I promised I would work this up again, so here it is:
I believe that the lump sum payment for a large Lotto win is better than the annual payments. Here is an example for California. The lump sum is a little less than one-half of the announced Jackpot. Using the $7 million example that California uses on their web site, I will make the comparison.
If you won $7 million or your portion was $7 million, you would get approximately $3.3 million lump sum before taxes. After taxes (using the 2003 tax rates), you would keep $2,169,793.50.
Now for my illustration I will use the information for California. The annual payments are over 26 years and the first payment is $175,000 before taxes. After taxes you would receive $129,679. Now, that is a lot of money to most of us, but for those of us that live in California, that would not even come close to paying off our house. Houses in my neighborhood are selling for $450,000 and up for small (1200 sq. ft.) 2 bath, 3-bedroom house on a small lot. I bought my house for $26,500 in 1974 and it is now worth nearly $500,000. If I were to win the lottery, I would want to get out of debt. A check from the Lotto for $129,679 would not pay off all my bills. So, I have to keep working. I also dont want to keep working if I hit the big one!! So, so far I dont like the annual payments at all! The next year, the check would be $189,000 before taxes, and it keeps going up one-tenth of a percent every year after that. After 26 years, you have received the $7 million and the checks STOP!
How about lump sum (my favorite!)? You would receive one check for $2,169,793.50. If I owed $500,000 on my house and $20,000 on credit cards and $35,000 on my nice car, I could pay all of that off (and quit work!!!) and have $1,634,773.50 left to invest. If I invest that in municipal bonds, all the interest I earn is tax FREE!! This is what all the wealthy people do. You have already paid tax on it, why pay tax again? I dont know what the going rate for muni bonds are, but you will find that the percentage is less than other investments, but when you consider the tax FREE aspect&they often are very competitive. If I can get 4%, that is over $65,000 per year for me (just taking the interest), TAX FREE. Even us Californians can live on $65,000 per year tax free with all of our major bills paid off. And, the beautiful thing about this is that the money never ever runs out!! Not at that rate, anyway.
So, you make up your own mind, but lump sum is the way I want to take my winnings!!