Cash vs Annuity
Winning one of the top two prizes in Cash for Life brings with it a big decision. You can take the lifetime payouts on offer or a one-time lump sum. Explore the finer points of the Cash vs Annuity rules and consider which option might suit you best.
What Prizes Can You Win?
To land in one of the top two prize levels, you need to match all five main numbers. Get the Cash Ball correct as well and you can call yourself a jackpot winner. The following table shows how much you will receive if you opt for the cash or annuity.
| Match | Annuity Option | Cash Option |
|---|---|---|
| 5 Numbers + Cash Ball | $1,000 a day for life | $7 million |
| 5 Numbers | $1,000 a week for life | $1 million |
If there are multiple winners, the jackpot is split out evenly. In the very unlikely scenario that 15 or more players match all the numbers, the annuity option is not available. The $7 million cash alternative is divided among the winners as single lump-sum payments.
The second prize is fixed at $1,000 a week for life or $1 million, even if there is more than one winner. However, there is a prize liability of $5 million, so payouts will be reduced if there are six or more winners. If the value of the annuity option falls below $500 per week for life, all winners will instead be paid a lump sum.
How the Annuities Work
The annuity prizes are paid out annually, rather than every day or week, so you receive $365,000 a year if you win the jackpot, or $52,000 a year for the second prize. This is the same even when it is a leap year.
Payments continue for a lifetime – annuities are not limited to 29 or 30 years like they are with other multi-state games such as Mega Millions or Powerball. There is a minimum payout period of 20 years, so the rest of the money goes to family if the winner dies within that time.
The Case for Annuity
There are several pros and cons for both options, but Cash for Life is – by definition – aimed at those players who might be more interested in payments for life, i.e. an annuity. Accepting the offer of $1,000 a day for life can add up to far more than the $7 million lump-sum alternative. For example, a winner in their 20s and in good health could carry on receiving payments for more than 50 years – more than $18 million in total.
Some winners worry about taking the annuity and something happening to them or the lottery itself. However, the minimum payout period of 20 years protects a winner’s family, while the contract you set up with the annuity provider ensures that the payments will continue, even if the Cash for Life game ever stopped or changed.
If you take an annuity, there is no danger of ever running out of money – another payment of $365,000 or $52,000 will always be due within the next year. If you go for the cash option and make a couple of large purchases, it could be that your bank balance returns to its previous level very quickly.
As well as long-term stability, the annuity option often results in minimal taxation. You won’t be pushed into the highest tax bracket immediately – the income you earn is spread out over decades, and so is the tax liability. Go to the Taxes page to learn more.
The Case for Cash
Taking the lump sum has traditionally been the more popular option with Cash for Life winners. It gives you instant wealth with no strings attached – no complications that may arise with payments coming in every year.
You can make expensive purchases right away without having to wait and have full control over all your funds. With this financial control, you could potentially end up making more with sensible investments, than someone who chooses the annuity option.
Whether you take the $7 million jackpot or $1 million for the second prize, you could instantly think about moving home, going on your dream holiday or even giving a generous gift to family, friends or charity. There would still be plenty left over to invest and enjoy for the future. A financial planner would be able to help you manage your budget.
The cash option also seems especially well suited to older players, who may not feel that setting up a plan for payments over many years is particularly practical.
When Do You Have to Decide?
In some states, for example New Jersey, you are actually asked to decide on your playslip when you buy your ticket. There is an option to select either an annuity or the lump sum cash option. If you choose cash, you are locked in to this decision if you win. If you select annuity, you can change your mind when claiming your prize.
In most states, you can simply decide at the time you claim your prize, although sometimes it has to be done within 60 days. You will receive support from your state lottery whichever option you select, but it is also a good idea to speak to an independent financial expert who can advise you on the best course of action based on your individual circumstances.