The term jackpot has become a common synonym for a large and unexpected win. Investors who buy stock in an initial public offering (IPO) hit the jackpot if the company they back experiences a dramatic and swift rise in share price, allowing them to cash out with substantial profit. Lottery winners also hit the jackpot if they match all or most of their numbers and win a big prize. It’s human nature to daydream about winning the lottery or backing the right horse—and then what you could do with all that money.
One reason why lottery organizers have made their games harder to win in recent years: If the odds are too low, someone will win almost every week, and ticket sales can decline. But if the odds are too high, people may not buy tickets at all. The goal is to find the sweet spot where ticket sales and jackpot size are in balance.
If you win a big jackpot, you have to decide whether to take your prize in one lump sum or in annuity payments over time. A lump-sum payout lowers the total amount you receive and can trigger expensive tax consequences. An annuity payment plan spreads the payments over a period of time, which can help you avoid being pushed into a higher tax bracket.
Whatever you do with your jackpot, it’s wise to consult a financial advisor before making any major decisions. They can help you make a smarter choice by taking into account how your new wealth will impact your long-term investment strategy and risk tolerance. They can also recommend strategies to reduce your impulse spending and help you navigate the tricky pitfalls of a windfall.