Lump Sum or Annual Payments?
This question is as important for a major lottery winner as finding the right money management team.
In most cases, taking a lump sum means getting a smaller payout than you'd get from an annuitized arrangement where the state or lottery corporation pays your winnings in yearly installments. So why would you go for less with a lump sum? Seventy-five percent of all winners, including the Castellanos, opt for the lump sum [source: Sockman]. It simply makes more sense: Annuitized payments include the roughly 5-percent interest the state earns on the bonds it takes out to guarantee your winnings. Most lottery winners bet they can get a better rate by investing the lump sum.
Dying shouldn't be an issue in your decision. Lottery winnings -- annuitized or lump sum -- become part of your estate, so your heirs will receive payments [source: California Lottery]. Arranging this properly is yet another reason to hire a tax attorney and accountant.
Other questions include whether you feel you can trust yourself to not squander your winnings. This may mean you're better off with annuitized payments.
- Bankrate. "8 lottery winners who lost their millions." MSN Money. Accessed June 13, 2010.http://articles.moneycentral.msn.com/SavingandDebt/SaveMoney/8lotteryWinnersWhoLostTheirMillions.aspx?page=1
- Bankrate. "You've won the lottery! Now what?" MSN Money. Accessed June 12, 2010.http://moneycentral.msn.com/content/banking/p43409.asp
- Bloom, Autumn. "10 tips for how to handle a big lottery win." Associated Content. September 27, 2007.http://www.associatedcontent.com/article/392347/10_tips_for_how_to_handle_a_big_lottery.html?cat=3
- Business Pundit. "10 people who won the lottery - then lost it all." September 9, 2009.http://www.businesspundit.com/10-people-who-won-the-lottery-then-lost-it-all/
- Castellano, Al and Castellano, Carmen. Personal interview. June 1, 2010.
- Glionna, John M. "Lucky in love, lucky in lotto." Los Angeles Times. June 30, 2001.http://articles.latimes.com/2001/jun/30/local/me-16965
- Hispanic Foundation of Silicon Valley. " Hispanic Foundation of Silicon Valley announces recipients of 2009 La Familia Award." September 16, 2003.http://www.hfsv.org/press-3.html
- Jaffe, Charles A. "2004 Winners Handbook." California Lottery. 2004.http://www.calottery.com/pv_obj_cache/pv_obj_id_B1A6400140CA263B2798707CEFF74058975E2500/filename/2004WinnersHndbkfinal.pdf
- Winter, Deena. "Financial planners: Winning the lottery isn't always a dream." Lincoln Star Journal. February 26, 2004.http://journalstar.com/special-section/news/article_ecba141b-3e59-5914-a321-38b4adb20733.html
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