If you win a lottery jackpot, you have many decisions to make. You can choose to receive your winnings in one lump sum, or you can take the money as an annuity that pays you out over a period of time.
The lump sum option lowers the total amount you receive and can lead to expensive tax consequences. The annuity option spreads payments over time, which can help you avoid long-term taxes and allow you to immediately invest in high-yield financial options like real estate and stocks.
Powerball’s estimated jackpot size is based on how much a winner would receive if they chose to receive their payout in an annuity over three decades, according to the Multi-State Lottery Association’s website. The annuity option takes into account market interest rates, funds accumulated from previous drawings and expected sales for the next drawing.
Mega Millions’ jackpot size is also based on how much the winner would receive if they chose to receive the payout in an annuity over 30 years, according to the Multi-State Lottery’s website. The annuity option takes these factors into account, as well as the odds of winning, says Victor Matheson, an economics professor at the College of the Holy Cross.
In recent years, lottery organizers have gradually lowered the odds of hitting a huge jackpot to make them less rare and more likely to be won on a regular basis, experts say. The move has worked to increase the number of people who buy tickets, which in turn raises jackpots.