Why lottery winners take lump sum?

Why do lottery winners take the lump sum when receiving the prize in annuity is much bigger?

Answers( 1 )


With the lump sum, winners get a big percentage of their prize sooner. As we all know, people tend to want to have a big amount of money in their hands immediately. Many people believe that receiving the prize in an annuity for 30 years is too long, so they opt to take the lump sum instead. They also think that they can do more with millions of pounds or dollars in their account.

However, financial advisors advise against doing this:

https://www.nytimes.com/2016/01/13/upshot/dear-powerball-winner-take-our-advice-and-take-the-annuity.html

When winners take the annuity option, they end up with 20% more cash. With the lump sum option, the winner has to pay tax twice - on the prize when they win it, and on the income they earn from investing it.


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