The Canadian Winner's Choice: Why Some Lottery Winners Choose Annual Payments Over Lump Sums

A Twenty-Year-Old’s Unconventional Decision

A 20-year-old Canadian winner, Brenda Aubin-Vega, recently made headlines by selecting a weekly annuity of $1,000 for life instead of accepting a one-time $1 million payout. Her decision triggered considerable online discussion, challenging the conventional wisdom that most lottery winners follow. This choice raises important questions about financial planning and how to manage sudden wealth—particularly in countries like Canada where tax implications significantly affect the actual value of winnings.

Understanding Tax Implications for Lottery Winners in Canada

One critical factor often overlooked in the lump sum versus annuity debate is taxation. Do you pay tax on lottery winnings in Canada? While lottery prizes themselves are typically not subject to income tax in Canada, the decision between receiving funds as a lump sum or annuity carries different tax consequences. A lump sum requires winners to account for the full amount upfront, whereas annuity payments spread the financial obligation and allow for better tax planning across multiple years. This distinction becomes crucial when calculating the true net value of each option after considering investment income and potential tax liabilities.

Two Paths: Lump Sum and Annuity Explained

Lottery winners generally face two primary options:

Lump Sum Payment: A single, immediate cash transfer representing the current value of the jackpot. Winners receive the full amount at once but must manage the entire sum themselves.

Annuity Structure: Regular installments distributed over a specified period or lifetime. In major U.S. lotteries like Mega Millions and Powerball, payments typically span 30 years with annual increases of approximately 5%, providing inflation protection over time.

Statistical Reality: What Most Winners Choose

Research examining Powerball winners between 2003 and 2009 revealed that over 93% selected the lump sum option. This overwhelming preference reflects a widespread belief that immediate access to capital provides superior financial opportunities. However, this statistic masks a more nuanced reality about long-term outcomes.

The Investment Argument for Lump Sums

Proponents of taking the lump sum argue that winners can capitalize on market returns. Historical data shows the S&P 500 has averaged approximately 10% annual returns including dividends. In theory, a disciplined investor receiving $1 million could generate substantial additional wealth through strategic portfolio management, potentially surpassing what an annuity would provide over several decades.

However, this calculation assumes consistent investment discipline and favorable market conditions—assumptions that don’t always hold in practice.

The “Lottery Curse”: When Windfalls Become Liabilities

A sobering reality exists behind lottery victory: financial devastation can follow surprisingly quickly. Daniel A. White, founder and CEO of Daniel A. White & Associates, documents how many winners squander their fortunes through poor decisions, excessive gambling, or uncontrolled spending. Data from the American Bankruptcy Institute (ABI) indicates lottery winners file for bankruptcy at rates significantly higher than the general population within three to five years of winning. Conservative estimates suggest approximately 33% of winners eventually file for bankruptcy, while some analyses propose figures as high as 70%. This pattern illustrates why the initial lump sum—however large—frequently fails to generate lasting wealth.

The Case for Annuities: Structure and Protection

Financial researchers increasingly recognize annuities as prudent choices, particularly within high-tax jurisdictions. Study authors analyzing lottery outcomes argue that annuity structures offer several compelling advantages:

Forced Discipline: Regular payments prevent depleting the entire sum through impulsive decisions. The structured distribution naturally enforces spending limits.

Tax Efficiency: Spreading income across decades typically results in lower aggregate tax burden compared to immediate taxation of a lump sum, especially for winners in higher tax brackets.

Long-Term Value: If Aubin-Vega lives to age 85, her annuity would deliver over $3.3 million in total distributions—substantially exceeding her $1 million lump sum option before inflation adjustments.

Protection from Exploitation: A lower visible wealth profile reduces exposure to financial scams, family pressure, and unwanted solicitation—genuine risks lottery winners face.

Personalizing the Decision

The optimal choice depends entirely on individual circumstances. Financial advisers recommend evaluating:

• Life Stage and Health Status: Older winners may benefit more from lump sums to ensure wealth distribution during their lifetime, while younger recipients might leverage annuity stability.

• Investment Discipline: Can you resist impulsive spending and maintain a coherent investment strategy? Honest self-assessment matters considerably.

• Risk Tolerance: Do market fluctuations cause anxiety, or do you view volatility as opportunity? Annuities eliminate this uncertainty.

• Income Replacement Goals: Does your primary objective center on maintaining a consistent lifestyle, or building generational wealth?

Lauren Wybar, senior wealth executive at Vanguard, emphasizes: “Lottery winnings represent an extraordinary opportunity, yet success demands deliberate planning. Winners should reflect carefully on both immediate and long-term aspirations before committing to a strategy, then engage qualified financial professionals to execute a comprehensive wealth management plan.”

The Canadian winner’s choice—favoring guaranteed, predictable income over speculative investment potential—reflects growing recognition that financial security often outweighs theoretical maximum returns for most individuals.