Do you think you can win the $1.6 billion jackpot in Powerball on Saturday night??
If so, you need to decide whether to take it in cash, which will actually pay out $782.4 million, or opt for the $1.6 billion annuity option which is twice that but payable over 29 years.
What option to consider
Giant jackpot winners often get away with cash, and financial advisors say that could be a mistake.
Even with his experience, Nicholas Bonio, a certified financial planner from Downingtown, Pennsylvania, said that he would accept a yearly salary because it would significantly reduce the risk of making bad investment decisions.
“You’re allowed to make a mistake here and there,” Ponyo said. “People do not understand that there is a possibility of loss. They are only focused on the possibility of winning.”
The gap between cash and annuity options has become larger because inflation has caused interest rates to rise, which in turn leads to greater potential investment earnings. With annuities, the jackpot money is primarily invested and then paid out to the winners over a period of three decades.
Under the installment plan, winners will receive an immediate payment and then 29 annual payments that increase by 5% each year until you eventually reach a total of $1.6 billion.
Lottery winners who accept cash don’t want to wait for their winnings or think they can invest the money and end up with more money than the annuity might offer. That’s what winners almost always do, including Illinois’ Mega Millions ticket buyers in July who took home a total of $780.5 million after winning the $1.337 billion jackpot.
As Jeremy Keel, a financial advisor in New Berlin, Wisconsin, said: “There is no wrong choice.”
Keil said the Powerball annuity assumes an investment gain of 4.3% of the jackpot cash prize.
“If you think you can top 4.3%, take the cash,” Kiel said. “If you don’t, take the annuity.”
While buying five Powerball tickets at a Speedway gas station in Minneapolis, Terry Thomas, 58, said she would prefer the cash prize because she doesn’t think she’ll live long enough for an annual salary of over 29.
“I prefer to do all my good deeds right away and feel good about the donations,” Thomas said, adding that he would donate to groups that conduct medical research for children, as well as help veterans, homeless and animals.
Chicago’s Charles Williams, who buys an Arsenal ticket every week and always plays with the same numbers, insisted on making the cash option.
“I want all the money. I want money and then I’ll spend it as I want because nothing is guaranteed in life,” Williams said.
probability of winning
Of course, it’s good to keep in mind that your chance of hitting the jackpot is incredibly slim at 1 in 292.2 million. That’s why no one has won a Powerball jackpot since August 3, resulting in 39 consecutive draws with no jackpot winner.
All of these losses allowed the Powerball jackpot to grow into the second-largest prize in US history. If no one wins Saturday night, the jackpot could become the biggest in history, surpassing the $1.586 billion Powerball jackpot won by three ticket holders in 2016.
Officials urge anyone lucky enough to win a Powerball prize to consult a financial advisor, keeping that valuable ticket safe, before coming to a sweepstakes office to get a big check.
Inconsistency when investing
It certainly makes sense, said Matt Chancy, an investment advisor in Tampa, Florida. But Chancy also urged winners to understand that if advisors get a percentage of investing all of that money, they have a financial interest in how the money is paid and should be clear about any potential conflicts.
“If you go to a financial person and tell them you want to invest $1 billion, the financial person will say take the $600 million and we’ll pay taxes on it, and you’ll have $300 million left over and I’ll invest that investment advisor will get a fee for managing that money,” Chancy said.
Chancy said talented investors are likely to earn more money than they are paid through an annuity, but that there are risks and advisors should be open about their potential earnings depending on the jackpot winners’ choices.
Powerball is played in 45 states, plus Washington, D.C., Puerto Rico, and the US Virgin Islands.