. we paid the house office (that took most of the winnings) and paid of our cars and all debt left. We are now debt free. we made a couple improvements to the house, new windows and doors. Ill keep playing to win again.

    1. money funk

      Wow, that’s amazing! Congratulations! And thank you for the Lottery success story. It’s great to hear. Ah, to be debt free… sweet!

  12. Money Reasons

    Hmmm, I think I would put at least half of it in quality bonds of some sort (maybe Municipal Bonds), then live on the interest from that… Then a smaller percentage in some in gold, real estate, etc. I might even put 1 million or 2 in stocks…

    I think I would take 2 million and blow it on vacationing, larger home, Pool, nice cars, college education for my kids, and a Harley motorcycle! Heck I might even consider a reasonable priced country club membership (if they would have a kid friendly pool and a decent golf course).

    Nice dreams, great distraction!!! πŸ™‚

    1. money funk

      It is a great distraction. Agreed. πŸ˜€

      And two mil would be pennies on the dollar. I worry about managing such discipline with a large sum of money. I always wanted a Swiss bank account (just to say I could have one). Unfortunately, there is so many stipulations against the US securing one.

  13. Simple in France

    Hah! I had a couple of friends where the wife put aside an equal amount of money to what the husband spent on the lottery. Then she’d treat herself to something to show him how the money added up. . .

    I suppose a lump lottery sum would be worth it. But no, I wouldn’t take out a loan on the winnings. Um. . .that kind of defeats the purpose!

    1. money funk

      Oh, that’s a great idea. I will need to put the matched $$ aside, too. That’s just like smokers, if they matched the $$ they put into buying cigarettes, they’d be rich. Probably goes for Starbuck coffee drinkers, too. πŸ˜‰

  14. Flexo

    Well considering I don’t play the lottery (except for a few years ago on really big payouts when someone from my office collected for tickets), this is a problem I’ll most likely never face. I would take the immediate cash payout and invest part of it and probably use the rest to start a foundation. Maybe buy a house…

    1. money funk

      A foundation… what sort of foundation?

      I wouldn’t mind buying a small, quaint house with lots of charm. And then maybe a cabin in some quiet mountain community as my vacation home. πŸ™‚

  15. Ryan @ Planting Dollars

    I’d give it a year before I decided to do anything with it other than leave it in a secure investment source such as bonds. Then I would ask the advice of people who are a lot smarter than me, perhaps buy a lunch with Warren Buffett to discuss the issue.

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  17. Forest

    I don’t bother playing lotteries… I guess I can’t be bothered to allow myself to be on that emotional rollercoaster of eagerly waiting for numbers to plop out of that big machine.

    I guess I would get the lump sum, throw it in a savings account and try to live off the interest… It’s unlikely I would work for a living but I would work (for free) for causes that I care deeply about.

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  19. Jessica Bosari

    LOL! I find myself going over this pipe dream all the time. First off, I know I shouldn’t be buying lottery tickets because you may get back 50 cents for every dollar you put in. If you’re outrageously lucky enough to win, clearly getting payments over time is smarter, but I can’t help but think I’d want to take the lump some to use in some enormous dramatic improvement project for my neighborhood.

    1. Money Funk

      Oh, I like that last part, ‘drastic improvement project for my neighborhood’. Nice thought.

      I’ve heard a couple of stories where people improve the neighborhood with plants or someone improves their lot only to start a chain reaction with neighbors. And that those neighbors actually began to fee safe in their environment Especially because the cops took notice and increased their protection. Maybe it just took someone to care to bring out that a lot of people cared…they just didn’t know how to step it up.

  20. ELGIN

    As the lucky recipient of Mega Millions lottery winnings, I am so thankful to say that im gonna go ahead and take the lump sum payout and
    1. Buy my mom a new car
    2. Give %10
    3. Have fun and celeberate
    4. Invest and Save
    5. Go shopping
    5. Give some money to my family.
    6. Be thankful and go for the Lakers.

    1. Christine Post author

      That’s a great list! I would love to buy my mom a new car, too! And a nice small house where she could garden.

      Now, don’t forget to make a list of which investment vehicles you would use, so that when you do win… you’ll be set for life. πŸ˜‰

  21. David Hutchinson

    The lottery is a great thing because even if you lose the minutes before the drawing you feel as if you have a chance at winning. Pyschologically it probably is a good thing giving folks the Messianic hope of winning and you’ve invested only a few dollars to possibly win. Remember you’ve got to be in it to win it. I never spend more than 8.00, 4.00 on Mega Million and 4.00 on Powerball and pick random. If you’re going to win, you’re going to win. My life is so financially messed up and personally messed up I’d think very carefully about what I would do with a lottery win. I’m pretty stingy though. For sure I’d take care of myself first then take care of other folks. Also I’ve tried poverty and don’t care for it so I’d make sure the money would last. Can you have your lump sum on a debit card? Annuities scare me because the state of the US economy would make me think you won’t get paid someday or the value of a dollar tommorrow will be much less than today. taking that round the world trip will quickly deplete your funds.

    1. Money Funk

      Thanks for you comment, David. “My life is so financially messed up …” might it be a wise choice to stick that $8.00 per play into an emergency fund? or to pay off some debt? Of course, that would come in more if you play that amount weekly.
      Because once you start saving up for an EF, you start finding more opportunities for putting money away… before you know it, you have a sizable EF and you’ve paid down a lot of debt. Well, that’s how it went on paying down my debt. I need to update my debt bar… but I am happy to say that I will be in the positive net worth first time in my life this year.
      As for annuities, I totally agree with you there.
      Best of luck winning the lottery. πŸ˜‰

  22. The Flyin' "B"ster

    This weeks powerball is expected to top $105 Million. I will probably clear ~$48 Million after tax lump sum payout.

    $10M Rescue Foundation – assist natural disaster victims regain some dignity and hope following these all too common horrific events.
    $5M Family Trust – With a preset $ per family member assistance fund.
    $5M Household Management fund (semi-liquid w/return for value stability)
    $5M new Dream Home in Tahoe
    $2M performance yacht on Lake Tahoe
    $4M Luxury Cruising Yacht in FL
    $3M Colorado Mtn Home
    $1M new vehicles (BMW750Li, Land Rover Sport, Ferrari California)
    $1M Vacation Fund
    $12M in professionally managed investments.
    – And I will continue to build my modest energy business for chump change

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