What Should You do if You Win the Lottery?
There are many important decisions to be made if you find yourself to be a lucky lottery jackpot winner; perhaps the most important of these decisions is lump sum or annuity? A massive majority of Powerball and Mega Millions winners opt for the lump sum – 98% of them, in fact.
Regardless of this statistic, many financial consultants will actually advise winners to take the annual payments, especially when considering that approximately 70% of winners burn through their money within five years or less. When taking annuity, if you burn through your first yearly payment of a couple million, at least you know there is more coming, giving you time to figure it out.
Lump Sum VS Annuity
Let’s take the record $656 million Mega Millions jackpot of 2012, for example. If you were living in one of the eight states that don’t impose tax on lottery winnings, you’d walk away with a lump sum of $308 million. If you were living in New York City, which imposes the highest percentage of taxes, you’d have pocketed just $269 million.
Lottery Lump Sum
So, if spacing out your winnings over a period of 30 years means that you get more money, why is everyone taking the lump sum option? The answer is actually pretty obvious: people want to make extravagant purchases as soon as they win. They want to feel rich; they don’t want to be conservative and responsible, they want to make irresponsible choices because they can afford to in a way that they never thought they could. They want to enjoy a massive lifestyle change, and who can blame them?
People are also perhaps nervous about not having the time to enjoy all the money over 30 years. For the 84-yearl-old Gloria MacKenzie who won the $590 million Powerball jackpot, it seemed more logical to take the $370 million cash payout.
I Just Won the Lottery – I Won the Lottery Now What?
The bottom line is this: if you are lucky enough to get that once-in-a-lifetime win, don’t squander it! Before making any rash decisions, consult with a financial adviser to work out the best possible option for you so that you can live a happy, luxurious life for the rest of your days.
So You’ve Won the Lottery, Now What?
After confirming your win, jumping up and down, and doing your happy dance, there are some important aspects to consider once you become an instant millionaire.
Lump Sum or Annual Installments?
Most lotteries offer the option of getting the cash in one lump sum, or having it paid out to you over a number of years. There are pros and cons to both, for example, in lotteries where tax is deducted (i.e. Powerball and Mega Millions), a lump sum will mean a smaller payout, but if you’re worried about blowing all your cash, yearly installments could help discipline your spending. It may be wise to seek advice from a tax professional to decide which option will suit you, specifically.
Pay off Your Debts
This is the best advice that anyone can give you. Debt is like a dark, heavy cloud that constantly hovers above you. Whether it is a mortgage, credit card debt, or a student loan, pay it off immediately!
If the state or country rules allow it, try stay anonymous. The idea of fame and media attention may sound glamorous, but it can also bring a lot of unwanted attention of the wrong kind. Soon you’ll be badgered by long-lost “friends”, relatives, or even charities asking for handouts.
Get a Financial Advisor
In these types of situations it may be difficult to know who to trust and just how to preserve your money. Should you invest your money? Set up a trust? Buy that yacht? How much can you afford to give away without inadvertently bankrupting yourself? These are very important questions that will need the right answers; answers that can be given logically by a financial planner/consultant.
It seems hard to believe, but your millions can be squandered very quickly if you don’t make the right decisions. The now-infamous Jack Whittaker is a testament to that: in 2002 he won $315 million in the Powerball. He ended up blowing it on alcohol, gambling and strip clubs; was robbed several times due to his callous nature (carrying around briefcases containing thousands of dollars); and had employees embezzle from him.
You may also enjoy reading – How to Win the Lottery