Most winners choose the lump sum option, even though it’s less than half of the total jackpot amount.
That way, they get the most money possible right after winning, rather than receiving annual payments. In this case, those payments would be roughly $23 million a year after federal taxes are deducted. With the lump sum payout, winners are theoretically able to invest and start growing the funds right away.
However, Mark Cuban, self-made billionaire and star of ABC’s “Shark Tank,” thinks winners should take the annuity instead. Here’s why.
Cuban advises winners not to take the lump sum, largely because there are no guarantees that they will invest it properly.
“Don’t take the lump sum,” Cuban told the Dallas Morning News in 2016. “You don’t want to blow it all in one spot.”
Instead, by taking the annuity payout, you are guaranteed to receive the highest take-home winnings possible. The payments will also be doled out every year, making it impossible to misspend all of the jackpot right away.
To take home as much with the lump sum option, you’d need to make up the nearly half-billion dollar difference in through shrewd investments. But not everyone is good at investing.
“You don’t become a smart investor when you win the lottery,” says Cuban. “Don’t make investments. You can put it in the bank and live comfortably. Forever.”
If you stash your winnings in the bank, you probably won’t get the highest possible return compared with riskier investments. But in doing so, you’ll “sleep a lot better knowing you won’t lose money,” he says.
“If you were happy yesterday, you are going to be a lot happier tomorrow,” Cuban told the Dallas Morning News. “Life gets easier when you don’t have to worry about the bills.”
Cuban also offered this advice to jackpot winners: “Hire a tax attorney first,” before you claim the money. They will help you figure out a plan to ensure that you make the most of your annuity.
Disclosure: CNBC owns the exclusive off-network cable rights to “Shark Tank.”
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