With an annuity, you’re given an initial sum of money followed by 29 annual payments. This gives you a continued income for a very long time. Cash from the jackpot is invested in various government securities. You don’t have any say in which securities or bonds your money is invested in though.
If you won a jackpot prize of 100 million dollars, your initial payout would be roughly 1.5 million. Over the following 29 years, your annual payouts would be approximately 6.2 million, but of course, this can vary.
The Advantages of an Annuity
This option may seem a good idea for those who find managing money hard, or to stop the temptation of blowing the lot in one go. The main benefit of choosing an annuity is you always know you’ll get another payout the following year. This can be very comforting if for some reason you’ve exhausted all your funds.
Another benefit is the total amount you get will be greater than the lump sum. Annuity payments increase by 5% each year which could boost your income significantly. This increase helps protect purchasing power from inflation and your lifestyle.
Many jackpot winners are happier with an annuity. It can give a feeling of security and make winning such a large sum less overwhelming.
The Disadvantages of an Annuity
If you take an annuity, you won’t be able to change your mind at a later time. There’s also the risk of Mega Millions going bust. If it did happen, you’d risk losing everything. You would also end up paying far higher taxes with an annuity. Though tax laws vary from state to state, it would still be something you’d want to avoid.
You may find it restricting if you want to buy investments and discover yourself short of funds. It could potentially lose you thousands or even millions. There’s always the chance that sometime in the future you may find a great investment opportunity.