Lottery Jackpot – More Than Just Winning a Lottery Jackpot

When you think of lottery jackpot, the picture that comes to mind is a life-changing windfall. But there’s more to winning the big jackpot than just being lucky enough to buy a ticket.

Lottery jackpots are calculated based on annuity payments that winners receive over decades. But rising interest rates can boost those payments, making the advertised jackpot size seem bigger than it really is.

This isn’t necessarily a bad thing, but it does mean that the odds of winning are even less likely than before. In fact, if you’re good at math, “you should stop buying lottery tickets,” a financial expert tells CNBC Make It. The reason is that people have a natural tendency to underestimate the risk of any investment. They tend to develop an intuitive sense of how likely risks are within their own experience—but that’s not very useful when it comes to something as large and unpredictable as a lottery jackpot.

In the end, winning the lottery is all about managing expectations. That’s why many winners opt to take a lump sum, rather than annuitizing their payout. But that can have its own problems, including the likelihood that you’ll spend your prize too quickly or not invest it properly—leading to bankruptcy and other financial troubles. Plus, in most states, you’ll owe federal income taxes on the lump sum. Some states allow winners to sell their periodic payments in order to avoid these taxes, but it’s a decision that should be carefully considered by anyone considering this route.