Making a choice between a lump sum and a stream of annuity payments is often times an exercise in trying to understand human nature. If someone has access to an entire sum of money they will find a way to spend it. An annuity being a stream of income payments can be better if you’re disciplined and don’t get too crazy with spending the money before it comes in. What I tell people is to hire professionals but to learn to recognize they too can be a problem. If you win be a part of a team that manages your wealth for the future, not just the present. You want it to last a long time into the future to change your life and not to just make you a flash in the pan. I recommend you do nothing initially, except to decide how to take the money. If you take a lump sum know that you will have to manage the money. If you’ve never managed a lot of money just know it’s not always fun, especially when it goes down in value and it will at certain periods of time. After all you do have invest the money you’ve taken and that will require decisions to be made on a daily basis about stocks, bonds, real estate and cash. It will require buying, selling and more mundane tasks that require your attention. Your job, yes you will still have one, is to manage your assets – and that takes plenty of time. You will need to learn about money management and investing, which in turn will lead to more learning. You can skip all of this if you don’t care about saving your winnings and turning it into something bigger.
Even taking the simple annuity payments won’t save you completely from this lifetime of learning. You’d be surprised how quickly you begin to accumulate excess cash. First you’ll buy everything you need, then you will buy just to reduce the burden of feeling bad that you have a lot of money compared to those around you, your old friends, and then you will spend to avoid the burdens that having money creates.
Anyway here is the calculator that takes a stream of income and tells you, using a rate of return, an interest rate, how much the stream of income is worth in one-lump-sum. It’s referred to as a capitalization rate. You will need to assume an interest rate or investment rate you can make if you invest the money. Anything over 6% is a dream. If you doubt it just try to earn more in the market. The formula is IRV or the annual income you expect divided by the interest rate or investment return will give you the lump sum you can expect to receive.