When the jackpot for a lottery drawing hits a record size, people start buying armloads of tickets. They’re doing so despite the fact that, no matter how big the jackpot is, the expected payoff for each ticket is negative. The reason? A big jackpot is often advertised incorrectly.
In a Pari-Mutuel system, which is used by EuroMillions and the US Powerball, each prize category receives a percentage of total ticket sales. This means that the jackpot grows based on ticket sales and interest rates, rather than a fixed amount of money.
If you’re lucky enough to win the big prize, you’ll be paid out in one lump sum or an annuity. A lump sum is a single payment of the jackpot value after taxes, while an annuity spreads the payments out over 30 years. If you die before the final payment is made, the remaining balance will be part of your estate.
But even if you win the lottery, there’s no guarantee that the money will make you happy. The problem is that your winnings will be drained by taxes, fees, and other expenses before you ever see a penny. That’s why winning the jackpot is never a good substitute for a full-time job.