Powerball jackpot hits $543 million. What’s the best payout option? Experts weigh lump sum vs. annuity

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Lump sum distribution may be ‘a mistake’

“Virtually everybody who wins the lottery picks the lump sum distribution,” said Andrew Stoltmann, a Chicago-based lawyer who has represented several lottery winners. “And I think that’s a mistake.”

In many cases, the annuity is a better option because “the typical lottery winner doesn’t have the infrastructure in place to manage such a large sum so quickly,” he said.

The typical lottery winner doesn’t have the infrastructure in place to manage such a large sum so quickly.

Andrew Stoltmann

Lawyer

Stoltmann said the annuity protects winners from first-, second- or third-year financial mistakes while keeping the majority of the proceeds safe. 

Make a long-term plan for the windfall

“Flexibility and control over assets is a really good thing, but it’s not necessarily for everybody,” said certified financial planner and enrolled agent John Loyd, owner at The Wealth Planner in Fort Worth, Texas.

While the lump sum payout could be a good financial move for some winners, he said that others may benefit from the spending guardrails of annuitized payments.

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However, some winners may later decide to sell the annuity to a third-party company for a lump sum payment. “The issue is they don’t get the best bang for their buck on that payoff,” Loyd warned.

Monday’s Powerball drawing comes roughly two months after a single ticket sold in California won the game’s $1.765 billion jackpot. Meanwhile, the Mega Millions jackpot is back down to $41 million, and the odds of winning that prize are roughly 1 in 302 million.

Source: CNBC