Jackpot: Cash vs. Annuity

We get a lot of questions about the cash vs. annuity options for the jackpots in Powerball and Hot Lotto. People say they don’t understand why the lump-sum amount is less than the annuity option. And they want to know what happens to “the rest” of the money when they choose the cash option. They seem to think that someone, likely the government, ends up with the money they should have had.

But in fact, if you choose the cash option, “the rest” of the money doesn’t exist. I’ll explain.

When a player wins the jackpot in a game like Powerball or Hot Lotto, they have the option of choosing to receive their winnings in one lump-sum payment (also called the cash option) or in annuitized payments over time.

When you choose the annuity option, the lottery invests the money from the sale of tickets for the jackpot drawing and then makes payments to the player over time. In Powerball, you’ll receive 30 payments over 29 years. In Hot Lotto, it’s 25 payments over 24 years.

The money that’s invested earns interest over that time, so the initial cash plus all that interest adds up to the annuitized jackpot amount that you saw listed for that drawing. The payments that you receive over time equal the annuity amount.

When you choose the lump-sum option, all you receive is the amount of money that’s on hand from the sale of tickets for the drawing. The interest money that you would have received over time – which adds up to about half the jackpot amount – doesn’t exist because you’ve chosen to receive one up-front cash payment.

You have 60 days from the time you claim your prize to decide how you want to receive it. The choice is up to you and the best option depends upon a number of factors including your current income and tax liability, just to name a couple.

We suggest that anyone who is claiming a lottery jackpot consult a financial planner and/or lawyer who can help you make the right decision for your personal situation.