It’s a big number—and an even bigger opportunity to make your dreams come true. If you win the jackpot lottery, you can expect to receive a series of 26 yearly payments that add up to $10 million. Your first check will be for 2.5 percent, or $250,000 (some taxes will be withheld), two weeks after you submit your winning ticket. Each year, the amount of your payment increases by a tenth of a percent.
But that’s not all. You’ll also have to choose whether to take the entire prize in one lump sum or spread it out over 30 years. The annuity option is the more tax-efficient, but it also loses some of the jackpot’s future value to federal and state withholding.
As such, many winners opt for the lump-sum option, which ends up costing the New York Lottery about half of the jackpot amount. The lottery asks seven different bond brokers to quote a package of bonds that will pay each of the 25 future yearly payments, then buys the bonds at the best price. It then transfers the bonds to an investment bank, which holds them until they mature.
Those investments should help you grow your wealth, but they’re not the only way to get rich. You could buy a house or car, go on vacation, or invest in business. You could even use your winnings to support a charity that you believe in. However, if you don’t plan wisely, your windfall could be quickly drained by spending.
Most of the work that comes with winning the lottery is financial: paying off debts, setting up college savings, diversifying your investments and keeping a robust emergency fund. It’s also important to find a crack team of helpers to manage your newfound wealth. A few past winners serve as cautionary tales, with a couple divorcing less than a year after their massive win.
So why do these super-sized prizes continue to grow so large? It’s partly due to chance, but rising interest rates and changing odds also play a role.
Mega Millions and Powerball organizers have been making their games harder to win for decades, says a professor of economics at the College of the Holy Cross who studies lotteries. These changes have made it more likely that a jackpot will roll over from draw to draw, and they’ve given the prizes a newsworthiness that helps drive ticket sales.
But there’s also a simple economic principle at play: The higher the expected value of something, the more people want it. That’s why the jackpot lottery is so popular. It’s not the same as being struck by lightning or dying in a car crash, but it’s the closest thing to instant riches most of us will ever see. And it’s a fun way to pass the time, as long as you don’t spend your winnings on anything other than entertainment.