DES MOINES, Iowa (AP) — Think you’re a safe bet for Wednesday night’s estimated $1.2 billion Powerball jackpot?
If so, you have to decide whether to take the cash, which would actually pay out $596.7 million, or choose the $1.2 billion annuity option, which is twice as large but paid out. over 29 years.
Winners of giant jackpots almost always take the money, and financial advisers say that could be a mistake.
Nicholas Bunio, a certified financial planner from Downingtown, Pennsylvania, said that even with his expertise, he would take an annuity because it would significantly reduce his risk of making poor investment decisions.
“It allows you to make a mistake here and there,” Bunio said. “People don’t understand that there is potential for loss. They only focus on earning potential.
The spread between cash options and annuities has widened because inflation has driven interest rates higher, which in turn translates into potentially larger investment gains. With annuities, jackpot money is essentially invested and then paid out to winners over three decades.
Under the annuity plan, winners will receive an immediate payment, then 29 annual payments that increase by 5% each year until finally reaching the total of $1.2 billion.
Lottery winners who take money don’t want to wait for their winnings or they think they can invest the money and end up with more money than an annuity would provide. That’s what the biggest winners almost always do, including the purchasers of a Mega Millions ticket in Illinois in July that brought in $1.337 billion.
As Jeremy Keil, a financial adviser from New Berlin, Wisconsin said, “There are no wrong choices.”
Keil said the Powerball annuity assumes an investment gain of 4.3% of the jackpot cash prize.
“If you think you can beat the 4.3%, you should take the money,” Keil said. “If you don’t, take the annuity.”
While buying five Powerball tickets at a Speedway gas station in Minneapolis, Teri Thomas, 58, said she would rather take the prize money because she doesn’t think she will live long enough to collect an annuity of over 29 years old.
“And I prefer that all my good deeds be done right away and that I feel good about giving,” Thomas said, adding that she would donate to groups that do medical research for people. children and help veterans, the homeless and animals.
Chicago’s Charles Williams, who buys a Powerball ticket every week and always plays the same numbers, was adamant he would take the cash option.
“I want all the money. I want the cash and then I’m going to spend it however I want because nothing is guaranteed in life,” Williams said.
Of course, it’s good to keep in mind that your odds of winning the jackpot are incredibly small, at 1 in 292.2 million. That’s why no one has won the Powerball top prize since August 3, resulting in 38 consecutive draws without a jackpot winner.
All these losses allowed the Powerball jackpot to become the fourth largest in US history. If no one wins Wednesday night, the jackpot could become the biggest ever, surpassing a $1.586 billion Powerball prize won by three ticket holders in 2016.
Officials are urging anyone lucky enough to win a Powerball jackpot to consult a financial adviser – while keeping that precious ticket safe – before showing up at a lottery office for an oversized check.
Matt Chancey, an investment adviser in Tampa, Fla., said that certainly makes sense. But Chancey also urged winners to understand that while advisers are earning a percentage on investing all that money, they have a financial stake in how the money is paid out and need to be clear about any potential conflicts.
“If you go to a financial person and say you want to invest $1 billion, the financial person will tell you to take the $600 million and we’ll pay taxes on it, you’ll have $300 million left over and I’ll invest it for you,” Chancey said. “That investment advisor will earn a management fee from that money.”
Chancey said talented investors could likely make more money than paid through an annuity, but the risk is there and advisers need to be open about their potential gain based on jackpot winners’ picks.
Powerball is played in 45 states, as well as Washington, DC, Puerto Rico, and the US Virgin Islands.