Tax rates, which currently are the lowest in decades for the top tax brackets, also could increase over the next 30 years, and more of your winnings then would go to Uncle Sam rather than into your pocket. Pros: Taxes favor taking the lump sum because rates are so low right now. In 25 years, who knows? Reasons to Buy an Annuity. Current Rates. Immediate Annuity Calculator. Structured Settlements View Subpages. What Is a Structured Settlement? How They Work?
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Powerball offers winners a lump-sum payout or an annuity option where the payout would be distributed over the course of 29 years and 30 payments. The Mega Millions also offers lump sum payouts and annuities, however the distribution of the annuity is slightly different. With a Mega Million annuity, you are offered the initial payment upon winning and then the remaining balance will be paid out over 29 years, with each payment increasing five percent yearly.
Which is better? There is no right or wrong answer here, but really a matter of preference and spending habits. Consistent income: Taking home the annuity option guarantees that you will have a consistent stream of income for the next 30 years, meaning that it is easier to manage your winnings and not blow them all at once. The guilt free option: Winning the lottery typically comes with some associated expectations from friends and family in terms of being given a portion of the pot.
With the annuity payment option, the pressure to offer hand-outs is not as likely given that the initial and subsequent payouts will be of a smaller quantity than the full jackpot.
Guaranteed self-control: Not everyone possesses the same amount of self-control when it comes to spending habits and it's not rare for lottery winners to run through their winnings within a few years. Fluctuating taxes: While tax rates may be low when you accept the annuity, there's no crystal ball that can predict the future of the economy.
Tax rates could increase exponentially over the course of your payout meaning your ultimate payout would be much lower than if you accepted the lump-sum.
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