When state run lotteries advertise huge jackpots, they should be honest about what exactly a potential winner is going to receive.
Let’s say the advertised prize is $10 million.
The lucky soul who wins the jackpot chooses the lump sum option. Which may be 60% or less. So now he has 6 million.
Then he has state and federal taxes to deal with. Let’s say that eats up 45% of his winnings. Now he has 3.3 million dollars left. A nice sum of money, to be sure, but the money that actually goes into his hands is a pitiful one third of the price advertised.
And don’t get me started on the annuity payments. In that case you do get the amount of money advertised (before taxes come in) but after two decades of inflation come in a $50,000 annual payment on a million dollar prize is worth only $27,500 (according to an online inflation calculator I consulted). So for all intents and purposes, you don’t.
The system needs to be changed.
Abolish the “lump sum” concept and simply advertise what they’ll actually give you as being the Jackpot.
Either abolish taxation on lottery winnings, or have the “after tax” sum displayed prominently on all lottery advertisements.
The lottery should also point their big winners in the direction of a financial advisor. The average yokel who wins is at risk of blowing through all of his money in a few years because he’s not used to having large amounts of money (no offense to you average yokels out there). Once it’s gone, it’s gone. And someone who’s been sucking at the lottery tit for several years with reckless abandon and ends up broke will probably regret ever winning in the first place.**