Solutions 4 Financial Independence: 12/13/18

Published: Dec. 13, 2018 at 10:40 AM EST
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Answer: I love lottery stuff, because it’s exciting! I mean, who doesn't get excited when you see the opportunity to win $100 million dollars? I mean, that's big stuff! Myself personally, I haven't played, but I do see where people are attracted to it. I mean, it's a life changing thing, and for those people I know that have actually won the lottery, wow, you know? Some of them fantastic, and of course some of them disastrous. Let me tell you a couple things, you asked a question, lump sum or annuity payment. Well clearly, lump sum is more appealing. I mean, to think about it, getting all that money at one time, that's going to be way better than getting an annuity payment because how annuity payments work, you get so much a year, ok? But let’s take away the fun, you got to think about this from a practical standpoint. From a practical standpoint, the issue with taking the lump sum is basically the taxes. If you win $10 million dollars, you're going to pay taxes on that, as if you earned it that year, which puts you in the very max tax bracket. Whereas if you took the payments on $10 million dollars, you're only going to get so much a year, probably $300-400,000. In reality, that's not going to put you in the highest tax bracket, so right off the bat, you're going to pay lower taxes by taking the annuity. Another thing you got to be thinking about is lump sum is great, but what it causes, is it causes you now the burden. When I say burden, you got to do something with that money. Clearly you can spend it really quickly, and if you spend it all, then it means nothing to have it. Whereas with the payments, that's like getting a paycheck every single year for a long period of time. So then, more than likely, you'll spend it smarter. Then of course, when people know you have a big lump sum, you also got a lot of friends. You got people coming out of the woodwork, and that's great as long as you can emotionally handle it. So, by having the payments, you can say, "hey, you know what? I didn't get this big lump sum," you know? I'm getting something that's there on a regular basis. SO, all three of those things are things that you need to consider. But again, I see why people play, because definitely the lottery, just that thought, big stuff.