Annuity vs Lump Sum
Congratulations – you won the lottery! It might seem like you have enough money to last the rest of your life. However, winning the lottery is not the end of your financial journey. First, you need to decide how you will receive your winnings. Winners have two options: receiving the cash in a lump sum or in an annuity with annual payments.
If you choose to receive the money in annuity payments rather than a lump sum, you will receive a fixed payment each year. Many people choose annuity payments to support their long-term financial security. Plus, an annuity helps protect against spending too much at one time. You’ll also earn interest on the annuity balance. However, there’s no financial flexibility with an annuity payment. This can cause problems if your financial needs change.
Common Reasons for Selling Lottery Winnings
When life brings the unexpected, consider selling your lottery winnings for the cash you need. Here are some potential financial reasons for selling your lottery annuity:
- Unexpected expenses from a medical emergency
- Investment opportunity that requires funds now
- Paying for education
- Buying a new home
- Purchasing a car
- Paying off high-interest debt
However, selling your lottery annuity is a major financial decision, so review the pros and cons with your financial advisor.
Options for Selling Lottery Annuities
Options for selling your lottery annuity include full sales and partial sales. With a full sale, you sell your entire annuity. Your annuity payments stop completely.
The alternative is to sell some of your annuity payments. You’ll resume receiving payments once the buyer gets the payments they bought.
Sell Your Lottery Winnings in Four Steps
Get quotes from multiple companies
Accept best offer and sign agreement
Get court review and approval of sale
Receive Cash
What to Look for in Your Purchasing Company
If you decide to sell your lottery winnings, you need to find a reputable company. Before you pick one, check whether they’re licensed and how long they’ve been in business, since age can indicate a reputable company.
When requesting a quote, clarify how long the quote is valid and whether there are additional fees. Pay careful attention to how the buying company’s representatives treat you during the quote process. Are you given time to ask questions? Do the company’s representatives help you fully understand the process? Also, see if the company listens and presents you with multiple buyout options based on your financial situation.
These are signs that the company puts customers first. Some lottery annuity purchasers put enormous pressure on potential sellers. Don’t work with these companies. Remember – you are in charge!
Discount Rate: Why Your Quote is Less than the Total Value
You will not receive your full winnings when you sell your lottery payments. The amount you receive is based on the buyer’s discount rate. This is the price of getting cash immediately rather than over many years. Look for the lowest possible discount rate, though consider other fees and the buyer’s reputation as well. A good buyer will provide a transparent quote and clearly show the discount rate and any other fees.
Final Step – Court Approval
When you officially accept an offer from a buyer, they will arrange a court hearing, which is a legal requirement. You’ll have to appear in court as the seller. During the hearing, the judge will review the terms of the sale and make sure that the transaction is in your best interest.
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