If You Win Mega Millions or Powerball, Should You Take the Cash Payout?

iStock.com/mphillips007
iStock.com/mphillips007

Mega Millions has reached a record-breaking jackpot of $1.6 billion, which means your individual chances of taking home the winnings are less than one in 300,000,000. (And, amazingly, Powerball is currently at a not-too-shabby $620 million.) But it doesn't hurt to be prepared: If your ticket matches the winning numbers, here's the first decision you need to make before your life changes.

While $1.6 billion is the number that's being advertised, Mega Millions won't be handing over a check for that amount to the winner. Whoever holds the winning lottery ticket will be given two options: They can collect their winnings as a one-time lump sum that's less than the value of the total jackpot (in this case, it would be $904,900,000), or they can receive the full amount in annual installments stretched out over 29 years. Winners who choose the installment or annuity plan will be given one large payment upfront followed by checks that grow by five percent each year.

Collecting the money and running is tempting, and it's the option that most lottery winners end up choosing. But according to money experts, that's the wrong move—not only because you're getting less money in the long run, but because it leaves you vulnerable to bad luck and poor financial planning. "If you get a huge lump sum, it's easier to make a mistake, whereas if you choose the annuity, then at least if you mess up and blow the first year's worth, you have another chance," financial planner Nick Coleman told CNBC last year.

Even Shark Tank investor Mark Cuban agrees that annuity is the safer bet. In 2016, he told the Dallas Morning News that it helps winners avoid blowing all their winnings at once.

No matter which option winners choose, they can't avoid losing a sizable chunk of their prize to taxes. After state and federal taxes, the lump sum of the latest Mega Millions jackpot will come out to between $607,000,000 and $687,724,000—and that's not including what the winner will have to pay come tax season. But if they opt for the annuity plan they'll end up with $1 to $1.2 billion after 29 years.

Determined to Save Money This Year? Try the App That Invests Your Spare Change Automatically

iStock.com/PeopleImages
iStock.com/PeopleImages

If you just started getting into the habit of putting money into a savings account, the thought of investing that cash can feel intimidating. But investing a tiny bit is often better than not investing at all, even if you only have literal pennies to spare. That's the idea behind Acorns, an investment app that invests your spare change automatically without you having to think about it, according to NerdWallet.

To use it, you link your debit or credit cards to your Acorns account. The app then keeps track of every purchase you make, and with your permission, it rounds up those transactions to the nearest dollar, transferring that spare change to an Acorns investment portfolio.

These individual investments are almost too small to notice, and that's the point. Instead of investing an intimidating portion of your savings all at once, you invest small amounts that add up over time—hopefully making your money back and then some, with little risk or effort on your part. Acorns also gives you the option to choose how risky you want to be with your investments, with levels ranging from conservative to aggressive.

If you ever decide you're ready to start investing more than a few cents at a time, Acorns allows you to transfer larger amounts of money into your investment account, too, as long as it's more than $5. And if you ever feel like you're letting go of too much, you can shut off the automatic feature and choose which transactions to round up and invest manually.

To sign up for the service, you have to be willing to put down a little more than pocket change. Investing in one of its pre-built portfolios requires a minimum balance of $5. On top of that, you need to pay $1 a month for a taxable investment account, $2 a month for an IRA account, or $3 a month for both types of investment accounts and an Acorns checking account. (College students with a functioning .edu email address are eligible to try the taxable investment service free for four years.)

Now that your investments are taken care of, check out these other apps that can make being an adult less stressful.

[h/t NerdWallet]

If You Can Save $500 a Month Toward Retirement, Here's How Much You'll End Up With

iStock.com/BrianAJackson
iStock.com/BrianAJackson

You don’t need to be a master money strategist to know that setting aside funds for your eventual retirement is a necessity. While it might be tempting to keep cash in your pocket now and assume the Social Security benefits that will kick in later will keep you afloat, the reality is that many people won’t receive enough livable income from that government program, especially with the mounting medical bills that advanced age can bring.

Unless you plan on working a full- or part-time job indefinitely, saving now will provide you with a far more comfortable third act in life. If you’re wondering how, CNBC recently broke out their retirement savings calculator to estimate what the average person can expect to end up with at age 67 if they set a goal of saving $500 per month.

At 25 years old and calculating a four percent rate of return, a retiree would have $628,918 in the bank. At six percent, it would be $1,055,703.

Obviously, the earlier you start to save, the better. But it’s never too late. If you begin saving at age 30, you’ll have $490,213 accrued at a four percent rate of return, or $763,609 at six percent. Starting at age 40 will net you $282,505 at four percent. Starting at age 50 is predictably less rewarding: at four percent interest, you’ll have $142,185.

Most people can, of course, do these back-of-napkin estimates themselves using amounts better suited to their own specific situations. Even saving as little as $200 a month early in life might make the difference between enjoying your retirement without obligation or clocking in for part-time work. 

[h/t CNBC]

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