SCENARIO: Let's say that you are the lucky winner of the lottery. You win 50 million dollars! The lottery winnings can be paid out in two methods. The first is equal payments over 20 years. In our scenario that would be a gross payment of 2.5 million per year. This gross payment would be paid once per year and be subject to 35% taxes (so let's assume that this gives you a net of $1.625 million per year. This is assuming no other income or taxable investments. The second payout method is a one-time payment. The one-time payment is treated differently because the lottery system works on and encourages payout based on a 20-year annuity (where the lottery system gets to keep the interest). As a result, the lottery system 'penalizes' the winner for taking a one-time payment. This penalty takes the form of the following: You only get 50% of the lottery winning. In our scenario, this means that you would get a one-time payout of 25 million. The winner is further penalized because of the large amount at one time and taxed at 50%. This would give the final payout amount of 12.5 million (50 million x 50% x 50%). Questions: Which pay out would you accept and why? Why does the lottery company use an annuity/interest system? What would you do with the payout? Would you continue to work, go to school, etc