Monday, April 5, 2010

Why Lottery Winners Should NOT Take Cash Option? (Lottery Trivia Answer 2010-06)

Last Week's Trivia Question #2010-06 was: 
When the lottery jackpots grow, many more players are tempted to try their luck in hopes of winning the huge jackpots. And typically, they ask the retail clerk who sells the lottery tickets for the "Cash" payout option which is much lower than the advertised jackpot. As we stand in line waiting to purchase our tickets, we often wonder:
  • Why do most players take the Cash Option?, And,
  • Why do the States want you to take the Cash?

While there is no "wrong" choice, we believe players are encouraged to accept the lower amounts, because:
  • Most players do not understand what an Annuity means. Simply stated, an annuity is a continuous stream of annual cash payments. For Mega Millions, a player would get 26 equal payments. In Powerball, the player receives 30 payments which gradually grow in size.
  • Today, the Powerball Annuity Jackpot is $125 million. A player who wins the jackpot would receive the first payment of about $2.23 million, and the last payment of $6.95 million.
  • Whereas, the Cash Option payout is only $60 million, which is 48% of the Annuity jackpot.
  • But players are afraid that if they die, they will lose the money.
  • That's not true. The money will continue to be paid to their heirs until all is paid out.
  • Next, players always think they can invest the cash option money in the stock market and make much more. But, the State lotteries are guaranteeing a return of $4.80% for the next 30 years. With interest rates so low, this is a great rate of return.
  • Again, recent history has shown that fortunes were lost when the Stock Market tanked. If you're lucky enough to win the lottery, do you really want to lose it all?
  • And lastly, we read story after story about Lottery winners who spent or invested all their money, and ended up with nothing.
  • So to us, we think that all players should take the Annuity Option.
  • The member states, however, do not want you to take the Annuity for two reasons: First, they will have to manage that money and make sure that you get your payments; and, Second, the are offering you almost $1 million less in Cash than you deserve. That means that they keep the money and help booster their revenues. 
  • We think that this is a lot of money to lose. We'd rather have that money in our pockets rather than the State.
  • So next time you buy a lottery ticket, tell them you: "Want the Annuity", and you won't be sorry. 

1 comment:

  1. I wouldn't trust any state to give me annuity payments over 30 years. Also, what if I wanted to invest or start a business that would require more then an annual annuity payment? I think the cash option is a safer bet.


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