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How Powerball winner should collect

The winner of last weekend's jackpot of nearly $600 million now has to decide whether to take a lump sum or annual payments. An expert weighs in with advice.

By MSN Money Partner May 20, 2013 10:42AM

This post comes from Ross Kenneth Urken of partner site MainStreet.


MainStreet logoOne lucky person at a Publix supermarket in Zephyrhills, Fla., purchased the winning ticket for the highest Powerball jackpot in history, estimated at $590.5 million.

Gold (© Stockbyte/SuperStock)After winning with odds at 1 in 175.2 million, the person has done the hard part, but whether to take a lump-sum cash payout or to collect the winnings in annual payments is the cushy but difficult decision the lucky duck will now have to make.


Most winners go for the lump sum in order to be in control of the money from the get-go, and with fears of continued rising tax rates, it might be better to take a softer blow from the Internal Revenue Service now than a harder one in the future.


"The immense size of this particular jackpot can make things a bit more straightforward," said Doug Walker, the president of AfterLotto, a company that provides legal, financial and personal assistance to lottery winners.


Whereas a person may be reluctant to take about half of the total pot for the instant gratification of a lump sum -- the lump-sum payout here would be about $300 million -- the difference between $300 million and $600 million is more negligible at those amounts. It's a question of whether to have golden toilet seats in your yacht.


Generally speaking, the older the winner is, the better an idea it is to take the lump sum, Walker says; with fewer years to get installment payments, it's best to take the cash in one fell swoop and live the high life.


"Considering that the Powerball annuity option pays out 30 installment that grow larger every year, someone who is already near or beyond the age of retirement clearly has less incentive to take an annuitized payment structure than a younger winner," Walker said. "Similarly, age tends to make people wiser and often leads them to make more rational financial decisions and more willing to take the advice of qualified financial representatives."

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The younger a person is, the more likely he or she is to be reckless with the money, and with the lump-sum payout at about $300 million, the immensity of the winnings could be difficult to manage.


"So the big question is whether someone could still get themselves into trouble by receiving all that money at once," Walker said. "And the answer is a resounding 'yes.' Winning that kind of money immediately and permanently alters lives. And until someone experiences the effects firsthand, it can be very difficult for them to truly appreciate the severity of these upcoming changes."


The more prudent decision from the standpoint of mitigating behavioral risk of splurging or blowing the money frivolously is to avoid the lump sum.


"Because of this, the annuitized option makes a lot of sense for people who could benefit from the added insurance these graduated payments provide," Walker said.


More from MainStreet.com:

76Comments
May 20, 2013 2:54PM
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This article looks like it was written by a 5th grader.  How about some more info like what is the annuity payment on this big jackpot so we can wonder which type of payout would be better. Why write an article if you don't present all the facts.
May 20, 2013 1:51PM
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What are the annual payments for the annuitized option?
May 20, 2013 2:43PM
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Another, "no real information" article.  The big question in making this decision is, is it inheritable.  If not, definitely lump sum, if so, well maybe.
May 20, 2013 3:16PM
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For Big Lotto Winners!!!...this seems to make the most sense to me....First give God all the Glory and sit quietly with Him and get your thoughts in order!!!. Take all the Money up front, pay the taxes, pay off all debts, secure the necessities, such as  building savings account, college funds for family members, help loyal friends, investments, give to worthy charities, churches, non-profit organizations, be a blessing to others, then live your life happily ever after!!!     
May 20, 2013 2:34PM
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How do these people who obviously do now homework at al get these articles posted?  The cash payout is 370.9 million which is quite a bit more than "about 300 million.  Since Florida has no state income tax the winner will wind up in the 39.6% rate and probably pay about 37% depending on how much taxable income they already have so they will keep somewhere in the 230 million range.  Nothing is near 300 million.  If they cannot do any better then this with public information I for one do not want them in charge of my money.
May 20, 2013 2:48PM
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Take the lump sum; or if you do not take the lump sum, setup a family trust so that all of the money will be paid out in full in case of you untimely death.

May 20, 2013 2:49PM
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300 out of 600.  What kind of scam is this?  The Gov uses the revenue from the ticket sales and then double dips.  No tax on winnings!  No annuities!  No false promos!
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Even the THOUGHT of letting the government keep one more penny of my money than they already do, is lunacy.
I'm sure that 30 years ago, ppl thought that their social security would be safe.
What prevents the government in 10 or 20 years from passing some type of emergency act to divest a "portion" of the owed lottery monies ?
ANYONE who doesnt take the lump sum is necessarily trust this administration, and the next 6 administrations.
We live in crazy times, where Russia is becoming more capitalistic everyday, while the U.S. sinks deeper into Socialism every day.
Yeah. I trust MY money to a government bent on socialization.
yup.

May 20, 2013 3:23PM
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I would take the Chinese financial route of Won Lump Sum
May 20, 2013 2:25PM
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I got a feeling we will never know where or what is done with all this money...do we ever??
May 20, 2013 3:57PM
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Don't be a chump, best to take the lump.     You get handed 300M.   That in and of it self should last for ever.  Interest alone at a modest 5% is 15M a year, and that can go on for ever and ever.  You are not dependent on the solvency of the lotto system.  You can place that money where ever you want (off shore banks, Switzeland, anywhere).  You can convert it into anything you want (land, gold, stocks and bonds, 60's muscel cars, art, whatever).

 

The main thing is that you have control over it, not the government.  I may me wrong but the interest will be taxed at the lower "capital gains rate" versus the "regular" tax rate of a yearly check.   With that difference you would actually take home more off the interest.

 

There is no wrong answer to this, just degrees of sound money management.  What a nice problem to have.   But I always say take the lump.

May 20, 2013 2:03PM
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What I would like to know is where are the state governments spending this?But,they claim there broke please,they draw every week.If its going to schools then,wheres the rest.Anyone?
May 20, 2013 3:20PM
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why must you be penalized for taking the lump sum?  and who gets the remaining 300 million? does it go back to the government?   does the government collect twice on your winnings?    ANSWER ME!!

May 20, 2013 2:35PM
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What happens to the money if you die before you collect all of it? Is your estate taxed on the total amount, on the value that it could be sold for or on the annual payments?
May 20, 2013 3:26PM
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I believe the winner was a FL resident, so there should be no state income tax on a lump sum payout. Good for the winner! And I would sure remain a FL resident, because they do not have an estate tax.  Avoid the temptation to buy land or houses in states with estate taxes.  Skip that seacoast house in Maine.  Ix Nay on the Beach House in Montauk. As for the feds, take the lump sum, pay the stinking tax plus the Obamacare surcharges that are going to shock you and count your lucky stars. One can't predict what tax rate increases and new taxes on income will be imposed by the greedy hand in DC in future years.  Wanna bet they won't be going down anytime soon?
May 20, 2013 4:08PM
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Still not sure what to do.....how about this.

 

300M earning a modest 5% = 15M a year.   15M x 30 = 450m.   450M + 300M = 750M

 

After 30 years you would have been paid a total of 750M if you take the lump.  Now assume that you live high and spend every penny you earn off interest.  You would still have 300M sitting there.

 

I know that is a simplistic representation but I think you get the point.

May 20, 2013 4:19PM
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And nobody considers putting the money into an income generating investment and and living on the proceeds?  Collecting a modest 5% a year on a 160-170 million after tax jackpot grosses 8 million a year FOREVER.  Who cares, blow it all on hats, the next monthly check of $666,666.66 is on it's way.  Even that can earn another 2700 a month just waiting for you to spend it.
May 20, 2013 3:56PM
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Lump sum payment. If you take it pievce meal and die the payments stop and your wife/family gets nothing. If you take it in one lump sum, you pay the taxes, invest the rest and live off the investment/interest.

May 20, 2013 3:48PM
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How much of your windfall is eaten up by inflation over a 30 year period if you take the yearly payouts?  That's what I want to know.
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