The other thing is that even if you managed by some miracle to remain unchanged, others would react to you differently. Even normal, sensible friends and family are suddenly going to have their hands out. And that change in the way people act toward you is likely to change you.
For that reason, my fantasy is to inherit a large sum of money from a stranger rather than winning the lottery, because in that case, I might have a chance of keeping my privacy.
No, most of the US lotteries I am familiar with only pay out the full amount if you take the annuity option over 25 or 30 years. If you wait you might end up with something like the full jackpot.
If you take the cash option the payout is half the jackpot, because that is all the lottery has at any given time, half the advertised jackpot. And a lot of people want that cash now!! So “You won 20 million dollars!” becomes, “Here is your $10 million before taxes.”
In the US they will withhold 20 or 25% for Federal taxes but your actual tax bill for that payout will be more like 39.6%. In Oregon where I am the income taxes will be another 9.9%. 39.6 + 9.9 is real damn close to another half of your jackpot.
So you end up with somewhere around $5 million dollars. (Don’t get picky with the math and tell me it will be $7.7 mil, I am trying to keep it in round numbers).
There is a psychological effect where you think you have $20 mil (no you got 5), all your friends and relatives hear is that you have $20 mil (no we only got 5), and the spending and money requests roll in for your $20 million dollars. (you only have 5).
Now $5 million dollars, properly managed could lead to a fine, comfortable life. The key being “properly managed”.
So people plow through that $20 million dollar (it’s only 5!!) like it will never run out. In 5 or so years most of it is gone.
But you are correct about the maintenance costs of a mansion. My former boss built his dream home for about $2 million. Designed it, beautiful inside and out. Sold it after 2 years when he realized that even though he owned it, he could not afford to really live in it.
In my opinion, the real determining factor is probably how you view your windfall.
If you view it as some nearly bottomless pit of readily spendable cash, then yeah, it’s likely you’ll burn through it.
However, if you view it more like a mechanism that’ll generate readily spendable cash for you, then you probably won’t, as long as you don’t dip into your principal. So if you’re willing to live on say… 100k a year without working, you can probably do that just about in perpetuity with a 5 million dollar payout, assuming you make a minimum of 2% a year on it.
But few lottery winners think like that- it’s not “how can I use this to set myself and my family up for life?”, but rather, the thoughts go “I have 5 million bucks. That means I can afford that McLaren F1 I always dreamed about, AND a boat, AND a new house, and a 70” 4k TV to go in it. And maybe another new daily driver car, and one for my wife, and I can afford to fund my BIL’s business venture and have a little left over. " But they never really realize that having say… 500k left over doesn’t translate into being able to quit a day job- it just means a handy supplement to your normal wages, and a hell of a rainy-day fund.
It should be mandatory for lottery winners to pass a test on personal financial management before getting their winnings.
Well then the State becomes liable for the outcome. Poor training. The winner invests poorly and loses, and blames the State. Many lawsuits later they stop doing that.
I don’t think so. When a licensed driver gets in a car wreck, does he sue the DMV who licensed him?
I’m sure someone somewhere has done just that.
I’d think that it’s reasonable for the state to offer courses, or possibly to vet a list of financial management firms to recommend for winners, but if that guy who won plans to spend his winnings on frivolous and short-sighted things, that’s his business.
Well, advice that is @3500 years old;
If a man carries a burden on his back
And yet rides in a carriage,
He encourages robbers to approach.
Perseverance leads to humiliation.
You can’t be average joe and act like you’re rich, or you become a target. Likewise you can’t be rich and playing like you’re average joe, or you’re asking for trouble.
If you still go to the bowling alley every week and bowl with your Walmart working friends then hang out in the bar after winning $100 million, things aren’t going to end well for you.
Or, to quote Charles Dickens, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.”
And that’s the thing. I’ve read that universities only spend 2% of their endowments, so the principal is untouched and has a chance to grow. But that means that a person with a $5 million nest egg from the lottery gets an annual income of “only” $100,000. That’s not bad, of course, but it’s hardly living large. (On the other hand, a university wants its endowment to be perpetual, and perhaps I’m willing to accept that the money will run out in thirty years or so. In that case, I might make a rational decision to spend part of the principal each year.)
Bullshit. If I want to spend my lottery winnings on 40 year-old scotch and 20 year-old hookers that’s my business. I don’t need the state coming in to tell me that 20 year-old scotch and 40 year-old hookers is a better long term investment.
What do you propose to do with the winners (or winnings of the winners) who don’t pass the test? Confiscate it? Boy that’ll increase ticket sales.
Also I second what Bill Door just said. Lotteries are inherently bad social policy. Trying to perfume the pig still leaves you with a pig; just one with multiple clashing scents.
Well, they would be given unlimited tries to pass the test, so it’s not a take-once-and-fail thing. They can take 56 or 200 times or whatever to pass.
But if that’s not an option, then at least compel them to sit through a lecture about lottery winners who have blown it all and lost it all through poor decisions. I think many such lottery winners who blew it all would be very willing to give cautionary lectures to jackpot winners.
The problem is that everyone thinks they’re different and thinks that won’t happen to me.
I recently watched a good documentary on the lottery and the effects it can have on poor people (it’s relatively new and on Netflix – the title escapes me at the moment).
One of the families they followed was headed by a single mother who worked as a waitress and had several young adult ne’er do well children and their various kids living with her in a two bedroom trailer. The family spent $250 dollars a week on lottery tickets and lotto (they were in Massachusetts, I think). Lottery expenditures were something like 65% of their total monthly income.
The family hit it big once with a $100,000 win. They took home around $70,00 and blew it all in two months on a down payment on a car they later lost because they couldn’t afford the payments and insurance; more lottery tickets; dinners out; and clothes and “loans” to friends (both existing and very enthusiastic new friends). The documentary more than hinted that an appreciable amount also went to local drug dealers.
I agree with many of the upthread assertions, especially about how folks who have never had money may not do as well as those who have enough bucks they can afford to sock most of a windfall away in savings and/or investments.
Prior to having a “come to Jesus” revelation five years ago about the need to be financially sober, I may well have done much the same and blown the moola out my butt in short order (sans the drug purchases and lottery tix).
Even better, let’s make financial literacy compulsory curriculum in K-12. Growing up poor and being poor throughout most of my young adulthood only taught me how to float checks, move credit card balances around, and figure out the minimum payments needed to keep the lights, heat, and telephone on. No one in my immediate family, extended family, or friends/neighbors lived any differently so there were no financial models to emulate or learn from.
For sure, but from reading accounts of lottery winners who blew it all I got the impression that some were genuinely sincere, nice, naive, gullible, well-meaning folks who did not know better.
If such mandatory lectures/seminars saved only even a small percentage of such lottery winners from self-inflicted and other-people-inflicted financial ruin, it would be worth it.
Yes, a realistic expected return after taxes (on investment returns, besides the taxes on the initial windfall) inflation and investment expenses on a balanced portfolio (say the classic 60/40 stock/bond) might be something like 2%. You can withdraw more than the expected return if you’re willing to draw down the (inflation adjusted) principal and that might be reasonable if you’re older and don’t specifically aim to leave it intact to heirs. Or, for a younger person 2% might actually be on the aggressive side given very low bond yields and high stock valuations now. But as was said above, stick with round numbers, say 2%. It’s certainly not 5%, but a lot of people think it would be.
Every time I’ve seen a similar issue come up here, lots of people give clearly over optimistic estimates of what that % would be, and the avg winner is probably less financially literate still. It would he highly unlikely for them to imagine $5mil only supports $100k/yr after tax, inflation adjusted, indefinitely, even if they were analyzing the situation in any kind of serious way at all, which many would not be. And that’s again after realizing that ‘$20mil’ is more like $5mil in your hands upfront.
On the other side of the coin, not a small % of people in my estimation are the type who would tend to stick to something like the lifestyle they led before. Not because they ran all the numbers and realized their lottery winning only really allows a $100k/yr spending lifestyle, but because they are pretty set in their ways of $40k/yr or whatever lifestyle and would, sort of coincidentally, not end up exceeding $100k or whatever the remaining money could sustain after some initial big purchases.
The other dimension though is social. People who win $10’s+ mils (even nominally) have to get new friends, in most cases. That’s just how people are. It’s manageable to be much richer than your friends if they don’t really know the details and you live below your means (that’s our situation v most of our friends), but I can’t see how it would be, there are always exceptions, if they can read about your wealth in the paper.
That is my new business plan, thank you!!
When I win the lottery.
About a year before I go to prison.
Well, here’s how I describe winning the lottery (not that I have, but hopefully 
)
***Imagine that everyone you know, everyone who knows you, knows of you or otherwise has any reason to remember your name is brought into a stadium. There, on the big screen, your current picture is put up on the screen for all to see and it is announced that you’ve won $50 million dollars.
But they aren’t the only people there. The rest of the audience are conmen, criminals and lowlifes who make their living through fraud. They all get to see your name and picture too.
How do you live your life after that happens?***