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Should you take the cash payout for Mega Millions?

The Mega Millions jackpot recently hit a massive $1.28 billion, prompting hundreds of millions of people to buy tickets for a chance to win the enormous prize. Now one lucky ticket holder in Illinois has won the jackpot, and they face a choice: take the full $1.28 billion prize paid out over 29 years, or take the cash payout of an estimated $747 million.

So should you take the cash payout if you win the Mega Millions jackpot? Here’s a look at the key factors to consider when making this important choice.

The Pros of Taking the Cash Payout

Opting for the cash payout has some clear advantages:

  • You get your money right away. You don’t have to wait nearly 30 years to get the full amount.
  • Taxes are lower. You only pay taxes once on the lump sum, versus annually on each installment payment.
  • You can invest the money yourself. You may be able to get better returns than the annuity does.
  • You have flexibility. You can use the lump sum however you want.
  • You avoid risk. Annuity payments are only as reliable as the state lottery.

Getting such a large lump sum immediately provides financial freedom and flexibility. You can pay off debts, make investments, buy real estate, travel the world, or give generously to charity. And you have the security of knowing the money is totally yours once you get the lump sum payment.

The Cons of Taking the Cash Payout

Despite the benefits, there are also drawbacks to consider with the cash option:

  • Taxes eat up nearly half the prize. Federal taxes are up to 37% on lump sums over $597,400.
  • State taxes take their share too. Depending on where you live, state taxes could be over 10%.
  • You might not actually get $747 million. After federal and possibly state taxes, you may get 30-40% less.
  • You lose the power of compounding if you invest. Annual installments can earn interest year after year.
  • It’s easier to mismanage a lump sum. Windfalls can be frittered away through poor decisions.
  • You could owe gift/estate tax. Gifting a large lump sum to heirs may trigger taxes.

It can be shocking to see hundreds of millions immediately snatched away by taxes. And unless you are extremely disciplined, a massive pile of cash can be mismanaged. You’ll want an excellent team of financial advisors to prudently invest and manage the lump sum proceeds.

Weighing the Annuity versus Cash Choice

To make the best choice, consider these key factors:

  • Your age – If you’re older, the lump sum makes more sense. You’ll have fewer years left to receive annuity payments.
  • Interest rates – With higher interest rates, you can earn more investment income from a lump sum.
  • Lottery reliability – Be sure of the state lottery’s ability to make all payments.
  • Discipline – Are you responsible enough to manage a huge windfall wisely?
  • Taxes – Will state/federal taxes consume too much of a lump sum?
  • Your goals – How might each option help fulfill your personal, family, or philanthropic goals?

Carefully considering these factors will help you determine the better payment choice for your situation.

Recommendations from Financial Experts

Here is what some financial advisors say about taking cash vs. annuity with a mega jackpot:

  • “Always take the cash. You can invest it and come out way ahead.”
  • “It depends a lot on your age. Older winners should take cash.”
  • “Look at your state taxes too. A lump sum can trigger a big state tax bill.”
  • “Don’t forget gift and estate taxes. Annuities can be transferred tax-free to heirs.”
  • “Be conservative no matter what. Don’t radically change your lifestyle.”

While their opinions vary, most experts caution lottery winners to avoid spending splurges, work closely with experienced financial advisors, and invest conservatively. This helps ensure the money lasts versus being squandered quickly.

Tax Impacts of Each Choice

Taxes make a significant difference in how much you actually keep. Here’s how federal and state taxes affect each payment option:

Federal Taxes

  • Lump Sum –
    Taxed at top 37% ordinary income tax rate for amounts over $597,400 in 2023.
  • Annuity –
    Each installment payment taxed annually as ordinary income. Currently the top rate is 37% but this could change over time.

State Taxes

  • Lump Sum –
    Varies by state, up to 13% state tax possibly owed in one tax year.
  • Annuity –
    State taxes owed annually on each installment payment, depending on rates in the winner’s state of residency.

It’s crucial to model the specific federal and state tax impacts based on where you live and your other income sources. A tax advisor can help analyze your particular situation.

Investment Returns from Lump Sum

One argument for taking the cash payout is that you can invest it and achieve better returns than the annuity. But how realistic is it to beat the effective annual rate of return from the annuity?

Here is a comparison of estimated investment returns from the lump sum to the annuity payouts:

Payment Option Amount Annual Return
Annuity (30 payments of $42.7 million) $1.28 billion 4.02%
Lump Sum (est. $747 million) $747 million 5% – 7%*

*Investment returns vary based on asset allocation and market performance. Conservative portfolio returns historically average 5% – 7% annually, although future returns may differ.

The analysis shows you would need to achieve estimated average annual returns of between 5% – 7% to match the effective rate of the annuity. This is very feasible with a prudently invested lump sum. However, it does require discipline to avoid excessive spending and maintain a balanced, diversified investment portfolio.

Pros and Cons of Annuitizing Part of the Lump Sum

Another option is to take the lump sum and use part of it to purchase your own annuity. Here are the pros and cons of annuitizing part of the cash:


  • Receive steady, predictable income for life or a set number of years
  • Generate fixed income similar to annuity without giving up full lump sum
  • Available options like lifetime income, survivor benefits, etc.
  • Manage some of the longevity risk of outliving assets


  • Less flexibility since part of assets are annuitized
  • May receive lower payment than official annuity amount
  • Requires giving up control of part of your lump sum
  • Need advice to structure annuity appropriately

Utilizing both lump sum investing and annuitization allows customization and flexibility. It also guarantees income for life while still earning investment returns on the remainder.

What Are the Odds of Winning?

The core reality is your chance of winning the Mega Millions jackpot is infinitesimally tiny. The odds are a staggering 1 in 302,575,350.

To put that into perspective, you are:

  • Over 300 times more likely to be struck by lightning this year (1 in 1,101,000)
  • Over 300,000 times more likely to die in a motor vehicle accident (1 in 102 per lifetime)
  • 21,000 times more likely to die from heart disease (1 in 6 annually)

Realistically, your lifetime odds of winning the Mega Millions jackpot are essentially zero. You are far more likely to die in the next year than to hit the mega jackpot. However, for just a few dollars the entertainment value and infinitesimal chance makes it worthwhile for many people.

Advice From Mega Millions Jackpot Winners

For a little perspective, here is what some past Mega Millions jackpot winners have said about their experience:

  • “Don’t make crazy changes to your lifestyle. Be frugal and think about the future.”
  • “Have a team of experienced professionals to advise you before making any big financial decisions.”
  • “Be extremely private about it. Lottery winners attract lots of attention, much of it undesired.”
  • “Take time to think before making any huge donations or gifts. Consider starting a charitable foundation.”
  • “Don’t fall prey to scams or long-lost ‘relatives’ asking for money.”

Learning from past major lottery winners can help avoid common pitfalls. Their advice stresses living modestly, minimizing publicity, hiring expert help, and taking your time to thoughtfully manage your windfall.

Could Winning Be More Curse Than Blessing?

You might assume winning millions would guarantee happiness, but past evidence suggests otherwise. Big lottery winners often struggle with:

  • Overspending/mismanagement – Burning through the cash quickly
  • Hassles – Constant requests for money from others
  • Family issues – Disputes over sharing winnings
  • Identity issues – Loss of motivation or purpose
  • Lawsuits – Predatory lawsuits hoping for payouts
  • Depression/ substance abuse – Resulting from other issues

Without the proper perspective, winning a jackpot of this size could be overwhelming. Having a solid team of advisors, maintaining pre-existing relationships, keeping a low profile, and finding purpose beyond money are keys to adapting psychologically.

Are There Ways to Improve Your Odds?

While there’s no way to significantly improve your miniscule odds, a few tips could help at the margins:

  • Buy more tickets – Increasing number of number combinations improves probability
  • Join or form a pool – Buying group tickets with many combinations
  • Buy consecutive drawings – Repeated chances boost odds marginally
  • Avoid popular numbers – Pick less common numbers to reduce shared wins
  • Mix odd/even, high/low – May slightly improve probability

Combining approaches like these can slightly improve your odds. But the reality is dumb luck still drives jackpot wins far more than strategy.

How Else Could the $1.28 Billion Be Spent to Do Good?

Rather than hoping to beat the impossible lottery odds, the $2 ticket cost could be directed to more constructive goals. Some options:

  • Provide over 85,000 1-year scholarships in developing countries via Room to Read
  • Give 800 million meals to hungry children through the World Food Programme
  • Fund over 35,000 cataract restoration surgeries via The Fred Hollows Foundation
  • Dig over 1,500 clean water wells in Africa through Charity:Water
  • Pay a year’s tuition for over 71,000 underprivileged students via Opportunity International

The money used chasing a Mega Millions pipe dream could instead provide basic needs or life-changing interventions to tens of thousands globally. While it’s fun to dream, philanthropy allows making a certain impact on others’ lives.

Final Thoughts

Hitting the Mega Millions jackpot could radically transform your life. But your odds are so astronomically slim it’s not worth building plans around winning.

If you did win, the lump sum versus annuity choice has pros and cons. Look at your specific situation, and consult with legal and financial experts to determine the better option.

Remember that handling a massive windfall takes prudence and perspective. Don’t let a potential lottery win undermine your responsibility, relationships or values in life.

The thrill of playing Mega Millions can be worth a few bucks. Just maintain a rational mindset about your microscopic odds and what’s truly meaningful in life.