Normally, we like to use the words “powerful” and “annuity” in the same sentence, but this is certainly the first time we have replaced the word “powerful” with “Powerball”. But it was just too irresistible after watching the frenzy that the $500 million Powerball lottery jackpot caused last week. People from all races, ethnicity, and background lined up at local convenient stores and grocery stores to get a shot at the change to be a mufti-millionaire overnight. The one lesson learned (on top of stop wasting my $2 to play this when the jackpot gets this high) is how important it is to always take the annuity option vs the cash option.
Besides the fact that almost all of the lottery winners end up broke in as short as ten years or less after winning millions, have you taken a look at the drastic difference in total payouts between the annuity and cash options? The annuity option (usually paid over 20 years) was over $500 million. However, if you wanted it all lump sum, it dropped down to $317 million. That is a huge difference! And with today’s interest rates, I am betting that not many hedge funds (let alone a lottery winner) will be able to grow that $317 million into $500 million plus. In fact, as history has proven, the more likely scenario is that the money will be gone in 20 years.
So if you are even one of the fortunate few who actually win millions in any kind of lottery and have the option of the Cash or Annuity…take the ANNUITY option! You, your family, and your accountant will all be glad you did.