Any large lottery winners that didn't squander their winnings?

[Omar Little]

We always hear the stories about the big time lotter winners that are broke 7 years later. Are there any stories about lottery winners that bought companies, invested wisely, etc. and have subsuequently doubled their fortunes?

[TriPolar]

Here are some. It's just not a great story for the masses. The public seems to prefer stories where the mighty fall, or the destitute are saved by good fortune. But the lucky winners investing wisely and succeeding don't sound much different than the winners in "life's lottery" who inherit fortunes or gin the system to their advantage.

[Queen Tonya]

There's a family in my neighborhood who did well. The father won something like a million and a half, two million maybe, almost 20 years ago. He bought 3 lots and had a large but not crazy huge house built, and a large pole barn with lots of parking, put in a pool..nothing super extravagant but nice. He then bought a couple used limousines and started his own limo service. Considering our neighborhood is three miles from a large international airport, good idea.

As his kids grew up, a couple of them joined the business and one went to school and became a doctor. The business is still doing well, even in this economy, and the two kids in the business with him bought the lots on either side of him. They have almost an entire block to themselves and seem to be doing well.

[Shakester]

I've met someone who won multiple millions 15 or so years back. He's a friend of my ex's family. Seemed like a nice guy. He paid off his mortgage, bought houses for his children, gave some money to charity. He's still living comfortably off his investments or whatever you do with massive amounts of money.

I think most big lottery winners don't squander it, it's just a meme.

[scamartistry]

Originally Posted by Shakester

I've met someone who won multiple millions 15 or so years back. He's a friend of my ex's family. Seemed like a nice guy. He paid off his mortgage, bought houses for his children, gave some money to charity. He's still living comfortably off his investments or whatever you do with massive amounts of money.

I think most big lottery winners don't squander it, it's just a meme.

Johnny Bonanza, a guy at my work, won 50 dollars every month for the next 10 years. Did change his lifestyle a bit to be sure, but he is still the jolly good 'ol JB that I used to know.

[silenus]

I'd say most of them don't squander it. Basic math, really. All the stories mention the same couple of dozen losers. But there have been how many winners since the lotteries started? You just don't hear about the sane people.

[pkbites]

The step-dad of a guy I went to high school with won 8 million way back in the lat 80's and did quite well with it. He was already a successful business man, and the at that time the money was paid in 25 annual installments.

The wife of one of my very best friends won $350K 5 years ago. Not a huge amount I know, but an amount that could be quite easy to piss away. Instead they paid off their mortgage and all their bills, traveled a bit and put about 100k in some low risk investments.

[jpl1019]

I'm sure there are lots, as others have said. It can be hard to find "Dog Bites Man" stories though even if they are everywhere.

[computergeek]

Is it more likely that one will squander their winnings if they get a lump sum vice getting it in installments over a set number of years?

[Shakester]

Originally Posted by computergeek

Is it more likely that one will squander their winnings if they get a lump sum vice getting it in installments over a set number of years?

In Australia, all the lotteries are lump-sum. The man I mentioned in my post got "multiple millions" (that's how it was described to me) in one go.

Instalments, to me, smack of the patronising "poor people are poor because they're idiots with money" meme. Is that the official rationale in the US, or is there some other reason for paying by instalment?

[RandomLetters]

The reason the US has a pay by installment method is so that they can show a higher number for the jackpot, which gets people more excited, and gets more of them playing. The lottery then can say its a $100 million jackpot, but only needs to put away ~$50 million into very conservative investments (usually US treasury bonds) to pay out the jackpot over 30 years. If you take the lump sum, you only get the the $50 million, but with even mildly risky investments like tax-free municipal bonds, or high grade corporate bonds, you would be better off over all.

[Shakester]

Originally Posted by RandomLetters

The reason the US has a pay by installment method is so that they can show a higher number for the jackpot, which gets people more excited, and gets more of them playing. The lottery then can say its a $100 million jackpot, but only needs to put away ~$50 million into very conservative investments (usually US treasury bonds) to pay out the jackpot over 30 years. If you take the lump sum, you only get the the $50 million, but with even mildly risky investments like tax-free municipal bonds, or high grade corporate bonds, you would be better off over all.

Ah, bait and switch. Thanks for explaining.

[Bill Door]

If I win the lottery I plan to spend most of it on forty year old scotch and 20 year old hookers. I may squander the rest.

[commasense]

What, no blow?

[Shagnasty]

Originally Posted by silenus

I'd say most of them don't squander it. Basic math, really. All the stories mention the same couple of dozen losers. But there have been how many winners since the lotteries started? You just don't hear about the sane people.

I don't know. I only know one know one lottery winner personally. He is my ex wife's uncle. I wish I could use him as a positive example but nope, I think he wrote the book on how to screw up your life the most ways possible after winning the lottery.

[silenus]

The four people who I know who won are still down-to-earth, reasonable people who spent their winnings wisely.

4 beats 1, right?

[Dallas Jones]

Originally Posted by RandomLetters

The reason the US has a pay by installment method is so that they can show a higher number for the jackpot, which gets people more excited, and gets more of them playing. The lottery then can say its a $100 million jackpot, but only needs to put away ~$50 million into very conservative investments (usually US treasury bonds) to pay out the jackpot over 30 years. If you take the lump sum, you only get the the $50 million, but with even mildly risky investments like tax-free municipal bonds, or high grade corporate bonds, you would be better off over all.

Oh, please, the lump sum pay-out is the "sucker's bet". What "mildy risky" investments will allow you to double your money safely to get back to the amount of the original jackpot?

For any given jackpot the lottery only has half the amount of the jackpot on hand. Say the jackpot is $100 million, the lottery has only $50 million dollars in the pot. And they are happy to give you that money in a lump sum pay out and be done with you. They still get the advertising benefit of saying that you won a $100 million dollar jackpot.

But you are going to be heavily taxed on this huge one time payment and end up with $25-30 million left, maybe. And then you are going to spend none of this money and invest it how to get back to the original $100 million?

If you take the payout over time, the annuity, you will be taxed at a lower rate for each payment and receive the full jackpot, minus the taxes over time.

But most people do not want to wait and are happy that their $100 million is really only $25 million.

[Quartz]

Originally Posted by Dallas Jones

If you take the payout over time, the annuity, you will be taxed at a lower rate for each payment and receive the full jackpot, minus the taxes over time.

Here in the U.K. it's the full amount only. In America, is the annuity index-linked?

[BigAppleBucky]

Originally Posted by RandomLetters

The reason the US has a pay by installment method is so that they can show a higher number for the jackpot, which gets people more excited, and gets more of them playing. The lottery then can say its a $100 million jackpot, but only needs to put away ~$50 million into very conservative investments (usually US treasury bonds) to pay out the jackpot over 30 years. If you take the lump sum, you only get the the $50 million, but with even mildly risky investments like tax-free municipal bonds, or high grade corporate bonds, you would be better off over all.

BINGO!

My personal rule of thumb is to divide the notional (advertized) prize amount by 4 to get the real after tax cash prize.

Given that interest rates are so low these days, I suspect dividing by three might get a more accurate answer, but I haven't bothered to prove that to myself.

Back in the 80's when interest rates were much higher, you had to divide by five.

So that $500 million recent prize was more likely worth $125 to $167 million after "annuity interest" and taxes.

Generally take the cash amount. Even if you can't invest it better than they can, you'll help your family avoid an estate tax trap if you die. Estate tax is owed on the entire remaining balance to be paid out on the prize annuity. Families in that situation would have to borrow against the future winnings which obviously will be done at rates favorable to the lender.

[silenus]

Originally Posted by Dallas Jones

Oh, please, the lump sum pay-out is the "sucker's bet". What "mildy risky" investments will allow you to double your money safely to get back to the amount of the original jackpot?

I disagree. With the economy in the shitter and interest rates down, the lump sum is more like 75%. In fact, the cash payout for the current MegaMillions is 73.333%. I can invest much more wisely than the clowns at the lottery commission, who have to play it safe. Invest in a couple of index funds like Janus and Roberta's your aunt's live-in lesbian lover.

[Shagnasty]

Originally Posted by Dallas Jones

Oh, please, the lump sum pay-out is the "sucker's bet". What "mildy risky" investments will allow you to double your money safely to get back to the amount of the original jackpot?

For any given jackpot the lottery only has half the amount of the jackpot on hand. Say the jackpot is $100 million, the lottery has only $50 million dollars in the pot. And they are happy to give you that money in a lump sum pay out and be done with you. They still get the advertising benefit of saying that you won a $100 million dollar jackpot.

But you are going to be heavily taxed on this huge one time payment and end up with $25-30 million left, maybe. And then you are going to spend none of this money and invest it how to get back to the original $100 million?

If you take the payout over time, the annuity, you will be taxed at a lower rate for each payment and receive the full jackpot, minus the taxes over time.

But most people do not want to wait and are happy that their $100 million is really only $25 million.

That isn't true or at least I don't believe it is without some more concrete numbers. It may be true if you are MC Hammer but the math works fine if you have any sense. U.S. lotteries typically pay out over 20 years. It is dead simple to multiply your money over 20 years fairly safely and not that difficult to do it extremely safely. If you use the divide by 70 rule of thumb, you would need about a 5% - 6% annual return to double your money while accounting for spending at the same time. Granted, that is difficult to guarantee right now but it hasn't been historically. A mix of bonds, stocks, and cash should easily be able to do that.

I am not calling you flat-out wrong however. You seem to have thought about this and know something about it. Where I think you are going wrong is that no winner is ever getting the full $100 million no matter how it is paid out because of taxes. You are taking that from the lump sum column and not doing it the same way for the yearly payouts. I admit I don't understand why a large annuity wouldn't be taxed the same way as the lump sum (and subject to future increases) when the amounts are large enough to hit the top tax rates every year for very large lottery payouts.

What is your reasoning with numbers?

[Mister Rik]

Originally Posted by Shagnasty

I am not calling you flat-out wrong however. You seem to have thought about this and know something about it. Where I think you are going wrong is that no winner is ever getting the full $100 million no matter how it is paid out because of taxes. You are taking that from the lump sum column and not doing it the same way for the yearly payouts. I admit I don't understand why a large annuity wouldn't be taxed the same way as the lump sum (and subject to future increases) when the amounts are large enough to hit the top tax rates every year for very large lottery payouts.

I would add that if you invest the lump sum yourself, you're more than welcome to keep it invested longer than the 20 years the lottery commission would, increasing your total payout even more.

[SanVito]

Originally Posted by Quartz

Here in the U.K. it's the full amount only.

And it's tax free.

[Quartz]

Originally Posted by SanVito

And it's tax free.

Yes, but we pay tax (12.5% IIRC) on the ticket, not the winnings.

Rule #1: the government always gets your money.

[mbh]

Last time I crunched the numbers, the annuity and the lump sum had the same Net Present Value at about a 6% interest rate. At the time, you could easily get that from a passbook savings account, so the lump sum was a better option. Today, the annuity might be better.

I think the current recession is temporary, so I do my daydreaming around a lump sum.

[mbh]

I should add:

The annuity is a good deal IF you are confident that the company that dispenses it is not going to go bankrupt in the next twenty years.

The lump sum is a good deal IF you are confident that you can invest it well.

Each has benefits, each has risks.

[RandomLetters]

Time to break out the math on why the lump sum is at current interest and tax rates better than the annuity. Right, Powerball is paying out 62.6% of face value as the lump sum; Megamillions is paying out 72.5% of face value. Powerball pays out in 30 steadily increasing payments; Megamillions does 26 even payments. So I will compare Megamillions, since that part makes the math easier.

If the Megamillions face prize is $100 million, and the lump sum is $72.5 million, if you take the lump sum you will have $47.15 million left after the Federal goverment takes its taxes (I am assuming the winner lives in a state with no income tax to make things easier). The annuity winner would get $3.846 million before taxes, and $2.52 million a year, after Federal taxes. And that is assuming Federal taxes don't go up in the near future, even though the top rates are relatively low right now. The lump sum winner can structure his winnings to pay capital gain/dividend taxes, which have been lower than the income tax rates for quite some time, or even invest in tax-free municipal bonds.

Anyways, if the lump sum winner can manage even 5.35% interest after taxes each year, he would have be getting slightly more money just in interest than the annuity winner gets in payments. Granted, 5.35% is hard to get in today's markets without a fair amount of risks, but at a modest 3% interest (which can be done with a mix of rather low risk investments - there are tax-free muni bonds paying that much), he would make $1.414 million a year. If the annuity winner decided to live the same lifestyle, and invest $1.106 million a year (to have something when the annuity ran out), after the annuity runs out the annuity taker would have a $42.6 million nest egg; not quite as good as the person who took the lump sum. And having the money all at once gives you a lot more flexibility minimize one's tax liability and invest over the long term.

[glee]

Originally Posted by scamartistry

Johnny Bonanza, a guy at my work, won 50 dollars every month for the next 10 years. Did change his lifestyle a bit to be sure, but he is still the jolly good 'ol JB that I used to know.

Um, this totals just $6,000 over 10 years.
That doesn't seem like much of a Lottery win...

[Dewey Finn]

I read somewhere that if you take the annuity payout for a lottery prize and die prior to receiving the last payment, your estate owes taxes on the total remaining amount. That can be a problem for your heirs, since they may not have that much cash available.

[Shakester]

Originally Posted by glee

Um, this totals just $6,000 over 10 years.
That doesn't seem like much of a Lottery win...

It's not a large amount, but I'd be very happy to have an extra $50 a month for the next 10 years. $11.53-ish a week isn't much, but hey, you could spend it on lottery tickets.

[RandomLetters]

Originally Posted by Dewey Finn

I read somewhere that if you take the annuity payout for a lottery prize and die prior to receiving the last payment, your estate owes taxes on the total remaining amount. That can be a problem for your heirs, since they may not have that much cash available.

The Powerball lottery FAQ says that if someone getting an annuity dies, the estate has the option to cash out the rest of annuity to make it easier to divide up or pay taxes on. I do not know if that is the case for the Mega Millions lotto.

And in case anyone is wondering, annuitines from both lotteries keep paying out to the estate of the winner, if the winner dies.