$1.05 billion Mega Million jackpot is among a surge in huge payouts due to more than just luck
If it seems like lottery jackpots topping $1 billion are more common nowadays, it's because they are
DES MOINES, Iowa — Another day, another billion dollar lottery jackpot.
At least, that's how it seems ahead of Tuesday night's Mega Millions drawing for an estimated $1.05 billion top prize.
It's a huge sum of money, but such giant jackpots have become far more common, with five prizes topping $1 billion since 2021 — and one jackpot reaching $2.04 billion in 2022.
The massive prizes are due in part to chance, but it's not all happenstance. Rising interest rates coupled with changes to the odds of winning are also big reasons the prizes grow so large.
HOW DO INTEREST RATES INCREASE JACKPOTS?
Nearly all jackpot winners opt for a lump sum payout, which for Tuesday night's drawing would be an estimated $527.9 million. The lump sum is the cash that a winner has actually won. The highlighted $1.05 billion prize is for a sole winner who is paid through an annuity, which is funded by that lump sum and will be doled out annually over 30 years.
That's where the higher interest rate becomes a factor, because the higher the interest rate, the larger the annuity can grow over three decades. The U.S. is in the midst of a remarkable run of interest rate increases, with the Federal Reserve raising a key rate 11 times in 17 months, and that higher rate enables a roughly $500 million lump sum prize to be advertised as a jackpot of about twice that size.
HOW DOES THE ANNUITY WORK?
A winner who chooses the annuity option would receive an initial payment and then 29 annual payments that rise by 5% each year. Opting for an annuity has some tax advantages, as less of the winnings would be taxed at the top federal income tax rate of 37%. It also
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