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About to win the $1.2 billion Powerball prize? Consider not taking cash

DES MOINES, Iowa — Think you’re certain of Wednesday night’s $1.2 billion Powerball jackpot?

If so, you have to decide whether to take the cash, which will actually pay out $596.7 million, or opt for the $1.2 billion annuity, which is double that but pays out over 29 years.

Giant jackpot winners almost always take the money, and financial advisors say that can be a mistake.

Nicholas Bunio, a certified financial planner in Downingtown, Pa., said that even with his experience, he would take an annuity because it would dramatically reduce the risk of making bad investment decisions.

“It allows for mistakes here and there,” Bunio said. “People don’t realize that there is potential for losses. They only focus on the profit potential.”

The gap between cash and annuity options has become wider because inflation has caused interest rates to rise, which in turn leads to potentially higher investment returns. With an annuity, jackpot cash is basically invested and then paid out to winners over three decades.

Under the annuity plan, winners will receive an immediate payment, followed by 29 annual payments that increase by 5% each year until they finally reach a total of $1.2 billion.

Lottery winners who take cash either don’t want to wait to win or believe they can invest and end up with more money than an annuity can offer. That’s what bigger winners almost always do, including buyers of a Mega Millions ticket in Illinois in July who received a $780.5 million lump sum after winning a $1.337 billion prize.

As Jeremy Cale, a financial advisor in New Berlin, Wis., said, “There is no such thing as a bad choice.”

Cale said the Powerball annuity provides 4.3% investment growth on the jackpot prize money.

“If you think you can beat 4.3%, you should take the money,” Cale said. “If not, take an annuity.”

As she bought five Powerball tickets at a Speedway gas station in Minneapolis, Terri Thomas, 58, said she’d rather have the cash prize because she doesn’t think she’ll live long enough to receive an annuity in 29 years.

“And I would like all my good deeds to be done at once and feel good about the gifts,” Thomas said, adding that she will donate to groups that do medical research for children, as well as help veterans, the homeless and animals.

Charles Williams of Chicago, who buys a Powerball ticket every week and always plays the same numbers, was adamant that he would choose the cash option.

“I want all the money. I want to get the cash and then spend it how I want because nothing in life is guaranteed,” Williams said.

Of course, it’s good to keep in mind that your odds of hitting the jackpot are incredibly slim at 1 in 292.2 million. That’s why no one has won the top Powerball prize since Aug. 3 — 38 consecutive draws have failed to hit the jackpot.

All those losses made the Powerball jackpot the fourth largest in US history. If no one wins Wednesday night, the jackpot could become the largest in history, surpassing the $1.586 billion Powerball prize won by three ticket holders in 2016.

Officials are urging anyone lucky enough to win the Powerball jackpot to consult a financial advisor — keeping that valuable ticket safe — before showing up at the lottery office for a big check.

Matt Chancey, an investment adviser in Tampa, Florida, said it certainly makes sense. But Chancey also urged the winners to understand that when consultants earn a percentage of the investment of all that money, they have a financial stake in how the money is paid out and should be clear about any potential conflict.

“If you go to a financial person and say you want to invest $1 billion, they’ll say, take $600 million and we’ll pay taxes on it, and you’ll have $300 million left and I’ll invest it for you,” Chancey said. “That investment adviser will receive fees for managing that money.”

Chancey said that talented investors could probably make more money than they pay through an annuity, but there is risk and advisers should be open about their potential returns depending on the jackpot winners’ choices.

Powerball is played in 45 states as well as Washington, DC, Puerto Rico and the US Virgin Islands.

Associated Press writers Tricia Ahmed in Minneapolis and Margery A. Beck in Omaha, Neb., and video reporter Teresa Crawford in Chicago contributed to this story.

https://www.chicagotribune.com/nation-world/ct-aud-nw-powerball-jackpot-20221102-cblivkzfhrduhihnvpa5qmrx7m-story.html#ed=rss_www.chicagotribune.com/arcio/rss/category/news/

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