After no winners were announced in Wednesday’s Powerball drawing, Saturday’s winnings grew to an estimated $625 million. Winning the lottery is always a slim possibility, but in case it happens to one lucky person, the next question they must consider is how to cash in.
It is worth noting that how a winner chooses to take the money affects how much money he or she will pocket. The estimated $625 million refers to the amount of money awarded if the winner chooses the annuity option, with payments spread out over 30 years. If a winner chooses the lump sum option, the amount of winnings would equal about $380.6 million, before taxes.
USA Today finance reporter Janna Herron weighed in on the matter, breaking down the pros and cons of taking each option.
With an annuity, 30 annual payments are made, with each amount being 5 percent larger than the previous one.
Herron noted that the biggest advantage of taking the annuity option is the the guarantee of steady money for the next 30 years. This option often provides peace of mind for obvious reasons.
The cons of taking the annuity hinge around the time to total payout, according to Herron. While the allure of a consistent stream of income for the next 30 years sounds appealing, she pointed out that there is always the possibility that the entity making those payments could run out of money. Tax rates could also rise, meaning more of the money goes to the government. In addition, lottery winners could die before the payout is complete.
When it comes to cashing in a lump sum lottery jackpot, the biggest pro is the fact that winners have the chance to invest their cash wisely, meaning they could end up with much more money in 30 years than what the original annuity would have paid out. Herron stated that calculating how much to invest is critical in making the money pay off in the long run, but it is worth it.
The drawback of taking lottery winnings in a lump sum is the potential for reckless spending — and even bankruptcy — for those who cannot handle their newfound wealth. There are no shortage of stories about lottery winners who wasted their money, and ended up broke a few years later.
If someone wins the $625 million jackpot on Saturday night, what should they do? https://t.co/s1DDXd1B6y
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In the end, Herron’s advice was to take the lump sum. She stated that “the sheer size of this jackpot makes it hard for even the most ambitious spendthrift to blow all their winnings.”
The drawing for the Powerball $625 million is Saturday at 10:59 p.m. Eastern time.