Once the initial euphoria wears down and you are “Snoopy Danced” out. Sorry I have no idea how long that takes. The moment will come when you have to make some decisions about how to receive your lottery winnings.
Everyone seems to assume the winner or winners, (yes brace yourself you are likely going to have share the jackpot with other winners) will take the jackpot as a lump sum. The biggest winner of all is government at all levels. Each state involved gets a cut of the ticket sales and the state or states where the jackpot winners live get to tax the jackpot. Yesterday State Senator Tim Carpenter (D) WI put out a press release about his plans for spending the estimated $65,790,000 tax windfall if a Wisconsin resident won the $1.4 billion. This windfall of state income tax pales in comparison to federal tax take at 39.6% ($343,728,000).
If the winner is a Wisconsin resident who decides to take the estimated lump sum payout $868,000,000 they would realize a net after tax payment of $458 million ($458,482,000.) This is only 33% of the $1.4 Billion. That’s right if a winner takes the jackpot in a lump sum they only get a check for 33% of the winnings. Of course that is still a life changing amount of money.
Almost all financial advisors, lawyers, accountants, bankers and other investment advisors tell the winner to take the lump sum because they will quickly make back the annuity reduction and tax bite. A client with $458 million is big in the financial and legal industry. Inside they are referred to as whales or elephants. So it’s hard for many advisors to tell this potential client to take the larger $1.4 Billion as an annuity payment over 30 years.
Annual annuity payment is about $46.7 million ($46,666,666) State and federal tax each year is $22,049,999 this nets the winner $24.6 million ($24,616,667) after taxes each year for 30 years. That is a seriously nice income payment which would leave a substantial amount to invest each year after all the celebratory spending. Best of all the winner will receive a total $738,500,000 compared to $$458 million net lump sum.
Advantages of annuity payments
- Minimize taxes
- Guarantees $24.6 million income for 30 years
- No investment risk, all investments come with the risk of loss.
- Helps prevent fraud
- Spend thrift tendencies will not wipe out winnings in one year
One of the biggest arguments against an annuity is “your money is tied up.” Wrong. Not these days. There are investor groups who buy annuities. They compete against each other because an annuity income is valuable. If a winner changes their mind later and wants a lump sum for whatever reason they can sell the annuity payments to the highest bidder. In the current economic conditions this would net the winner about 15-20% more than taking the lump sum payment immediately from the Powerball lottery.
A winner has 180 days to claim the Powerball before their ticket expires. Winner has 60 days from the date of their ticket claim to chose the lump sum. Then the annuity payment is mandatory and there is no changing that from the lottery. Historically only a handful of winners take the annuity option leaving a pile of cash on the table. If many of these had waited 61 days they could have sold their annuity and had more money in their account.
How to stay anonymous:
Good luck with that. These days it’s impossible to keep secrets. Thanks to the internet and other technology society gets more and more transparent everyday. So even in the handful of states have laws to allow jackpot winners to stay anonymous they’ll be found out. Most states require winners to go public.
Changing your name to claim the prize and then changing back again will not work. All states forbid changing a name when fraud is intended. If a state requires disclosure of the winner and they change their name… Sure looks like a fraud. No reason to go there. Many states require name changes be published in the local newspapers for a period of time. Where are newspapers published these days? Online.
No hope of anonymity so it’s best to make plans to deal with your rock stardom should fate see fit to pick you. And that will be the topic of a future post.