The Price of Victory: What Does It Cost to Win the Lottery?

annuityWinning the lottery isn’t cheap. Sure, you suddenly have a potentially vast fortune, but at what cost does it come? Here are a few surprising facts you might not know.

Taxes
You probably know that a big chunk of a winner’s lottery money goes to taxes, but do you know how much? Right off the top, the lottery typically withholds about 25% for federal taxes, and then — depending on the winner’s tax bracket and the state he or she lives in, another 6-9% for federal taxes. This means that you might lose more than one-third of your sudden fortune to taxes. Then again, it’s still a whole lot more than what you had before.

Surrender Fees
When you win, you have two choices. You can accept your money as a lottery lump sum payout or as a lottery annuity settlement. A lump sum payout pays out all the money in one go, while an annuity pays it out over time. The Mega Millions annuity, for example pays out one immediate payment, followed by 29 annual lottery payments that grow by 5% with each consecutive payment. The annuity is usually a good option if you’d like to avoid paying as much in taxes (see above), but what happens if you need more than what the payments provide? You can sell your annuity, but will have to pay a 10% surrender charge.

Personal Costs
Winning the lottery doesn’t only cost you financially. It can potentially cost you friends and family. Research shows that 5% of couples get divorced after winning the lottery; 37% of families claim to be less happy; and 10% do not remain best friends with their buddies after winning the lottery. That may not sound like a lot, but put in another context, one in 20 couples get divorced after winning the lottery; more than one in three families are less happy after winning; and one in 10 lose their best friends. Who would have thought that winning the lottery could cost so much? Then again, the price of victory really isn’t too high, all things considered. If you have any questions, feel free to share.

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