The Powerball jackpot has climbed to an estimated $1.2 billion — the third-largest prize in the game’s history — without a winner on Monday night.
Among the winner’s big decisions will be the choice between a lump sum payout worth $551.7 million or an annuitized prize of $1.2 billion. Both options are pretax estimates.
The next Powerball drawing is Wednesday at 11 p.m. ET, and the odds of winning the jackpot are 1 in 292.2 million.
While the lump sum provides a full prize up front, the annuity offers one immediate payment, followed by 29 annual payouts that increase by 5% each year, according to Powerball.
The lump sum payout is ‘a mistake’
“Virtually everybody who wins the lottery picks the lump sum distribution,” said Andrew Stoltmann, a Chicago-based lawyer who has represented several lottery winners. “And I think that’s a mistake.”
In many cases, the annuity is a better option because “the typical lottery winner doesn’t have the infrastructure in place to manage such a large sum so quickly,” he said.
The typical lottery winner doesn’t have the infrastructure in place to manage such a large sum so quickly.Andrew StoltmannLawyer
Stoltmann said the annuity protects winners from first-, second- or third-year financial mistakes while keeping the majority of the proceeds safe.
Weigh the long-term plan for winnings
“Flexibility and control over assets is a really good thing, but it’s not necessarily for everybody,” said certified financial planner and enrolled agent John Loyd, owner at The Wealth Planner in Fort Worth, Texas.
While the lump sum payout could be a good financial move for some winners, he agreed that others may benefit from the spending guardrails of annuitized payments, he said.
However, some winners may later decide to sell the annuity to a third-party company for a lump sum payment. “The issue is they don’t get the best bang for their buck on that payoff,” Loyd warned.
Wednesday’s Powerball drawing comes less than three months since a single ticket sold in California won the game’s $1.08 billion jackpot. This is the first time the game has seen back-to-back billion-dollar jackpots. Meanwhile, the Mega Millions jackpot is currently worth an estimated $315 million, and the odds of winning that grand prize is roughly 1 in 302 million.