Lottery Annuity Calculator

A jackpot is thirty payments, not a pile of money

The headline figure on a lottery jackpot is almost never a sum of money anybody receives. It is the total of a schedule of payments stretched over decades, and on most large games those payments get bigger each year.

This tool builds that schedule. Give it the advertised total, the number of years, the annual increase and a tax rate, and it prints every year: gross payment, tax, net, and a running total.

Two things fall out of it that the headline number hides. The first year's payment is far smaller than dividing the jackpot by the years would suggest. And the whole schedule, valued in today's money, is worth a fraction of the advertised figure, which is exactly why the lump sum alternative looks so disappointing.

Four fields

1. Lottery Winnings. The advertised jackpot, meaning the total of all the annuity payments.
2. Number of Years. How long the schedule runs. Thirty is standard on the large US games.
3. Payout Increase. The percentage each payment rises by annually. Five percent is typical.
4. Estimated Effective Tax Rate. Applied to every payment.

You get a year by year table plus totals for gross, tax and net.

The increase field has to be above zero. At exactly zero the formula that derives the base payment divides by zero, so for a flat schedule enter a very small figure such as 0.01 and read the payments as effectively level.

How the schedule is built

The tool works backwards from the total. It knows what everything has to add up to, and it has to find the first payment that makes a rising schedule sum to exactly that.

That is a geometric series, and the base payment comes from:

Base payment = total ÷ [((1 + g)ⁿ - 1) ÷ g]

where g is the annual increase and n is the number of years.

Then each year's payment is the base grown forward:

Payment in year y = base × (1 + g)^y-1

Tax is applied at the flat rate to each payment, and the net is what remains.

The bracket in the first formula is doing something worth understanding. It is the sum of a growing series, and on a thirty year schedule at 5 percent it comes to about 66.4. So the base payment is the jackpot divided by 66.4 rather than by 30, which is why the first payment is so much smaller than people expect.

A million over thirty years

Jackpot 1,000,000, term 30 years, increase 5 percent.

The base payment works out to 15,051.44.

The final payment is 4.12 times the first, and all thirty together sum to exactly the million.

Now the comparison people actually make in their heads. A million over thirty years sounds like 33,333 a year.

The first payment is 15,051. Less than half of that.

You do not reach 33,333 a year until year eighteen. For the first half of the schedule you receive less than the simple division suggests, and the amount is smallest exactly when the win is most recent and the temptation to spend against it is highest.

That gap between the intuitive figure and the actual first payment is the most useful thing this calculator produces.

Why the lump sum offer is so much smaller

Every large lottery offers a choice: the advertised jackpot paid over decades, or a smaller cash amount now. The cash figure is always startlingly lower, and people assume they are being short-changed.

They are not, and the arithmetic explains it cleanly.

Money arriving in thirty years is worth less than money arriving today, because today's money can be invested, and because prices rise. Valuing the whole schedule in today's terms means discounting each payment back by the number of years you wait for it.

An advertised million, valued honestly in today's money, is worth somewhere between a third and three fifths of a million depending on the rate you use.

Which is why a cash option of roughly half the headline is not a bad deal. It is approximately what the schedule is worth.

This tool reports nominal totals rather than present values, so the totals row will always add up to the headline figure. To compare against a cash offer properly, discount the schedule yourself, or use the lumpsum calculator to test what the cash option would grow to over the same thirty years and compare that against the annuity total.

The comparison that matters is not a million against half a million. It is a schedule of rising payments against a smaller sum you control immediately, and the second wins if you can earn more on it than the discount rate implied by the offer.

Why the payments rise

A rising schedule looks generous and it is really about keeping the payments level in real terms.

Over thirty years, prices rise. A payment of 33,333 in year thirty buys considerably less than the same figure in year one. A schedule that increases each year is designed to offset that, so that what arrives is roughly constant in purchasing power rather than in currency.

Compare the two shapes on our million:

The graduated version starts 18,282 lower and ends 28,620 higher. Same total, very different experience.

Whether the increase actually protects you depends on how it compares with inflation over those thirty years. At 5 percent against inflation averaging 3, the payments grow in real terms. At 5 percent against inflation averaging 6, they shrink despite rising every year.

That is the honest way to read the increase field: not as growth, but as an attempt to stand still.

The tax rate box, and why a flat rate flatters the annuity

The tool applies one rate to every payment for thirty years, which is a simplification in two directions.

It assumes rates never change. Over three decades, tax law reliably does. A rate that is right in year one is a guess by year fifteen and a fiction by year thirty.

It ignores that each payment is separately taxed. This is the more interesting one, and it works in the annuity's favour.

A lump sum of a million is a single year's income, and almost all of it lands in the top bracket. A payment of 15,051 in year one is a modest amount of income, taxed at whatever rates apply to a modest amount of income, which in a progressive system is far gentler.

So the effective rate on an annuity is genuinely lower than on the equivalent lump sum, and by more than most comparisons allow for. The tool cannot show that with a single flat rate.

A practical approach: run it twice. Once at a low rate reflecting the early years when payments are small, and once at a higher rate reflecting the later years when they are four times larger and may attract a higher bracket. The truth is between them.

And note that whatever is withheld from each payment at source is a prepayment rather than a settlement, exactly as with a lump sum. The lottery tax calculator covers that distinction, and it applies to annuity payments too, since the withholding rules apply whether winnings are paid in cash or as an annuity.

What the number cannot decide for you

The schedule is arithmetic. The choice between it and a lump sum is not, and the arithmetic only settles part of it.

What the annuity gives you is protection from yourself and from other people. Thirty years of payments cannot be spent in one bad year, lost in one investment, or given away in one moment of generosity. For a great many winners that structure is worth more than any rate of return.

What the lump sum gives you is control. If you can reliably earn more than the discount rate embedded in the offer, the cash is worth more. It also lets you clear debts immediately, which no schedule can.

Three things worth knowing that sit outside both.

Annuity payments depend on the payer continuing to pay. In practice large lotteries fund these with government-backed securities, which is about as secure as a promise gets, and it is still a promise rather than money in your hand.

The treatment of remaining payments on death varies by game and jurisdiction, and it is worth establishing before choosing rather than after.

And the decision is usually irrevocable, with a short window to make it.

This is a planning estimate based on figures you supply. A prize of any size worth modelling is worth professional advice before any decision, and nothing here is tax, legal or financial advice.

Questions people ask

Why is the first payment so much lower than the jackpot divided by thirty?

Because the payments rise each year, so the early ones must be smaller for the total to come out right. On a million over 30 years at 5 percent, the first payment is 15,051 rather than 33,333.

How is the schedule calculated?

The base payment is the total divided by the sum of a growing series, then each year multiplies the base by one plus the increase, compounded. On our example the divisor is about 66.4 rather than 30.

Why do the payments increase?

To offset inflation, so that what arrives stays roughly constant in purchasing power. Whether it succeeds depends on how the increase compares with actual inflation over the term.

Why is the cash option so much lower than the jackpot?

Because the jackpot is a nominal total of payments spread over decades. Discounted into today's money, a million over 30 years is worth between about 325,000 and 587,000 depending on the rate used.

Should I take the annuity or the lump sum?

The arithmetic favours the lump sum if you can earn more than the discount rate implied in the offer. The annuity offers protection from spending it all, which for many winners matters more than the return.

Can I model a flat schedule with no increase?

Not at exactly zero, since the formula divides by the increase rate. Enter a very small value such as 0.01 and read the payments as effectively level.

What tax rate should I use?

There is no single right answer over thirty years. Run it at a low rate for the early small payments and again at a higher rate for the later larger ones, and treat the truth as somewhere between.

Is an annuity taxed more lightly than a lump sum?

Generally yes, because each payment is separate income in its own year rather than one enormous amount landing in a single top bracket. A flat rate applied to every year cannot show that advantage.

References

The payment schedule uses the standard sum of a growing geometric series, and the present values quoted are the discounted value of that schedule, both following standard financial mathematics as set out in university materials for the actuarial syllabus. The point that withholding applies whether winnings are paid in cash or as an annuity, and that winnings not paid in cash are taken into account at fair market value, comes from Internal Revenue Service Publication 505. The regular gambling withholding rate applying to lottery winnings, and the treatment of that withholding as a prepayment rather than a final tax, come from the IRS instructions for Forms W-2G and 5754.

1. Internal Revenue Service, Publication 505: Tax Withholding and Estimated Tax. https://www.irs.gov/publications/p505
2. Internal Revenue Service, Instructions for Forms W-2G and 5754 (revised January 2026). https://www.irs.gov/instructions/iw2g
3. Miguel A. Arcones, Binghamton University, Manual for SOA Exam FM, Chapter 4: Amortization and Sinking Funds. https://people.math.binghamton.edu/arcones/exam-fm/sect-4-1.pdf
4. J. Robert Buchanan, Millersville University, Loan Repayment, MATH 372 Financial Mathematics I. https://sites.millersville.edu/rbuchanan/math372/LoanRepayment-handout.pdf