If You Win The Lottery Should You Take the Annuity or Lump Sum Payout?

It’s an age-old debate among lotto fanatics and armchair critics alike – which is the best payout option if you win a big Mega Millions or Powerball jackpot? Lump sum or annuity?

As aficionados of all things lottery, our answer might surprise you.

The typical response tends to be something along the lines of, “Take the cash option and invest it!” If you’ve got your finances dialed in, you run an in-depth household budget, and you’re financially fit, perhaps you think you could handle that much money at once. But that’s not the case for most people. Winning something like $1 million in the Powerball game and having a pre-tax payout of $890,000 hit your bank all at once is a lot different than managing your $30k, $50k, or even $150k annual income. That’s why we say the best option for most people is the annuity payout.

Let’s unpack some of the reasons why taking the annuity option – aka, the road less traveled – is the unsung hero that you need in your life if you ever strike it rich with Mega Millions or Powerball. 

Lottery Lump Sum vs. Annuity: Why Annual Payments Are the Best Option

Who Says You Can’t Invest?

Taking the annuity doesn’t mean you can’t invest. It just means you’ll put away a bit each year instead of one large initial investment. It can be challenging to find prudent investments for such a massive amount of cash while also discerning what opportunities you should pass on. Allocating too much money quickly without enough thoughtful planning can lead to bad investments, like when your zany yet loveable next-door neighbor has a great idea for a build-your-own-pizza shop. With annual lottery payments, you can take advantage of sound investments over time and invest with more confidence when worthwhile ideas come along.

Consistency You Can Count On

The masses usually opt for a 9-5 job and a consistent paycheck, so why does that go out the window when people get a windfall like winning the Powerball drawing? What’s wrong with having a consistent extra paycheck courtesy of your state lottery? You’ll be able to plan and budget for it, just as you would for your regular income, while still enjoying the massive bump in your annual take-home pay.

Time to Think, Plan, Reflect, and Breathe

Imagine for a moment that you’ve won the Mega Millions lottery. It’s one of those huge $100 million jackpots. Can you feel the rush of adrenaline, the racing thoughts, the anxiety, the excitement? Can you hear people whispering their best advice in your ear? Can you see the eagerness on the faces of everyone you know, just waiting to see what you’ll do with the money? Do you think you’ll be calm, collected, and clear-minded if you have a multi-million dollar windfall? If you’re human, the odds aren’t in your favor. That’s life-changing money. And not just your life will change; those in your close circle will likely have their life changed too.

Taking the annuity gives you breathing room. Rather than running out and spending that giant Mega Millions lump sum burning a hole in your pocket on three sports cars and some high-end jewelry, you can think things through. Every annual payout offers another opportunity to make more strategic purchases and adapt as your needs and wants change through the years.

Say No to Peer Pressure

Many people have a generous spirit, and when you have a lot, you can give a lot. But you can also give so much that you whittle away your own foundation. That’s a lot harder to do when you have $100k or $500k a year coming to you annually than when you have $20 million in the bank.

Smaller payments split over 29 years take a ton of the pressure to spend off the table. Taking everyone in your family on a cruise – yes. Buying everyone a house or paying off their mortgages – not so much. Less pressure and less stress, but not necessarily less generosity or less fun. Just a different kind, and hopefully, for many years rather than a fleeting moment.

Don’t Blow It All in One Place

Temptation tends to feel a lot heavier when you have a giant pile of money just waiting to be spent. Just ask Jonathan Vargas, the founder of the now-defunct TV show Wrestlicious Takedown. Splitting your cash payouts into small windfalls every year can help you pace your spending.

Don’t even get us started on the enormous jackpots that Powerball and Mega Millions amass sometimes! With jackpots in the hundreds of millions, you could still be getting tens of millions each year with the annuity option, more than most people make in their whole working life. That’s a lot of money to make a mistake with, whereas with the annuity, you might blow it some years and have a few regrets, but it’s unlikely you’ll blow it every year.  

You Can Will Remaining Payments to Loved Ones

A common misconception about lottery annuity plans is that it’s a gamble where you may or may not collect all your winnings. And, perhaps that’s partially true in that if you pass before the 29th year, you will not collect the earnings personally. However, an annuity – funded by the lottery or otherwise – is an asset, and it IS transferable. Your loved ones can collect any remaining annuity payments on schedule, as you would have.

You may be more likely to have assets to pass on with annuity payments since the money is doled out incrementally, unlike the cash option, which many people fritter away within the first decade. It’s guaranteed income for your family for however many years are left in the annuity period.

Whatever You Choose, Take Time to Pause and Plan

Should you win big with Powerball or Mega Millions, it’s always wise to speak to multiple financial advisors to learn about opportunities available and how you can make the most of your winnings. Regardless of if you choose the lump sum or annuity payout, getting opinions from trusted sources will put you in the driver’s seat and allow you to decide what’s best for you and your family with confidence. You can also start the process by researching online with tools like this lump sum vs. annuity calculator. If nothing else, it’s fun to dream!

LUCK FAVORS THE PREPARED. Why guess when you can leverage the odds? Next time you head out to purchase a lottery ticket, take a moment to find your state and check the updated list of this month’s best scratch offs before you buy. Lotto Edge knows the scratch offs that win, and now you can too!

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