The Powerball lottery offers large jackpot prizes that can be paid out over multiple years if a winner chooses the annuity option. Understanding how the annuity payments work for Powerball can help players evaluate if this is the best payment choice for a jackpot win.
When a player wins the Powerball jackpot, they have two options for receiving their prize money:
- Lump Sum Payment – The entire jackpot amount is paid out immediately, in one lump sum.
- Annuity Payment – The full jackpot amount is paid out over 29 annual graduated payments, increasing by 5% each year.
Around 70-80% of major jackpot winners opt for the lump sum payment. However, the annuity offers some unique advantages that players should consider before making this important financial decision.
How Many Annual Payments for Powerball Annuity?
If a Powerball player chooses the annuity, their total jackpot amount will be divided into 29 graduated annual payments. This means they will receive a payment every year for the next 29 years.
The annual payments start relatively small and increase by 5% each year. The Powerball website provides an annuity calculation estimate to show the breakdown of payments.
For example, for a $1 billion jackpot, the estimated annuity payments schedule would be:
| Payment Year | Payment Amount |
|---|---|
| 1 | $20 million |
| 2 | $21 million |
| 3 | $22.05 million |
| 4 | $23.15 million |
| 5 | $24.3 million |
| … | … |
| 29 | $55.12 million |
As shown, the annual payments start at around 2% of the total jackpot amount. But with the 5% annual increase, the final payment can be over 5% of the original prize amount.
Why 29 Annual Payments for Powerball?
Powerball purposely structures the annuity to be paid over 29 years. This schedule is defined in the official Powerball game rules and is carefully calculated.
The main reasons for the 29 year payment schedule are:
- Matches the annuity period offered by Mega Millions – Since Powerball and Mega Millions are the two biggest national jackpot games, their annuity options are designed similarly for consistency.
- Long enough period to significantly increase payments – 29 years allows for substantial growth in payments at 5% per year compounding.
- Falls within a typical lifetime – Ensures winners will receive all their money within their expected lifetimes.
The 29 annual payments schedule balances providing winners higher amounts later while ensuring they will realistically receive the full amount within their lifetimes.
Player Age and Lifetime Payments
An important consideration with the 29 year annuity schedule is whether the player will live long enough to receive all the payments. Obviously, younger winners will have a higher chance of receiving all the graduated payments until the 29th year.
Looking at life expectancy statistics can give an estimate of how many payments a winner may realistically receive based on their age when they win the jackpot:
| Player Age | US Life Expectancy | Expected Payments |
|---|---|---|
| 20 years old | 79 years old | 29 payments |
| 40 years old | 79 years old | 29 payments |
| 50 years old | 81 years old | 27 payments |
| 60 years old | 82 years old | 22 payments |
| 70 years old | 84 years old | 14 payments |
| 80 years old | 86 years old | 6 payments |
Younger winners are very likely to receive all 29 payments. Older winners have fewer expected payments based on life expectancy. This should be considered when choosing the annuity versus lump sum.
Annuity Payment Duration Examples
Here are some real life examples of Powerball winners who chose the annuity and how many payments they received before passing away:
- Tom Crist – Age 40 when won $40 million in 2009. Died at age 57 in 2016 after receiving just 8 payments.
- Gloria MacKenzie – Age 84 when won $590 million in 2013. Died at age 94 in 2018 after receiving just 5 payments.
- Andrew Weber – Age 67 when won $100 million in 2011. Died at age 78 in 2018 after receiving just 7 payments.
These examples demonstrate that even much younger winners can sometimes miss out on significant back-end payments if they pass away earlier than expected.
Can the Annuity Payments Go to Heirs?
If a Powerball annuity prize winner passes away before receiving all annual payments, the remaining payments can go to their designated beneficiaries. This ensures the winner’s heirs can still benefit from the full prize amount.
To receive any remaining payments, the winner must complete a beneficiary designation form. This specifies who should receive future payments if the winner dies.
Powerball annuity payments that go to beneficiaries are accelerated. Rather than continuing with the annual schedule, the lottery calculates the current cash value of all remaining payments. This lump sum is paid out immediately to the beneficiary(ies).
Lottery Annuity Investment
To fund the 29 graduated payments for jackpot winners, the Powerball lottery purchases US government bonds. These low-risk fixed-income investments generate interest that is sufficient to pay each of the increasing annuity amounts on schedule.
After withholding taxes, the lottery invests enough of the jackpot cash prize to purchase a bond portfolio paying out at the 5% annually increasing rate. Government bonds provide highly secure income to finance the annuity obligations.
Taxes on Annuity Payments
Powerball lottery winnings are subject to both federal and state taxes. For lump sum payments, taxes are immediately withheld before the winner receives their net payment.
But for annuity payments, taxes on each payment are deferred. No taxes are withheld by the lottery on the annual annuity amounts. Instead, the winner must pay taxes on each payment as they receive it.
Annuity winners face a significant tax management burden. They need to budget for appropriate tax withholding or estimated payments to avoid penalties. This annual taxation should factor into the decision to choose the annuity.
Pros of Powerball Annuity
Choosing the annuity offers some unique advantages:
- Higher overall payout – Due to investment growth, the annuity ultimately pays out a larger total amount compared to the lump sum.
- Protects against overspending – Smaller annual payments help prevent wasting winnings compared to a single lump sum.
- Provides long-term income – Ongoing payments can fund the winner’s needs and desires for life.
- Tax planning flexibility – Payments are taxed annually based on the winner’s situation that year.
For disciplined winners, the annuity provides substantial advantages in responsible money management and maximizing total prize amount.
Cons of Powerball Annuity
However, the annuity also comes with drawbacks to consider:
- Delayed access to full winnings – Must wait up to 29 years to receive complete jackpot amount.
- Loss of investment control – Cannot choose own investments to potentially earn higher returns.
- Annual tax burden – Paying taxes on payments annually creates an extra management responsibility.
- No flexibility or control – Cannot change payment amount or timing.
Impatient winners or those who want full control may view the fixed annuity payment schedule as unfavorable compared to the lump sum.
Should You Take the Annuity?
There are good arguments on both sides. Each winner needs to consider their specific situation, priorities and financial discipline.
Younger winners have a case for choosing the annuity to maximize total winnings. But older winners may lean towards the lump sum to access the funds immediately.
Consulting qualified financial advisors can help winners objectively evaluate the pros and cons based on their circumstances. This decision has a huge impact on the winner’s finances and should not be taken lightly.
How to Change Annuity Election
For those who do choose the annuity, they have 60 days after claiming their prize to change their payment election. Powerball winners can switch from annuity to lump sum during this period if they have a change of heart.
To change the election, the winner must submit a written request to the lottery within the 60 day timeframe. Once changed, the choice is final and cannot be changed back to the annuity.
After this period, the annuity election is locked in and the winner must continue receiving their annual payments as scheduled.
In Summary
- Powerball annuity payments are made over 29 years, with amounts increasing 5% annually.
- Younger winners are likely to receive all payments, older winners fewer based on life expectancy.
- Annuity offers discipline and highest total payout. Lump sum provides control and immediate access.
- Each winner must evaluate their specific situation to determine the best payment option.
- The annuity election can be changed to lump sum in the first 60 days after claiming the prize.
The Powerball annuity provides a disciplined way to receive a larger total jackpot amount over an extended period. But it requires giving up flexibility and control. Weighing these factors carefully based on personal circumstances allows winners to make the best financial decision.
Frequently Asked Questions
Can you receive a portion of the jackpot as a lump sum and the remainder as an annuity?
No, Powerball winners must choose one payment election for the entire jackpot amount. The prize can only be taken as either a full lump sum or a full annuity schedule.
What happens if Powerball goes bankrupt – will annuity payments stop?
Powerball annuity payments are very secure. The lottery purchases government bonds to fund the payments and states guarantee the annuity obligation. So even if the lottery has financial problems, annuity winners would still receive their full payments.
Can the annual payment amounts be changed once the annuity begins?
No, the annuity payment schedule including the annual increases is fixed once payments begin. The winner cannot make changes to the payment amounts or timing.
Are annuity payments protected from the winner’s creditors or lawsuits?
No, creditors and judgements against a lottery annuity winner can potentially make claims on annual payments. Annuities do not provide legal protections like trusts.
What happens if a Powerball annuity winner dies with no designated beneficiary?
If no beneficiary is named, remaining annuity payments would go to the winner’s estate. This can involve a lengthy legal process before heirs receive any funds.
Conclusion
The Powerball annuity offers some tantalizing advantages of higher payouts and forced financial discipline. But winners need to weigh these carefully against the drawbacks of reduced flexibility and control. Consulting experts, evaluating personal priorities, and considering factors like age and life expectancy allow winners to make fully informed decisions about their best payment options.
For players still chasing that elusive jackpot, the choice between cash and annuity may seem abstract. But winners who beat the odds know this decision can greatly shape their lifelong enjoyment of their prize. By thoroughly understanding the trade-offs, Powerball victors put themselves in the best position to make the optimal financial move.
