What If You Won the Lottery? – Money Mailbox

by David@MoneyNing.com · 56 comments

Most people dream of winning the lottery, but most people underestimate the impact of such a extraordinary event. Whether you are ready or not, cashing the winning ticket is almost certainly a life changing event.

A couple weeks ago, our family decided to try our hands on a lucky game called the lottery. It was fun. After all, the jackpot was over $100 million dollars. I don’t know about the others, but I had a few dreams of my own that I wanted to fulfill. Of course, we didn’t win, but while looking at the options of cashing out, I noticed that you could either cash out in full, or get multiple annual payments for the next 26 years.

Many of you probably talked about this amongst your friends before, so I’m curious to know. Would you take the cash, or would you take the 26 equal payments over many years?

The Numbers

Perhaps $100 million is too high of a number, because picking either option gives you too much money (and therefore, choosing almost doesn’t matter). What if the jackpot was a more modest $12 million?

I checked the Mega Millions website, and they showed an example with such a number. Either take $7,042,000 all at once, or take $461,538 a year for 26 straight years. Both sound good right now I’m sure, but what if you actually had the option to pick just one?

Would you take several hundred thousand dollars up front, or would you take a very high paying job for the rest of your working life (if you decide to still work that is)? Oh, and before you answer, note that taxes will need to be taken out of both numbers, so only roughly half will actually be yours.

How I See It

I remember this exact conversation amongst our family before. Without much thought, I said I would like the money up front. $7 million dollars. I’d be set for life, and buy pretty much everything I ever wanted. Having cash in my hands is also much more flexible, and money right away, even though a smaller amount, seemed like a no-brainer.

Fast forward to today though, and my answer is different. I would take 26 payments of over $400k in a heart beat, even though it’s probably not the more popular choice. The reason is simple. Choosing annual equal payments ensures that my family is set for life.

Can you imagine getting $7 million dollars all at once? We all have dreams, and a large sum of money is too tempting. I know that if I have $7 million dollars pushed to me, I will probably buy a very luxurious car, and might even change my house without regards to the fact that I just purchased a home (actually, I haven’t even moved in yet.).

I might still get the same car with $400,000 a year, but I know that as long as I don’t borrow any money, I can splurge and be irresponsible all I want and I will get another $400,000 in a year.

Selfishly, $7 million up front is better. I can use the money to invest, or really try to grow my business. There’s a good chance I can significantly grow this figure, but what if it doesn’t pan out the way I want it to? Life can throw curve balls at you at anytime without warning. For my family, the 26-payment option is the more selfless thing to do. $400,000 a year for over two decades pretty much guarantees an extremely comfortable life for them. It’s definitely not as flashy, but boring is pretty good. Nothing wrong with that.

How about you? Leave your comments, and come on over to the site to read what others think too.

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{ read the comments below or add one }

  • Tim says:

    I know I would hate the idea of waiting a year for my annual payment and wondering if I’ll be alive to see the next one as I get older. I’d lump sum it and shoot my cash into a safe investment fund or some different banks, buy a couple of fun but not too lavish sports cars and a reasonable home where the annual tax bill is under 10% of my yearly harvested interest. The rest of the interest would be for the wife and me to live comfortably and never have to work again if we didn’t want to.

    It surprised me when I did some numbers on this – with today’s petty interest rates I’d actually have to have around 12 million USD in my account in order to have the same standard of living as I have today from our two working incomes. So I’m crossing my fingers for at least that amount if I ever beat the ridiculous odds of the lottery. Although I’m sure half that amount would be pretty cool too.

  • connie lee says:

    I want to no if I catch the lottery for 100 million dollars and I am seventy year old will have to pay taxes on the money?

  • stephanie says:

    I’d take the whole amount, I’m single and have a terminal illness and I would want to make all my dreams come true before I got really sick. I would educate myself in areas that could benefit me. Take a trip buy a nice car & house and just be happy and live for god. I hope I win.

  • Lori says:

    You don’t make sense, Tim. You’d repossess some poor person’s car. That’s not really helping someone out. Maybe you could pay to help them keep their car.

  • tim says:

    I’d start a towing/repo business and I’d do a lot to help others.

  • Lori Vattes says:

    I am 50 years old on December 4, 2013. I would take the whole lump sum at my age. The woman sitting in back of me at work won the Lucky for Life lottery a few weeks ago. She is still working. I would not work. I would hate the feeling of taking a spot of someone who really needs a job.

  • Marty says:

    What happens when a lotto recipient dies during the income stream option???? Does the income stream continue to the heirs? Does the remaining balance forward to heirs or does the insurance company keep the balance???? Does anyone know?????

  • Ms. Green says:

    I would take the full amount because lottery is not promised tomorrow. I would increase my life insurance policy to leave to my family, give my family, church, friends and co-workers a few $$$$. I would take an old building and convert it into a place where all the homeless can live, but they must get some type of job within a year of their lease that allows them to pay only $0.00 to stay and they would be responsible for paying light, heat and water as a group. I would pay the taxes and maintain the upkeep on the place and they could only stay if they plan to change their life to make it better. I would purchase another old building and design it from myself with underground parking, purchase my boat. Invest in some stock, by contacting my old boss who was very good at this. Then I would also do a lottery myself, for the state of michigan, by going on TV and setting up a bank account with good old Comerica Bank to allow people to enter in for $1.00. I would need their name, number and address and it must be right, if I can’t reach the person who won, I would announce the winners on TV so that they would know where to come to get their winnings. The 10 winners would received $10,000.00 and the money from the entree would go toward the next year for the same raffle to allow 10 people be a winner every year along with me. Basically sharing the wealth and allow the entree money to gain interest an allow more winners each year. The anniversary date would be the day I won to remind me that God blessed me to bless others. How long would I do this, as long as we can have people enter and there is money in the account to do this. Yes, I have been thinking about this for a long time and I believe it will happen, so come on big jackpot.

  • david says:

    One more thing before leaving for work (now 6:00am). someone asked how many people actually play lotto. I for one always talk about it like I talk about having a drink after work. Perhaps twice a year which would still make a lottoholic I guess. When I do I always feel guilty My parents words always play in my head “Nothing in life is free and your father worked for a million years at a job that he hated so you need to do the same…”

  • david says:

    I actually went looking for this site this morning and I’m more confused then ever. I know winning is just a dream but those dreams help me soldier forward. I’m over 50 and I’m working for a large retailer that puts children in charge that have no work experience. So continueing to work seems absurd to me. Perhaps it would be best to include my family at the start when going to cash it in. I mean split it amongest myself and the 3 kids. then for myself take the lump? I’ve been taking my lumps for years anyway.

  • george says:

    First thing first I would buy great life insurance. Then I could spend all the money in fancy cars, unprotected payed sex and drugs. So if I die before I spend it all from hiv or overdose, then my family would collect the life insurance. If I outlive my money then I did something wrong and I deserve to die poor but my family would still get the life insurance.

  • scott says:

    I live in Oklahoma… I’d first have my lawyer draw up a blind trust so nobody would know I won, unless I told them. Second, I’d take the annual payments. That way, I don’t blow too much on a bad decision all at once. The first annual payment would pay off all my debts, including the nice home my family is already living in, even after giving my tithe to my church. I’d get newer vehicles for my wife and I. I would set up several accounts that paid certain yearly expenses, such as property taxes, utilities, etc. with the interest accrrued on the account. That may take a couple of years to build those accounts up to a point where they are totally self-sufficient, but…..hey, I’d still have about 23 more yearly payments left. I would definitely want to support several good causes and support several churches where I personally know and trust the pastor.
    I would want to make sure I have accounts set up for my kids college or technical school as well as for my grandkids.
    I think the key, whether you take the lump sum or yearly payments, is to make sure the money works for you. Invest, Invest, Invest….live on interest. Yes, either way you will have plenty of money to blow on those frivolous things you will want to do from time to time, but make sure you don’t blow it all too quickly.
    Remember, a FOOL and his money are quickly separated. Invest in something that is going to keep paying you. Invest in real estate, such as rental properties….they will continue to make money, regardless of whether or not the housing market is up or down.
    Keep working, if you’re young. If you’re older and already retired then make sure you set up some irrevocable trusts so nobody else just blows the money once your gone….
    Winning the lottery would be a once in a lifetime event, if you even got the chance to win at all. Don’t be stupid and blow it. Make the most of the opportunity. Hire people who know how to help you and have been successful themselves. Don’t be afraid to spend a little money to get a good financial educational crash course before you squander the opportunity of a lifetime….the opportunity apparently, millions of people are trying to get every week, $1 at a time.

  • John says:

    I don’t know….I think it would depend how much money I got up front if I took the annual payments. I would assume they would take the total winnings and divide it by 26. Then give you your first payment on the spot….leaving you 25 more years payments to come. If that’s the case…yes, annual payments for me please. I’m afraid if I took a lump sum of cash…..I’d quickly be introduced to all kinds of long lost friends, family members, and others who would come knocking on my door with their hands out. Yeeesh!! Don’t know that I could handle that.

  • Matt says:

    Knowing my personality, I think it would be better to have get the $400,000 each year for the next 26 years. I would probably still work, and live comfortably. I would have the assurance each year that I would receive my income for the next 26 years, and I won’t have to worry about spending my $7 million wisely for the next 50 years.

  • Jose says:

    FEAR is what’s driving your decision. That’s never a good thing. When presented with an opportunity like this, ALWAYS take the cash, and run.

  • eric says:

    I would first get a lawyer be an annonymous winner so i dont get media coverage.then i would go to imopverished areas and help build people new homes and give free medical care to those in need.Then i would give to those who have helped me when i was down and out. Then i would make two charities and have my kids run them and if they refused i would refuse to leave them a dime. I would live solely off the interest of lump sum payment. then i would go to school and re learn grammar.

    • Brooke says:

      Eric, I found myself smiling after reading your post. I can tell your a good guy with a sense of humor. Good plan! I concur

  • Chris says:

    Honestly, I’m not sure what I would take. The lottery is up to $171 million and the cash is at $121 million.

    Anyway, I’m 23 years old. I have the rest of my life. I would finish school, start a family and honestly pretend not to have it, so I’ll probably just take the annual amount, which I think would be around 5 million. Not bad I guess. As far as cars go, I think I’d go with a Kia, lol. If I buy a fast car I know I’ll just be going too fast in it. I would like a big house but I will buy my own land and build my own. And maybe start my own business. Who knows. But I think I would take it annually. Do you think a person would get more if you take it annually?

    • Sameal Saliib says:

      I’m not sure if annual payment would guarantee more money. But from here it looks like cash payment means a loss of 70 percent of the money excluding taxes. If 5 mil is not enough the first few years for that luxury house, exotic island or the empire you want to build, you still can take a loan and have plenty left.

  • Sameal Saliib says:

    lol @ people saying they can’t trust their government with the money. Like banks would be a the better option, at least the government is giving you 70 percent interest from what I can understand. That money is guaranteed unless the America gets screwed, in which case 99% of the world’s banks are also screwed. The smart option would be to divide the money into several banks, but that would personally give me a headache and I don’t think I would be able to trust an accountant with that kind of finances for me.

    Anyway, I’d take the annual payment.

  • Jasmine says:

    I believe that I would want to take the lump sum. There are a lot of people I know and charities that I want to help, and I also can invest a portion of the money for annual paybacks. But I have a question. When you win a lump sum, and the federal government and the state takes the taxes out of it, you walk home with “x” amount of dollars in your pocket, do you ever have to pay taxes on that money again? Or just on the interest that you make while investing it? Also, if you have already paid the taxes on this money and you give half of it to your parents, do they end up paying “income taxes” on it because it is over the “$600.00 gift” (or whatever the amount is) when doing their income taxes for that year?

    Also, if banks are only FDIC insured for only $250,000.00 what do multi-millionaires do with their money? How can you write a check for a million dollars unless you have that much in the bank, and how is it safe to keep several million in one bank? Ahhh…. yes I have thought and dreamed about winning. It’s so fun! But then I started thinking about the details, came up with a bunch of questions, and came searching for answers and found this cool site. I enjoyed reading everyone’s answers. God Bless Us, Everyone!

    • mimi says:

      Jasmine: Bless you. You’re a breath of fresh air for asking. You’ll go far.

      • Ken Brown says:

        Jasmine: I know this post is old, but I am reading it and can only assume that others will too. FDIC insures $250,000 per depositor per branch. So, much like a business would do, you can assign multiple depositors to an account without them being able to withdraw money. Further is this, you can have 1 account at each branch of that bank with the same depositors named at each branch. So let’s say you name 4 depositors including yourself, this will give you $1M of FDIC insurance per account/branch, you can then make each account a sweep account that will keep your “MAIN” account fed with money automatically so that your only real task is totaling account balances on a regular basis, which can be done programmatically with software. If there is ever a need to write a check for more than $1M, then you talk to your bank about getting a cashiers check and let them handle the backend work with your accounts.

        • Ken Brown says:

          I would personally buy and take possession of gold. I would take a lump sum payment, pay all taxes up front and use 90% to buy 10 gram gold bullion bars and take physical possession of them. Why? Gold is recession proof, depression proof, government proof and eliminates inflation. Gold increases in value at the same rate or higher than inflation does. 10 gram bars are easier to sell and will sell individually at a higher rate than BIG Bars. I would have a pre-determined yearly spending limit to have money to live a comfortable lifestyle and only cash in what I need for the next year of living. If the economy ever completely tanks, a person can always buy goods with gold or move to a stable country and convert gold into any currency needed without losing money in the currency exchange rates.

  • Frank says:

    I’ll give 10% of my earnings to Churches around my and thank God for my blessings. Then I’ll give half of the winnings to my parents. The rest I’ll invest in commodities and mutual funds. Probably blow some money on a vacation and buy a new home within means.

  • Randy says:

    I would purchase my mom is as property in put up a windmill farm .that would allow them to retire. there is no need for them to have the bust
    there butts everyday at 71&72 years old to make ends meet .if anyone can help make this happen I would greatly appreciate it

  • kevin says:

    Uncle duke would lose all his money. How do you get 2% of one million equaling 200,000. “do the math” again.

  • Billy says:

    I think everyone that posted here is smarter than every athlete in the NBA and NFL. They have careers that lasts as long as their knees do and make a salary that equals a lottery ticket over their career. They live like kings for a few years and end up bankrupt. They don’t need financial planners, they need your advise… Kudos

  • Dave in St. Louis says:

    I have unresectable cancer. Lump sum is the only thing that makes sense for me.

  • Uncleduke316 says:

    The only sensible thing to do is take the annuity payment and move to Florida where there’s NO TAX ON LOTTERY PRIZES…. 🙂 You just pay the federal income tax which is a pittance compared to what your left with and what you paid when you had a job. Then when you start getting two million and chage a year around your 22nd payment all you have to do is stick a million in your savings account. two percent on one million is 200,000. Do the math. THEN you can leave everything to your favorite charity.if your single DO NOT get married UNLESS SHE SIGNS AN IRON CLAD PRENUP. DO NOT HAVE KIDS if you don’t have any. if you do make sure they know they have to still get jobs because everything is going to charity.

  • Tricia says:

    I would take the lump sum since the promise of tomorrow’s payment is only that. A promise that has no absolute guarantee, it doesn’t sit well with me to place my trust in a promise, no matter who is backing it. After the tax is paid, I would buy two very modest, but solid houses. Absolutely no extravagance or flash. One to live in and one for my grandparents. Mine would have to have a good size of fertile land for a nice size garden. I would make sure to have invested some in gold/silver. I would buy two slightly used cars that are good on gas mileage & upkeep. I would invest 3/5 of the entire net amount into bonds, stocks and other types of investments. I would keep working at my current job for a year, giving me time to decide what type of career that will bring me the most joy and then pursue that training while working a little less than I do currently. I would live off my employement income with adding a mere $1000 a month from the winnings. I would not change my lifestyle noticeably. My splurge would be two vacations a year and a well qualified tutor for my children. I would also like to give some to a charity that will change lives, not just circumstances. I would not tell anybody I came into money and no one would be able to guess from my spending habits. Although, I mention it at the end of my list, I think the first thing I should do would be to obtain as much knowledge as I could regarding investing, economics, and pyschology.

  • Will says:

    Interesting discussion….The only thing I know for sure, is that I do not know enough to make an informed decision. Clearly, reading about an “irrevocable family trust” made me appreciative of one having researched the issue much further than I. I suspect there may be a “tipping point” in total amount where there would be no perceptible difference in lifestyle change regardless of which option were selected.

  • Beverly says:

    My husband and I go back and forth with this one all the time. Still haven’t won so the decision is irrelevent.

    However, the main reason all those people who win big and end up broke or in prison is maintenance. Buy a big house? you still have property tax EVERY YEAR, even after the 26 years and those keep going up, so splurge a bit, but be realistic.

    We probably wouldn’t move, but we would renovate maybe a “different” cars, notice I didn’t say “new”. After that, BE VERY VERY CAREFUL WHO YOU TELL. The fewer people who know, the fewer “relatives” show up at your door. Discreatly help those you want to help.

  • Brianna says:

    You actually get more money if you accept the annual payments. The current mega millions jackpot is $64 million if you accept annual payments and about $41 million if you pick cash upfront. Same with the powerball jackpot: $199 million annuity, $99 million cash upfront. That’s an important factor to remember.

    That said, it completely depends how much money I won. If I won the powerball I would take yearly payments, because it would still be millions a year.

  • Harrken says:

    I would take the lump sum, ~ $4mil, and

    1. Give myself $500k blow money to buy “all of the stuff I ever wanted” and set myself up, i.e. nice home, nice vehicle, etc.
    2. Donate $1mil or so to worthy causes.
    3. Put the rest is secure savings/investments, even if they had a low return, and take an annual payout.

  • Stephan says:

    I would take the annual payments, quit my day job, get a part time job at something i love, and always invest the 400k each year so that even after 26 years, i would still never have to work again

  • Squirrelers says:

    Without getting into the numbers here, I would start with the concept of evaluating the present value of each alternative, accounting for all factors (discount rate, taxes, etc). All things being equal, I would choose cash in hand now. If deferred payments were just a bit better, I would still choose the lump sum. So basically, there would have to be a clear advantage, in present value terms, to installment payments for me to walk away from a lump some.

    Cash in hand is better than a promise – that’s the overarching concept.

    What a nice diversion…the age old game of thinking about what one would do in the event of winning a lottery:)

  • Jenna says:

    I have no idea what I would do. If it happened tomorrow think I would take the annual payments, just because I’m not sure I trust myself with so much money. But I would definitely have a meeting with close friends and family to make a decision. This is good daydreaming for a Friday afternoon…hmm…

    How many readers of this blog actually buy lottery tickets? I’d be interested in knowing that. I’ve never bought one.

  • Brian says:

    Interesting post. I too have dreamed about winning the MegaMillion jackpot the other week. There are numerous stories about how people one the lottery and utterly failed, went to prison, and now are broke. Just search the internet and look for “curse of the lottery”. As the saying goes, “If you are unhappy with $100, you’ll be unhappy with $100 million”. With that said, heres’s what I’d do:

    Take the lump sum. You pay less in taxes over the long run. Put half into an investment account that earns a moderate 6%, and have it distribute $100,000/year into my bank account. The account would slowly grow and I would get a nice salary each year. That leaves $2.1 million, which I would donate half to my university, my summer camp, and a few other charities I help. Now I have $1 million left and with that I would pay off my family’s debt, provide for my parents in their golden years since they really have no savings, and buy a small 3br/2ba house. That would leave me with close to $100,000 left which I would just spend lavishly, thus getting the lottery euphoria out of my system. In addition, I would get a part-time job because I think the biggest problem with having large amounts of money at once is that you have too much time on your hands and then spend your fortune to quickly.

    …no I haven’t thought about this at all… 😉

  • Ann says:

    I guess it doesn’t change my answer at all. I’d rather hand some over to my beneficiaries myself than to trust an already bloated government beauocracy to do it for me.

  • GoYanks says:

    Who says you have to choose? You can have both. Take a lump sump from Megamillion. Keep half of that to yourself and do whatever you want with this half. Invest the other half in annuities – income for life.

    Personally, I can’t trust the state govt/megamillion to keep me paying for 26 yrs. I would take all at once.

  • marci357 says:

    Nope. Still taking a lump sum into an irrevokable trust…. it protects the money from liabilities and lawsuits…

  • MoneyNing says:

    Lots of you asked, so here’s the answer. The 26 payments would still go to your beneficiary or estate if something were to happen to you.

    Does this change your answer?

  • marci357 says:

    My first phone call would be to my tax man.
    Then he would set up an irrevokable family trust,
    then the will would be updated,
    all before I cashed in and took the lump sum.
    My family will be set for life that way, but not have too much at any one time, and it will be there for the grandkids’ college etc later on.

    Yes – my tax man and I have already discussed this 🙂

  • AprilFire says:

    For me, it depends on timing. If I were to win it now (at 27), taking the annual payments would be best – invested wisely, it could grow nicely. If I won it later in life, say closer to 55, I’d take the lump sum. Either way, I’d use some of it to help others (charities I’ve been wanting to help in the past, but couldn’t; my grandparents, my sister and my parents), pay off debt and take a trip or two. There is no way I’d quit working, cuz I’d be bored stiff after three weeks off.

    Of course, those of us that are frugal and budget conscience won’t be the ones winning the lottery. That would just be too perfect. 😀 ( I kid. )

  • CD Rates Blog says:

    The scariest thing about either option is polling shows the largest majority of winners could not handle either option and were in worse shape just a couple of years down the line.

    First, you have to be strong and steadfast in not going gang busters. It would be okay to do a few nice things, but the urge to retire should be put into the deepest, darkest recesses of your mind.

    You have to resist “family and friends” that suddenly come out of the cabinets.

    Regardless of how you take it, put it away in a safe place. For the most part, pretend you don’t have it.

    cd :O)

    • Tony says:

      I would countinue to shop with coupon and shop for deals and discounts. Also, I would save tons of money buy not getting married or having children.

      • Bob Sakas says:

        Ditto, I would continue to shop smart, coupons, outlets etc. The numbers presented are wrong. If the full payout was 7 million the yearly for 26 yrs would not be 400 k. Basically, if you take the full payout, you recv 38% of the full amt which includes the reduced no. Including taxes. So if the amt was 100 million, after all deductions you recv 38 million. If I were ever put in that position, I would rather invest the majority of the 38 mil (after taking good care of immed family) then living off the interest in the invest 30+ million. Why allow the govt reap what you can with proper guidance from an excellent investment counselor & atty. Just my opinion for what it’s worth using common sense. Wishing all of you the very best with your lottery tickets, life and health in general as any of our chances are slim to none to win BUT someone had to win eventually.

  • Ann says:

    I’m already 58 years old. I’d take the lump sum. I might have 26 years left in my life, but who knows what tomorrow may bring? I’d help my family members, keep some to retire on (high interest account for retirement), and maybe buy the little cabin and land I live in. Might even try to go off-grid.

  • Kevin says:

    Personally, I would probably take the lump sum. Say taxes eat 40% of the money, you would have about 4.2 million after all that. At a very conservative 2% investment return, you could have $84k each year to live on. Sure, it’s not the most money but you’re never touching the principal. You’re leaving your kids and descendants with 4.2 million. Actually, I try and imagine that I wouldn’t change my lifestyle all that much. So I would try and save on top of that and would potentially leave them with more.

    It really depends on what I expect the investment returns to be like. It isn’t a whole lot of money but it is enough for me to live comfortably.

    I guess I could take the lump sum, which would be like 240k annually after taxes, and try and save the majority of that. If saved properly, you should be able to have 4.2m or more in 26 years… and then be in the same spot as if you took the lump sum and just lived off the interest.

    Regardless of which method I chose, I would try and ensure that there was several million left at the end of my life for my descendants. If I took the lump sum, I would be sure to never spend all of it. 400k a year does provide a very comfortable lifestyle… but the shock of going from that to nothing after 26 years would be too much for me. And then getting a job where you make maybe 50k… and still want to live a 400k lifestyle would be hard.

    • Eboni says:

      You have to work like you don’t have the money. Open you own business and don’t live too lavishly. After 26 years you will still have a lot if you plan correctly

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