Why Winning the Lottery Doesn’t Always Mean Striking it Rich

According to recent surveys, playing the lottery is currently the most popular form of gambling in the United States. We all probably know friends or family members who purchase tickets each week, or have even been in an office pool when the jackpots become particularly high. While most people see the lottery as an innocent distraction or a fun pipe dream, the truth is that there are winners all the time. What most people don’t realize is that once the prize has been won there are important decisions to be made about the future, many of which depend on your current financial situation. With state lottery payments hitting all time highs, do you know what your options are when it comes time for you to receive lottery winnings?

Selecting a Lottery Annuity

When receiving your lottery winnings you will be given a number choices for collecting your money. One method is in the form of annual payments. This method stretches out your lottery winnings over the course of several years, depending on the size of the jackpot. One of the advantages of receiving your lottery payments in this form is that it reduces your up front tax liability and gets you the most money in the long run. One of the the downsides of a lottery annuity is that if you are in dire financial straits then it can take a while for your payments to begin.

Choosing Lump Sum Lottery Payments

For those who do not have the desire to stretch out their payments over the course of several years, or even decades, accepting a lump lottery payment might be the way to go. With the lump payment you will not be receiving the entire amount of your prize due to state and federal taxes on your prize. While the overall prize might be less, it still can be helpful to those with large amounts of debt.

Planning for the Future

It’s important to consider that money is rarely an easy answer. Without a good financial plan your financial windfall can quickly turn into a burden. Some things to consider when deciding how to receive your prize:

Taxes: Regardless of your choice, your prize will always be taxed. Depending on your municipality these taxes can subtract from your total winnings significantly. Any subsequent payments can be subject to later taxation as well.

Estate Planning: If your are an elderly lottery winner than planning what will happen to your prize after your death is especially important. It may be necessary to make amendments to your will to insure your prize is appropriately distributed to your family and friends

We all have dreams of hitting that big jackpot, but until that day making sound financial decisions, based on reality, is the best way to insure a comfortable, if modest, future. If you need help with your finances, consider consulting a financial advisor. Depending on your situation, there are many services that can offer free consultations.
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