Taking the Lump Sum vs Payment Plan
Winning a large sum of money is no doubt the thrill of a lifetime and if you are fortunate enough to become a big winner, you’ll have some decisions to make on which way to collect your prize money. Most large sweepstakes prizes, say $10,000,000 for example, will offer the winner the choice of a lump sum payment or the option take regular payments, usually by the month, for life. That can certainly be a tough decision and one you will need to give serious consideration to if you don’t already have your choice in mind.
The lump sum on a $10 million prize win would pay out approximately $4.2 million one time. If you’re someone who can manage a large cash amount in a one-time payment, this may be the way to go since you can take that money and invest it to make it grow. That would no doubt take care of you and your family for the rest of your lives. It offers the ability to use the money as you wish, which can also be a downside if you’re not good at handling money. There are plenty of stories of winners who blew through all their money and ended up broke because they simply went wild spending it with no plan or responsibility for managing it. It’s easy to be a big spender as the saying goes, so having a lump sum could pose an issue if you are not experienced or disciplined enough to handle it.
If that’s the case, or you simply don’t want to manage a large sum on your own, you may want to opt for the monthly payments for life. That’s a great way to budget your spending and manage your savings because you’ll always know how much money you have coming in on a monthly basis. For a prize of $10 million, you would collect approximately $16,500 per month for the rest of your life, which amounts to $198,000 per year. If you’re young, that can add up to a lot of money in the long run, but if you’re older or near retirement age, the lump sum may be the better way to go so you can leave it to your loved ones when your time comes. The monthly payments are generally not transferrable and are valid for the life of the winner.
One downside for the monthly payment option is, if you’re big into investments, you wouldn’t be able to invest a large portion of it all at once. That means you won’t earn the same amount of return on any investment you could get with a larger amount which could be used to buy stocks, start a retirement account with a sizable deposit if you’re at the age where that’s something you are thinking about, or paying for your children to attend college, which can cost a small fortune these days!
You may also want the lump sum to invest in real estate and buy the house of your dreams outright without having to pay a monthly mortgage payment. That’s a dream come true for sure! Just be certain you can afford it in the long run because there will always be property taxes, utilities, maintenance and repairs and all the responsibilities and associated costs that go with home ownership. You’re better to ere on the side of being a bit more conservative versus going for the top luxury. For an investment like that, you’ll want to be able to enjoy it for your lifetime as your forever home and not be forced to sell it because you didn’t plan on how much it would actually cost, aside from the sale price itself.
It’s always wise to consult with a financial advisor, no matter which way you decide to accept your prize money. They can show you the pros and cons of the lump sum versus the monthly payments and explain the best option that suits your lifestyle.
So, there is a lot to think about in deciding which way you would take your large cash prize payment and it’s always a good idea to plan ahead so, if that news does arrive that you’ve won a massive amount of cash, you’ll be prepared to enjoy it in all the best ways possible and live your dream come true lifestyle!