The Annuity Advantage: What You Should Know

annuityLottery annuity settlements are deceptively great. Sure, lottery lump sum payouts give you all the money right then, right there, but there’s something to be said about getting annual lottery payments instead. Here’s what you might want to know.

Less Is Taken Out in Taxes
If you choose to receive your lottery winnings as an annuity, you’re going to lose less to taxes. Off the top, the lottery withholds about 25% for federal tax, and depending on what state you live in, and the tax bracket you’re in, another 6-9% for state taxes. If the rates stay the same over the years, you’ll lose the same amount. However, tax rules change all the time, making it likely that you’ll catch a break, and lose less.

Annuities Pay Out Over Decades
When you get a lump sum payout, you’ll get the whole money in one go. When you get an annuity, you’ll get the money usually over a schedule of 30 annual payments. In an “immediate” annuity, you can typically start getting the payments in as little time as 30 days. Sure, it might seem like a good idea to get a huge sum in one go, but having the fortune pay out over time will ensure that you don’t make a bad investment, providing you with more financial security.

You Can Still Get All the Money at Once If You Have To
Although you can’t change your mind down the line, it’s still possible to get the remaining amount of your annuity all at once, should the need to ever arise. Life happens, after all. You may need more than what your annuity pays out to cover the cost of medical bills, credit card debt, home improvements, a business opportunity, and more. Luckily, you can sell your remaining annuity payments to get the funds for just a surrender charge of up to 10%.

If you have any questions, feel free to share in the comments.

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