What Causes a Lottery Jackpot?

A lottery jackpot is a prize that’s won by picking numbers in a lottery game. In order to win, the player must correctly match all six numbers drawn.

A jackpot winner can choose to receive their prize in cash or annuity payments. While both payout options guarantee a lottery prize, choosing a lump-sum payout can help you avoid long-term tax implications and offer the option to immediately invest in high-yield financial products such as real estate or stocks.

Some winners opt for the annuity option, which offers a first payment when they win followed by 29 annual payments that increase by a percentage each year. This can be more appealing than the lump-sum option, which offers winners a larger initial amount but lowers the total value of the prize over time, says Lisa Kirchenbauer, founder and president of Omega Wealth Management in Arlington, Virginia.

The annuity option also helps the lottery company maintain a stable interest rate, which protects the money it spends to pay out winnings. This is critical because the U.S. government backs all of the annuity payments through special United States Treasury bonds known as STRIPS.

Another factor that can affect the jackpot is inflation. Inflation can cause prices to rise, which can reduce the value of the winnings if they were paid in cash.

Because of this, it’s best to keep your ticket safe and use it to play for the jackpot only. Some lotteries even offer a special wager type called Just the Jackpot that lets players play for the jackpot but not other prizes.