After you win the lottery, you have two important decisions you need to make. First, you need to decide how to accept your winnings. Do you choose a lottery lump sum payout or a lottery annuity settlement? The former pays out the whole shebang in one go, while the latter sets up yearly lottery payments. Second, you need to decide how you’ll spend that money. If you’re as smart as you are lucky, then chances are you’ll make wise investments with it. If you’re not, then chances are you’ll end up like one of these winners.
Suzanne Mullins’ lucky day came in 1993 when she won the U.S. lotto. After choosing to take her money as an annuity, she soon found herself in debt. She’d taken out a $200,000 loan, and used her lottery payments as collateral. Eventually, she sold her annuity… but never paid back the loan. The lending company sued her and won, but it was a hollow victory. She had no money or assets with which to pay the $154 million settlement.
Vivian Nicholson won the lottery in 1961, and let the public know that she was going to just spend it all. Apparently, she wasn’t kidding. She ran through her millions in years, without setting aside any at all. The worst part is that she spent it all on the latest fashions. Four years after winning, she filed for bankruptcy.
Michael Carrol won England’s lottery in 2002, and soon came to be known as the “lotto lout.” He bought houses, cars, jewelry — the works. He also used the backyards of his new homes for demolition derbies that featured the expensive cars he’d bought with his lottery winning. Needless to say, his overindulgence soon led to his financial downfall. The choice between a lump sum payout and an annuity should be determined by how you’ll spend the money. If you’re going to make a large investment, go for the lump sum. If you’re not entirely sure how you’ll use your money, an annuity might be the wiser choice. The Mega Millions annuity is paid out as one immediate payment followed by 29 annual payments. Each payment is 5% bigger than the previous one. Meanwhile the Powerball annuity payout schedule consists of 30 annual payments that increase over time. Keep in mind, the lottery withholds 25% for federal tax, then, depending on your tax bracket and where you live, it’ll hold another 6 to 9% for state taxes. Because an annuity pays out annual payments, and because tax rules change, less of your money will be taken.
What you do after choosing though is up to you. Just don’t make the same mistakes as these folks.