Personal finance

The Mega Millions jackpot hits $1.55 billion. What’s the best payout option? Experts weigh lump sum vs. annuity

The Mega Millions jackpot hit a record $1.55 billion on Aug. 7, 2023.
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The Mega Millions jackpot has ballooned to an estimated $1.55 billion after months without a winner. One of the many choices the winner will make is whether to take the one-time lump sum or 30 annuitized payments.

The current jackpot may become the game’s biggest prize since the $1.537 billion windfall won in October 2018, according to Mega Millions. The final confirmation will come closer to the next drawing Tuesday at 11 p.m. ET.

Mega Millions has awarded prizes in excess of $1 billion four other times, once each in 2018, 2021, 2022 and 2023. The odds of scoring the winning ticket are roughly 1 in 302 million.

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The winner can choose between the one-time lump sum worth $757.2 million or 30 annuitized payments valued at $1.55 billion. Both options are pretax estimates.

Annuity recipients can expect an initial payout, followed by 29 years of annual payments, which increase 5% every year, according to Mega Millions.

If you pass away before collecting all 30 payments, Mega Millions will make the remaining payments on schedule to your designated beneficiary or your estate.

Picking the lump sum payout is a ‘big mistake’

Andrew Stoltmann, a Chicago-based lawyer who has represented several lottery winners, says 95% choose the lump sum option, which he describes as a “big mistake.”

“Let’s just say the curse of the lottery is real,” he said.

There are three “big drains” on lottery winners: bad investments, relatives who ask for money and overspending, according to Stoltmann.

If you opt for the annuity, “you can make those first-, second- or even third-year mistakes, and still have the majority of the corpus coming to you,” he said.

You can make those first-, second- or even third-year mistakes, and still have the majority of the corpus coming to you.
Andrew Stoltmann
Attorney at Stoltmann Law

Without financial experts to help you manage the windfall, you can “protect yourself” by choosing the annuity payout option, said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

However, professionals can likely outperform the annuity payments by managing the upfront lump sum, he said.

Tuesday’s Mega Millions drawing comes about three weeks after a single ticket sold in California won Powerball’s $1.08 billion jackpot. That game’s top prize is back down to $145 million, with a roughly 1 in 292 million odds of winning the jackpot.

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