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The Mega Millions jackpot for Tuesday, October 23, was originally estimated at $1.6 billion—which would have been the biggest Mega Millions grand prize ever and the highest lottery jackpot in U.S. history, period.
The grand prize was overestimated, however, and the ticket sold in South Carolina with all six winning Mega Millions numbers wound up with a $1.537 billion jackpot. That is easily the highest Mega Millions jackpot ever — topping the previous record of $656 million in 2012 — but is slightly below the $1.586 billion Powerball jackpot from early 2016. That still stands as the all-time highest lottery jackpot ever in the U.S.
Record-high jackpot or not, $1.537 billion is an insanely huge amount of money. And the individual with the winning Mega Millions ticket will have to make a big decision: Take the lump sum or annual payments?
The $1.537 billion Mega Millions jackpot is the total if the winner elects to get the money paid out over the course of 30 years, with an average annual payment of $51 million (pre-tax), according to USAMega.com. Lotteries also give winners the option of taking one-time lump sum payment upfront, though the amount is always smaller; in the case of the $1.537 billion jackpot, the lump sum payment option comes to $878 million.
The Mega Millions winner would be subject to taxes, of course, bringing down the takeaway significantly. The lump sum $878 million Mega Millions jackpot after the top 37% federal tax rate is applied would be approximately $553 million. As for the annuity, federal taxes would bring a $51 million annual payment down to around $32 million.
Depending on where you live, you may have to pay state taxes as well. In South Carolina, for example, where the winning Mega Millions ticket was sold, there is a 7% state income tax on the highest earners. That brings the lump sum down to $492 million after taxes, while you'd get an average of just under $29 million each year after taxes with the annual payment option.
Add up those annual payments (after taxes from the federal government and South Carolina), and the total comes to $856 million after 30 years. That's far more than the one-time lump sum payout of $492 million after state and federal taxes. Even so, many would argue that the lump sum is a better deal financially, what with how much interest the jackpot could earn over time if it's invested well.
But the question of whether the lump sum or annuity is better for lottery winners is one that should be addressed in financial and psychological terms. Here's what you should consider.
Why It Is Smarter for Lottery Winners to Take the Lump Sum
The math is fairly clear on whether lottery winners should take the annuity or lump sum: The lump sum is the better deal, assuming you don't blow most of the money in a hurry and invest at least a big chunk of it instead.
No lottery winner is going to save and invest all of their winnings, of course. But say, of the $492 million jackpot after taxes in South Carolina, you decided to invest $475 million and not touch it. That investment would amount to more than $2 billion over the course of 30 years, after factoring in compound interest and a conservative rate of return of 5%.
Even if a lottery winner goes for annual payments and invests most of their take each year, the grand total would be less over the course of 30 years compared to the lump sum.
How could this be? Well, the annual payment schedule calls for lottery winners to receive smaller payments in the first years of the annuity and larger payments down the line. Because so much of the lottery jackpot is received toward the end of the annual payments schedule, there is less time for compound interest to take effect and boost the winner's nest egg.
Why It Is Smarter for Lottery Winners to Take Annual Payments
So the lump sum is smarter than the annuity for lottery winners, right? Maybe not.
Even if the lump sum makes more sense financially, the annuity may be wiser in light of human nature and the long, depressing history of lottery jackpot winners going broke and ruining their lives after hitting it big.
"There are lots of lottery winners who you never hear about who do just fine, but there are others who ruin their finances, relationships, and lives after they win," certified financial planner Robert Pagliarini explained at Investopedia. "For them, having less access to the full amount of the win is better."
Most lottery winners opt for the lump sum. But going that route comes with the risk of spending most or all of the jackpot winnings in a mad rush. A lottery winner who elects to receive annual payments over the lump sum still runs the risk of spending money wildly — but the damage you can do each year is limited, and you're guaranteed to receive a fat new check every year over the course of three decades.
FAQs
Why It Is Smarter for Lottery Winners to Take the Lump Sum. The math is fairly clear on whether lottery winners should take the annuity or lump sum: The lump sum is the better deal, assuming you don't blow most of the money in a hurry and invest at least a big chunk of it instead.
Is it better to take lump sum Mega Millions? ›
Most winners choose the lump sum option, even though it's less than half of the total jackpot amount. That way, they get the most money possible right after winning, rather than receiving annual payments. In this case, those payments would be roughly $23 million a year after federal taxes are deducted.
Why do people take the lump sum instead of annuity? ›
“Most people take the lump sum because they want the money, they want to control it,” Robert Pagliarini, president and chief financial advisor for Pacifica Wealth Advisors and author of “The Sudden Wealth Solution,” previously told Nexstar.
Why do lottery winners take the lump sum? ›
Lump sum payments can also help winners avoid long-term income tax implications. However, those who elect to receive their winnings in annuity payments, or payments that are divided and issued over a fixed period of time, can end up with more in the long run.
What is the strategy for winning the Mega Millions lottery? ›
The Mega Millions, like any lottery, is a game of chance. Glickman suggests that the best way to increase your chances of winning is to buy more tickets, within reason. For example, if the probability of winning the jackpot is 1 in 302,575,350 with one ticket, it becomes 2 in 302,575,350 if you buy two.
Can a Mega Millions annuity be inherited? ›
Is a Mega Millions Annuity Inheritable? Yes, a Mega Millions annuity is inheritable. When someone wins a Mega Millions jackpot and elects to take the annuity option, they will receive one immediate payment and 29 subsequent annual payments where each payment will be 5% bigger than the last.
Is it smarter to take the lump sum or payments? ›
A lump sum is good for funding long-term investments, while an annuity guarantees larger total payouts. Choose based on your financial goals and applicable rules surrounding the specific lottery. An annuity ensures a larger total payout over years.
What is the first thing you should do if you win the lottery? ›
Before you do so, there are things you should do:
- Safeguard the ticket. Sign the back of the ticket immediately and then store it somewhere secure. ...
- Be choosy about who you tell about your win. ...
- Engage a Lawyer and Financial Advisor. ...
- Decide on taking the lump-sum or annuity option. ...
- Plan on income taxes in two parts.
The type of annuity you choose can significantly impact your monthly income. With a $300,000 fixed immediate annuity, a 65-year-old man could receive around $1,450 to $1,950 per month for life, while a 65-year-old woman may get $1,800 to $2,200 per month.
How much does a $50,000 annuity pay per month? ›
For a $50,000 immediate annuity (where you start getting payments immediately), you're looking at around $300 to $320 per month if you're about 65 years old.
Firstly, lottery winnings are considered unearned income, so they do not directly affect Social Security benefits, which are primarily concerned with earned income, like wages from a job. This means that the $10,000 lottery win will not reduce your friend's Social Security benefits.
Can you leave a lottery annuity to someone? ›
I'm Taylor Kovar, a Certified Financial Planner (CFP), specializing in helping business owners with strategic financial planning. Yes, a lottery annuity can be inherited. If a lottery winner opts for annuity payments and passes away before all payments are made, the remaining payouts can be transferred to their heirs.
How long does it take to receive Mega Millions lottery winnings? ›
If you elected the cash option or if your prize is only offered in a single payment, your check should arrive approximately six to eight weeks from your claim date. If your prize is to be paid in installments, your first payment should be available within six to eight weeks from your claim date.
Is there a trick to picking Mega Millions numbers? ›
With odds that slim, Glickman said it's best to focus on picking numbers that are completely random. That will help ensure you're not making the same picks as someone else — and that you won't have to split the prize money with anyone, should you win.
How to increase your chances of winning the Mega Millions jackpot? ›
But, as Chen and other mathematics experts have said, there are no numbers, combinations, or methods to give you a better chance at the Mega Millions jackpot. You can, however, increase your chances by simply buying more tickets.
Has anyone ever won Mega Millions with Quick Pick? ›
11. $536 Million (Indiana) On July 8, 2016, an Indiana couple won this mega jackpot after buying 5 Quick Pick tickets on a road trip. The winning family was able to remain anonymous by accepting their prize through a law firm in the state.
Is it better to take the cash option or annuity for lottery? ›
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.
Is it better to pick your own Mega Millions numbers? ›
The odds of winning the Mega Millions jackpot are approximately one in 302.5 million. With odds that slim, Glickman said it's best to focus on picking numbers that are completely random.
What is the best way to play the Mega Millions lottery? ›
Buying two tickets for every other drawing doubles your odds of winning the jackpot (1 in 156.5 million) versus buying one ticket for every drawing. Popular picking strategies (like not picking a previous winning set) have no statistical basis, but trying them also doesn't hurt your chances!
