Powerball Jackpot Soars to $1.2 Billion: Experts Analyze Lump Sum vs. Annuity Payout

To The PeopleTo The People
Powerball Jackpot Soars to $1.2 Billion: Experts Analyze Lump Sum vs. Annuity Payout
  1. At an estimated $1.2 billion, the Powerball jackpot is now the third-biggest reward in the history of the game.
  2. The winner may choose between 30 annuitized payments with a 5% annual increase or a one-time lump sum "cash option."
  3. On Wednesday at 11 p.m. ET, there will be another Powerball drawing.

Without a winner on Monday night, the Powerball jackpot has increased to an estimated $1.2 billion, the third-largest reward in the history of the game.

One of the winner's major choices will be whether to accept an annuitized award of $1.2 billion or a lump sum payoff of $551.7 million. Pretax estimates apply to both choices.

The next Powerball drawing is scheduled for Wednesday at 11 p.m. ET, with a 1 in 292.2 million chance of winning the big prize.

According to Powerball, the annuity gives one instant payment followed by 29 yearly installments that rise by 5% annually, whereas the lump sum pays the whole reward up once.

The payout of the lump sum is "a mistake."

"Almost all lottery winners choose their lump sum payout," said Chicago-based attorney Andrew Stoltmann, who has acted as a representative for many lottery winners. "And I believe that to be an error."

Because "the typical lottery winner doesn't have the infrastructure in place to manage such a large sum so quickly," he added, the annuity is often a better alternative.

The average lottery winner lacks the resources to handle such a big amount of money so fast.

The majority of the revenues are kept secure, according to Stoltmann, and the annuity shields winners from financial errors made in their first, second, or third year. 

Consider the long-term strategy for success.

Owner of The Wealth Planner in Fort Worth, Texas, John Loyd, a certified financial planner and enrolled agent, stated that while flexibility and control over assets are great things, not everyone can benefit from them.

He acknowledged that certain winners would profit financially from the annuitized payments' spending restrictions, even while the lump sum reward might be a wise choice for others.

Some winners, meanwhile, could ultimately choose to sell the annuity for a lump sum payout to an unaffiliated business. Loyd cautioned, "The problem is they don't get the best bang for their buck on that payoff."

The $1.08 billion Powerball jackpot was won by a single ticket sold in California fewer than three months ago, and that was before Wednesday's drawing. For the first time ever, there have been consecutive billion-dollar prizes in this game. The Mega Millions jackpot, meanwhile, is now projected to be worth $315 million, with a 1 in 302 million chance of winning the main prize.