Americans spend $70 billion annually on lottery tickets – and around 1,500 people each year become the lucky individuals who win more than a million dollars.
Like structured settlements, lottery winnings can be issued in the form of an annuity. This means that instead of taking a lump sum right away, the winner takes payments. Lottery winners can then choose to sell those payments later, transforming the winnings back into a lump sum.
If one fateful day you find yourself the winner of a huge jackpot, it's important to know the implications, as well as your options.
Winners of the lottery have a choice: Take a (smaller) lump sum or take an annuity that pays out little by little each year. In total, the annuity results in more money over time.
Three out of the one hundred and two total Powerball winners have chosen to take the lump sum over the annuity. However, taking the cash upfront means you get a smaller amount of money in the end.
Often times, taking the annuity leaves you the opportunity to take a lump sum later. Twenty-eight states allow lottery annuity owners to sell all, or a portion of, their future payments.
The process works in the same way, and through the same channels, as selling a structured settlement:
When people come into a lot of money, it’s common to feel pressure to suddenly live like they’ve always imagined the ultra-rich to live. However, like most things on television, it’s mostly smoke and mirrors and little substance. This can cause a winner to need to turn to selling their future payments.
No matter how large it may seem, the winnings aren’t a bottomless pit of money.
When you win the lottery, you can do anything. You can buy a yacht. You can become an angel investor for small businesses. But that doesn’t mean you can buy all the yachts or invest in all the businesses.
Even seemingly necessary purchases can end up costing a winner money later. Owning a house, for example, requires the payment of taxes. Owning a multi-million dollar home can require proportionately larger taxes each year.
Most millionaires stay millionaires because they have budgets. It’s a good idea to work with an expert to develop, and stick to, a budget.
Hire a licensed therapist. Winning the lottery is a big change for not only your life, but for your identity and your relationships with those around you.
Ensuring your therapist is licensed is important. A licensed therapist of any brand, by law, cannot disclose what you talk about (unless you threaten to harm yourself or others). This ensures you can trust in their silence through this difficult time.
Many lottery winners say that the best thing they’ve been able to do after winning the lottery is help others. That said, it’s important to be smart about it. Don’t donate one giant sum all at once.
Instead, make a series of planned smaller donations, like $100,000 a year for ten years. This gives you a chance to hold the organization accountable for using the money wisely.
Don’t start handing money out to people, close or otherwise. Once people see you as an ATM machine, there’s no stopping that association in their mind.
Lottery winners receive thousands and thousands of sob stories asking them for help. Some of which are real, many of which are not. Either way, you cannot help everyone.
Decide what initiatives and charities you’re prepared to help with. It’s a good idea to pay someone else to sort your mail and correspondence so you can easily identify those causes you’re not interested in.
You won the lottery, so that means you can travel the world with all 23 of your best friends, right? Not so fast. Supporting several people burns through money faster than most people can imagine.
Find ways you can hang out with people that don’t involve you footing the bill. True friends will remain your friends even when the money is off the table.
Set up an amount of your money that will be devoted to family. It may seem cold to be so calculated about your generosity towards the people you love, but this is in everyone’s best interest.
Don’t hand out cash. You don’t want to become the welfare department for your family. Instead, work with your attorney to set up a series of trusts to provide money for higher education, as well as funds toward the purchase of a home they can afford the remaining mortgage on.
You might be thinking, how can a lottery winner run out of money and need to cash out future payments? But the truth is, it is sadly common for lottery winners to struggle after hitting it big.
Lotto winners are:
Winning the lottery dramatically changes your life, and coping with that stress can be profoundly challenging. Not only that, lottery winners often find they are more likely to encounter unlucky events in the future. It’s important to take the time to make calculated decisions about your future – after the shock of the win wears off.