Lottery Lump Sum vs Annuity Calculator

Two ways to get paid

The headline jackpot for big US lotteries like Powerball and Mega Millions is the annuity value: 30 payments over 29 years that grow 5% each year. The cash option is a single, smaller payment that equals roughly what the lottery would need to invest today to fund that annuity. In recent years the cash option has often been around 45% to 50% of the advertised jackpot, depending on interest rates.

Both are taxed. In the US, 24% is withheld for federal tax up front, but a jackpot puts the winner in the top 37% bracket, and most states add their own income tax. A 40% total tax rate is a rough middle estimate.

Which is better?

If you can invest the lump sum at a return higher than the annuity's built-in rate, the lump sum wins on paper, and it gives you control and flexibility immediately. The annuity protects winners from spending too fast and spreads tax over many years. Many financial planners lean toward the lump sum for disciplined winners with good advisers, and toward the annuity for those worried about losing it.

The default jackpot, worked through

For a $500 million jackpot with a 46% cash option, the lump sum is $230 million before tax and about $138 million after a 40% combined tax rate. The annuity pays $500 million over 30 years, about $300 million after tax, starting near $4.5 million after tax in the first year and growing 5% a year.

Invest the lump sum at 5% and it reaches about $568 million after 30 years, close to the $558 million you would have from investing every annuity payment the same way. At returns above 5% the lump sum pulls ahead, and below it the annuity does.