$1.9 billion Powerball jackpot — for an annuity. The lump sum is overrated

$1.9 billion Powerball jackpot — for an annuity. The lump sum is overrated

What to do if you win the lottery

It’s hard to imagine what it would be like to win the $1.9 billion Powerball prize. But reality is almost always far from fantasy.

“The curse of the lottery loser is very real,” said Andrew Stoltmann, a Chicago attorney who has represented several recent lottery winners.

One of the very first decisions the winner has to make — whether to accept the jackpot as a lump sum or an annuity — often ends up being his downfall, Stoltman said.

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Jackpot for Monday night’s drawing is now the biggest lottery prize ever, estimated at $1.9 billion, if you choose to take your windfall as an annuity spread over three decades. The cash-up option — which most jackpot winners choose — for this drawing is $929.1 million.

These days, the annuity option is bigger than it used to be, compared to the cash option, thanks to higher interest ratesthat allow the game to fund larger annuitized prizes, according to the Multi-State Lottery Association, which runs Powerball.

Still, “over 90% of winners take a lump sum right away,” Stoltmann said. “That’s usually a big mistake.”

Not just an annuity offer more bang for your buck but staggered payments also gives you the opportunity to build an experienced team, including an accountant, financial advisor and attorney to protect the money and your best interests, says Stoltman.

“Few lottery winners have the infrastructure to manage a lottery windfall,” he said.

This provides a level of financial security that a lump sum does not have, even with the inevitable rush of searches, over-buying or bad investments.

“Making a mistake with the first-year winnings is not catastrophic if the winner will get another 29 years of payouts,” Stoltmann said.

Annuity Payments vs. Lump Sum Payments Explained

Of course, you’ll pay taxes on the annuity checks too, but maybe not as much on the investment income if the government does the work for you (essentially by putting the gains into a bond portfolio rather than investing).

Although you could probably earn more by investing in the market over the same time horizon, there is far less risk because the annuity payments are guaranteed. Even if you diefuture payments become part of your property, just like any other property.

“Don’t get caught up in coins,” said Susan Bradley, CFP and founder of the Sudden Money Institute in Palm Beach Gardens, Florida.

Either way, “the payoffs are huge and you’ll never be the same,” she said.

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