What Does a Lottery Win and Pension Pot Have in Common?

Turning 18 is a milestone for teens in many countries and Canada is no exception. To celebrate this special occasion, Charlie Lagarde of Quebec bought herself a bottle of champagne and a $4 scratch lottery card.

The Québécois went against one in six million odds to win. Not only did the lucky teenager win a fortune, but she was also bequeathed with a financial conundrum: take home an instant C$1m (around £550,000); or receive C$1,000 (£550) a week for the rest of her life.

Charlie Lagarde showed a monetary maturity that belied her 18 years and consulted a financial adviser on her dilemma. The adviser highlighted that as the allowance was untaxed, it was roughly the equivalent of a C$100,000 annual salary. Lagarde also had the stable Canadian economy and a lower cost of living working in her favour.

Annoyingly, Charlie could expect inflation to chip away at the annual C$100,000, giving her around 30 years more to live before reaching $1m winnings in real terms. So what pay-out route did Lagarde take?

After much deliberation and consultation from a financial adviser, she chose the tax-free weekly payment. But why did she take this option and was it the right one in the long term? Let’s look at the facts…

Because Ms Lagarde is so young, it meant she had certainly made the best and ‘most sensible’ option, according to financial experts.

Facts and figures

Going by numbers alone, it would take a little over 19 years to reach a million by taking up the C$1,000 a week option. Recent statistics show that a female’s life expectancy in Quebec is 83.4 years of age. So, if Charlie reaches this age she’d receive a total of around C$3.3 million. Despite not being able to make the stereotypical flashy spend on luxuries (sports cars, yachts etc), Charlie felt this decision was the right one for her. And with a certain amount of financial security guaranteed for life, who can blame her?

Charlie’s position is a unique one, and due to her age and other factors, this choice was the right one for her and her situation. Had she been in her 30s, the decision wouldn’t have been quite so straight forward. The same applies if she already had large debts or any other need that required a large lump sum promptly (such as buying a home).

So, if you yourself find yourself a winner of a large lottery then the choice you make should be based on your own personal circumstances. Factoring in things such as your age, goals, financial health, physical health, and even spending habits and personality.

Lottery win and pension pot: what’s the link?

The news of Charlie Lagarde’s big win got us thinking of how similar her financial predicament was to pension pots. By the time you reach the age of retirement, the questions you’ll have to ask yourself are strikingly similar to those Charlie probably asked herself when choosing the way she received her prize:

  • Do I take a large lump sum now?
  • Is it better to have a smaller, guaranteed regular amount?
  • Should I take some and invest the rest?
  • If I invest it, where and how should I do that?
  • How long am I likely to live?
  • How will my money be taxed?
  • What are my spending needs now?
  • How will these change in the future?

One of the best things Charlie did was to seek professional advice before making such a life-changing decision. Like so many things in life, and especially with finance, there is no blanket answer for all queries. What’s right for you may not be right for your friend. Speaking to someone who will assess finances on a case-by-case basis is the most sensible and diligent way to approach pensions.

Not everyone will be lucky enough to get that big lottery win and your pension could be the next best thing. A gpfm financial advisor will look at both your current financial situation as well as other factors and circumstances that can have an impact. Get in touch with a friendly and personable gpfm team member to discuss the right financial decision for you.

Please note that the value of any investment can fall as well as rise. 

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions.