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Do lottery winners ever take the annuity?

When a person wins the lottery, they are usually given a choice between receiving the full amount of their prize in one lump sum payment upfront, or getting a smaller initial payment followed by annual annuity payments over many years. This leads to the common question – do lottery winners actually take the annuity payments, or do they usually opt for the lump sum? There are pros and cons to each approach, and the right choice often comes down to the winner’s unique circumstances and preferences. In this article, we’ll explore the key factors that influence this decision and look at real-world statistics on what lottery winners tend to choose.

What are annuity vs lump sum payments?

Let’s first clarify what exactly annuity and lump sum payments mean in the context of lottery winnings:

Annuity payments – With this option, the lottery winner receives a smaller upfront payment (typically about 30-60% of the total jackpot amount) followed by annual payments over 20 or more years that add up to the full prize total. The installments are fixed amounts determined at the time of the win.

Lump sum payment – This provides the winner with the entire jackpot amount in one payment immediately after the win. However, the lump sum is not the official advertised jackpot. It is a reduced amount, typically about 50-70% of the headline prize, because it has to account for taxes and the time value of money when paid out upfront.

The jackpot annuity is based on the official published prize amount and paid out in set installments over two or more decades. But the lump sum gives the winner more control and immediate access to a portion of the winnings.

Who decides annuity or lump sum?

For multi-state lottery games like Mega Millions and Powerball, winners must choose between the annuity and cash options at the time they claim their prize. State lottery winners also typically have the choice when they complete the claim process. Lotteries give winners a certain amount of time (usually 60-180 days) after the drawing to make this important financial decision.

It is up to each individual winner to decide whether to take periodic payments or one reduced lump sum. Lottery officials calculate the amount of each option based on market interest rates and other factors. Winners cannot change their payment option after submitting their claim.

What percentage takes the annuity?

Statistics show that the vast majority of lottery winners opt to take the lump sum payment rather than the annuity. According to analysis by USA Mega, about 94% of major US lottery winners over the past 15 years chose the immediate cash payout. Only 6% opted for the annual installments when given the choice.

This very low rate of annuity selection holds true across different lottery games. A study by the Wharton Business School found that 97% of Pennsylvania lottery winners selected the lump sum, while just 3% chose annuity payments. Powerball has seen a similar rate of lump sum selection among its biggest winners.

The preference for lump sums also extends to other countries. Data from the UK National Lottery shows that over 90% of their top prize winners chose the upfront cash, with only 8-9% taking the annuities.

So while annuity payments appeal to a small number of jackpot winners, the vast majority ultimately decide on the reduced lump sum when claiming their prize.

Why do most winners take the lump sum?

There are a few key reasons driving the tendency for most lottery winners to favor the upfront lump sum payout:

Taxes – Winners are responsible for paying federal and possibly state taxes on their winnings. Taking the lump sum allows winners to immediately pay the taxes all at once, avoiding fluctuating future tax rates. With annuities, taxes have to be paid annually on each installment.

Investment opportunities – Savvy financial experts can help winners invest a large lump sum prudently to earn significant returns that may exceed lottery-determined annuity rates. This gives winners flexibility in using their winnings.

Paying off debts – An upfront cash lump sum allows winners to immediately pay off mortgages, credit cards, or other debt burdens. Stretching payments over 20 years does not address existing debts.

Peace of mind – There is always some risk that future annuity payments could be reduced or discontinued due to lottery budget issues or other factors. A lump sum provides certainty.

Special circumstances – Winners who are older or have pressing health issues may prefer a lump sum so they can enjoy the winnings within their expected lifetime. Younger winners may favor annuities.

The ability to quickly access a portion of the total prize is very alluring, even if it is a reduced amount compared to the annuity. The lump sum provides winners with control over using the winnings.

Why some winners take the annuity

While the statistics clearly show that most winners ultimately choose the lump sum, there are some situations where an annuity payment schedule can be appealing:

Bigger total payout – Annuities are based on the full advertised jackpot and will pay out a higher total over 20 years or more. For those very long term plans, the overall return can outweigh giving up some money upfront.

Consistent income – The annual payments provide a stable income stream, like a pension, that winners can count on throughout retirement years. This avoids investment risk or blowing all the winnings immediately.

Money management – Smaller annuity payments spread out over decades help winners pace their spending and avoid wasting their prize all at once. It essentially enforce a built-in budget.

Tax planning – Since taxes are paid annually only on each payment, winners may be able to take advantage of changing income brackets over time. Lump sums are all taxed at the winner’s current top rate.

No investment expertise – Some winners prefer to rely on guaranteed lottery payments rather than their own inexpert investing choices that could risk the lump sum.

For certain risk-averse winners or those wanting the discipline of scheduled payments, the annuity option can make sense despite losing out on some immediate cash. But they remain a small minority compared to most lump sum takers.

How payment options are calculated

To understand the vastly different upfront cash value vs. the total annuity value of a jackpot prize, it helps to know how state lotteries determine the payment options:

Lump sum – To calculate a lump sum payout, lottery officials first estimate the amount needed to purchase a conservatively invested annuity that would fund the full prize over 20-30 years. They apply an assumed interest rate to determine the upfront cost for that annuity. This lump sum amount is typically 50-70% of the headline jackpot, factoring in several years of interest and taxes. The rate used varies based on market conditions.

Annuity – The annual annuity payments are based on the official published grand prize amount, spread over 20 or more equal payments. The lottery funds each payment by investing in low-risk securities like government bonds. Payments are fixed at the time the prize is won and do not rise with inflation. State and federal taxes are deducted before each payment is distributed.

Lotteries invest most of the ticket sales revenue not awarded in prizes into conservative interest-earning funds to finance future lump sums and annuity payments. Their careful actuarial calculations ensure they will have the assets available for either option.

Impact of jackpot size on payment choice

Does the size of the lottery jackpot influence whether winners choose the lump sum or annuity? There are differing views on this:

Bigger = Lump Sum – Some analysts speculate that very large jackpot winners are more prone to selecting the upfront lump sum. With hundreds of millions on the line, winners want immediate access and control. Huge winnings also allow greater flexibility in investment options and potential returns.

Bigger = Annuity – Other experts argue that larger jackpots make winners more likely to choose the annuity. With generational-type wealth in the balance, winners may prefer the discipline of scheduled annual payments to avoid wasting the money and provide ongoing income.

No clear correlation – Historical data on the largest jackpots does not show a clear correlation between prize size and whether winners pick the lump sum or annuity. Mega Millions and Powerball wins over $500 million have had both lump sum and annuity takers. Individual circumstances seem to have more impact than just the jackpot totals.

More research would be needed to conclusively determine if there is a definitive relationship between jackpot size and payment selection. Each winner undertakes a personal cost-benefit analysis of the options.

Do state lotteries prefer winners taking lump sum or annuity?

State lottery officials publicly claim they have no preference whether individual winners choose the lump sum or annuity option. But some financial analysts argue that lotteries benefit more from winners taking the lump sums. Here are some potential advantages for lotteries when winners favor lump sums:

Immediate costs covered – With lump sums, lotteries only need to secure funds to cover the upfront cash payment, not decades of annuity installments. This reduces long-term financial risks.

Higher internal investment returns – Money not paid immediately to winners can remain invested by the state, earning interest that helps fund operations and future prizes.

Lower administrative costs – Lump sums avoid decades of paperwork and accounting associated with processing annual annuity payments.

Of course, lotteries also tout the benefits of annuities giving winners stable long-term income. But some analysts contend that lump sums better align with lotteries’ financial interests, while annuities are more marketing appeal.

Changes lottery winners should make after claiming prize

Once lottery winners make the pivotal choice between lump sum or annuity payments, there are some important next steps they should take:

Seek expert help – Hire experienced financial advisors, accountants, and lawyers to help protect assets and invest prudently. Don’t go it alone.

Pay off debts – Eliminate any burdensome debts as soon as possible, especially higher interest credit cards or loans.

Set up trusts – Establish blind trusts and other entities to keep wealth safe and anonymous.

Make a budget – Develop a reasonable budget to ensure you don’t burn through your winnings irresponsibly. Live below your means.

Help loved ones judiciously – Be cautious about giving money to friends and family. Don’t disrupt relationships with sudden wealth.

Invest prudently – Take a long-term diversified approach to investing. Don’t chase risky returns or get-rich-quick schemes.

Give to charity – Use a portion of your winnings to give back and do good. But research causes first.

Maintain privacy – Keep a low profile and avoid revealing your identity to protect safety and relationships.

With good planning and self-control, even giant lottery winnings can provide long-term security and fulfillment. Don’t let the money change you.

Notable examples of lump sum vs. annuity winners

Looking at some real-world case studies can illustrate the different scenarios in which lottery winners opted for either lump sums or annuities.

Lump Sum Winners

Mark and Cindy Hill – Won half of a $587 million Powerball jackpot in 2012. Opted for a $136.5 million lump sum to quickly set up college funds for grandchildren and donate to charity.

Maureen Smith – A Michigan woman who won a $26 million Mega Millions prize in 2017. Took a $13 million lump sum to pay bills and set up trust funds after checking with financial experts.

Manuel Franco – Claimed a $768 million Powerball prize in 2019. He was just 24 years old at the time and took the $477 million cash payout. Franco purchased a house and founded a nonprofit.

Annuity Winners

Gloria MacKenzie – Won a $590 million Powerball jackpot in 2013 at the age of 84. Opted for the full annuity, saying she had “plenty for her needs” already.

Billy and Tommy Tipton – A pair of Iowa brothers who won a $16.5 million Hot Lotto jackpot in 2011. They declined the lump sum and chose the annuity, spreading payments over nearly three decades.

Ed and Rhonda McCaw – Had the choice of a $100.6 million cash payout or annuity when winning an Arkansas $177 million Powerball prize in 2009. They took the annuity for its greater total expected return over 25 years.

These real winners faced the same lump sum vs. annuity decision confronting all lottery victors. Their choices aligned with financial circumstances and personal preferences on managing sudden wealth.

Key factors in lump sum vs. annuity decision

Based on the information we’ve covered, here are some of the most important considerations for lottery winners weighing the lump cash or annuity question:

  • Age – Older winners may prefer annuities to guarantee steady lifetime income, while younger winners often take the lump sum for greater investment flexibility.
  • Existing wealth – Winners who already have significant assets may be more inclined to take the upfront cash, while less wealthy winners see annuities as steady “pension” income.
  • Debts – Lump sums allow winners to immediately eliminate debts like mortgages, credit cards, and personal loans.
  • Tax implications – Lump sums enable one-time tax payment, while annuities spread out the tax obligations across multiple decades.
  • Investment experience – Winners with financial market experience may believe they can invest a lump sum to generate higher returns than the annuity.
  • Spending tendencies – Those prone to frivolous spending may prefer annuities to impose financial discipline.

There is no definitively right or wrong choice. Each winner’s situation drives whether the upfront lump cash or long-term annuity payments better serve their goals.


History clearly shows that the vast majority of lottery winners ultimately choose to take the reduced lump sum cash payment rather than the full jackpot paid out over annuity installments. Conventional wisdom says that offering the choice allows lotteries to maximize interest in their games by advertising the huge overall annuity jackpots. Yet very few end up taking that option when the time comes to actually claim the prize.

Lump sum advocates point to the financial flexibility, opportunities for better investment returns, and immediate debt relief the upfront cash provides. Annuity supporters tout the value of scheduled income for life and avoiding reckless burning through a sudden financial windfall. In reality, most winners plan to use their winnings responsibly either way.

There are merits to both options. But the data shows that the chance to pocket a substantial sum immediately, even if reduced, proves too appealing for nearly all victorious lottery players to pass up. Given the odds of winning in the first place, the opportunity to gain quick control over tens or hundreds of millions in real cash—lump sum or not—is an enviable “problem” we’d all love to face.