Should Powerball Winner Take Lump-sum Payment or Annuitize?
NEW YORK (MainStreet)-One lucky person at a Publix supermarket in Zephyrhills, Fla. purchased the winning ticket for the highest Powerball jackpot in history, estimated at $590.5 million.
After winning with odds at 1 in 175.2 million, the person has done the hard part, but whether to take a lump-sum cash pay-out or to annuitize the winnings is the cushy, but difficult decision the lucky duck will now have to make.
Most winners will go for thee lump sum in order to be in control of the money from the get-go, and with fears of continued rising tax rates, it might be better to take a softer blow from the IRS now than harder one in the future.
"The immense size of this particular jackpot can make things a bit more straight-forward," said Doug Walker, president of AfterLotto, a company that provides legal, financial and personal assistance to lottery winners. Whereas a person may be reluctant to take about half of the total pot for the instant gratification of a lump-sum--the lump-sum payout here would be about $300 million--the difference between $300 million and $600 million is more negligible at those heights. It's a question of whether or not to have golden toilet seats in your yacht.
Generally speaking, the older someone is, the better an idea it is for him to take the lump sum payment, Walker says; with fewer years to get installment payments, it's best to take the cash in one fell-swoop and live the high life.
"Considering that the Powerball annuity option pays out 30 installment that grow larger every year, someone who is already near or beyond the age of retirement clearly has less incentive to take an annuitized payment structure than a younger winner," Walker said. "Similarly, age tends to make people wiser and often leads them to make more rational financial decisions and more willing to take the advice of qualified financial representatives."
The younger a person is, the more likely he is to be reckless with the money, and with the lump-sum payout at about $300 million, the immensity of the winnings could be difficult for a person to manage.