Annuity vs. Lump Sum

Why Not Both? The 3RD Option by NuPoint Funding

Annuity vs. Lump Sum: Why Not Both? The 3RD Option by NuPoint Funding

In most cases when you win the lottery you are presented with two options on how to receive your lottery prize. 1. Take the discounted lump sum or 2. Take the annuity paid over time. But what if there was a 3rd Option. One where you get the best of both worlds; some money paid up front and some money paid over time with installments. But let’s begin by exploring the first 2 options first.

Nupoint FundingIn option 1 you would receive the lump sum all at once. This is the total cash available from the ticket sales for that particular game. Sounds like a great way to go, right? For some, it may not be. First, we have to understand that the lump sum is not equal to the advertised jackpot.  The advertised jackpot that we see on ads and banners is the total payments one would receive if they chose to have the win paid over time, sometimes 20 to 30 years. Remember the lump sum is the cash available from the ticket sales for that particular game. It is not what is advertised by the lottery. In this payment option, you would receive the lump sum today and would face a very significant tax bill. Now, most lotteries will have some amount of money taken out for taxes but a very large win would still leave the new millionaire with an additional tax burden due the following year. That is the same for both federal and state taxes. In summary, the lump sum is a reduced dollar amount compared to what is advertised and it also has to have taxes taken out of it. Another tax bill may follow the mandatory withholdings for large wins. Bottom line, you are not getting what you thought. Now let’s look at the annuity option.

In order to create the annuity option, the lump sum (total cash available from ticket sales) would be invested. This investment would create interest that would become the payments over time.  This is how a winner would receive the advertised value of the game. But the catch is that you don’t get it all at once. For many, this payment plan is hard to swallow. The future value of the jackpot is advertised to garner more interest but in truth, that future value needs time to grow. It’s the same as a realtor selling you a house today for a price it would be worth 30 years from now. Most lottery players are not looking for a payment plan. They want to feel like a lottery winner and that means big a payout now. Unfortunately, as discussed above, both options come with drawbacks.

Fortunately, there is a 3rd Option. Most winners would choose a combination of the two options. A portion of the lump sum paid upfront along with the security of getting payments over time. Here you can choose the size of your lump sum. You would have less of a tax bill than the full lump sum as well. You would also have the security of having payments coming in over time. The best part about it is that you can customize this option to meet your specific needs. The 3rd option is actually many options to receive your lottery win the way you want it. It is the best of both worlds. Get a lump sum and payments.

Contact NuPoint Funding for more information about how to claim your lottery prize.