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Financial Planning

What to do when you win Powerball

With a big win, which is better? Cash now or annual payouts?

Choose a lump sum or annual payout, talk to wealth advisors, protect your winning ticket, weigh the tax burden and learn from the mistakes of other big winners.

Date:
January 3, 2022

Your chances are slim, about 1 in 292 million for the most recent Powerball lottery. But if you land a winning ticket – or you want to dream about landing one – let’s look at smart ways to make the most of your winnings.

Lump payout now? Or spread it over years?

Or put another way: can I buy several mansions now, or just a couple mansions this year, plus several more over the years to come?

Powerball and other lotteries with sizable winnings offer two payout options. You can take one lump sum when you claim the prize or opt for annual payouts over the years ahead. Most winners choose the right-now option. But both have their upsides. 

Start with the fine print. With this week’s Powerball jackpot of $630 million, if you opt for cash immediately, the lump-sum prize is actually $448.4 million. 

And before you get anything, you’ll face a 24% federal tax, regardless of whether you take cash now or in annual payouts. The Powerball folks will pay that to the IRS before paying you. So after taxes, with the cash-now option, you’ll actually walk home with $340.8 million.  

If you choose to take annual payments, you’re guaranteed a check every year. With Powerball, payments are stretched over 29 years, and they sweeten the deal by increasing your payment 5% every year. 

That 24% tax rate applies to both payment options, plus any state or local taxes. And come April, your winnings will be subject to income taxes too, at the current federal rate of 36%, plus any state income tax. Ouch. 

It gets complicated fast

Taxes are just the start. Like any windfall, from a raise at work to the smallest inheritance, you’ll need to be thoughtful about all that money. So get some good advice. Along with a tax expert, talk to a financial advisor who has experience with this level of wealth management. Solid investment planning can grow and protect your windfall regardless of how you get the payout.

Think about how this will impact your friends and family too. Make promises slowly, over time. And be careful about quitting commitments, like your job or an apartment lease. Once the first thrills pass, take a look at your priorities, what’s important to you and how this money can help with that. We all know happiness takes more than money. And money can wreck families and friendships.

First thing: protect your ticket!

If you win Powerball, you’ll need a winning Powerball ticket. That means you have to possess and present the actual winning ticket when you claim your prize. So don’t douse it with Champagne or cover it in glitter. The first thing to do when you see your winning numbers is to protect your ticket. Put it in a clean, dry and secure place. Some people have used a home safe or a bank safe deposit box. 

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Use Bright to manage your personal finances.

How do lottery winners usually spend their money?

Most lottery winners don’t manage their money well. Around 70% of lottery winners use up every cent within five years. 

Lottery experiences recently compiled by Most go for big impulse buys they’ve later regretted, like a mansion that ended up being too big to efficiently live in. According to a recent Reader’s Digest survey, even as they raked in enormous windfalls, winners often felt inadequate when their prize don’t measure to other bigger winners. This might fuel more impulse purchase, a need to spend more and feel more rich. 

Winners also reported being swarmed by friends, who sometimes seemed to lie about the urgency of their need. They got sneered at, too, for not having “earned” what they made. For most, giving to charity helps them feel like they’re using their money in meaningful ways. 

Do jackpots change how we save? 

The TV show “Survivor” pays $1 million to the winner of each season’s competition. It takes smarts and strategy to win “Survivor,” but how have the winners spent their jackpot?

While a couple winners splurged immediately on fancy cars, many showed surprising restraint. Several winners used the money to immediately pay off bills and loans. Others have chosen to save for a kid’s college fund, create a fund for medical school, or set aside money for investment. 

Another group of winners pursued life-long dreams like traveling, buying a house, or starting a business. 

"I still stop in stores like Walmart, K-Mart, I clip coupons and I go to the matinee,” said Sandra Diaz-Twine, the Season 7 winner.

How can anybody save more?

Clipping coupons or not, saving can be tough. But there are some simple habits that go a long way, like setting a monthly budget, tracking your actual spending and making saving a priority every month. Paying off your credit cards so you’re not spending on interest charges can put more money into your pocket and your savings too. 

Bright can also help you build more savings automatically. If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your cards and your checking account, set a few goals and let Bright get to work. Bright adds your savings week by week, in small amounts you can afford, so you hit your savings goals faster. 

Bright also builds a personalized financial plan, the kind you need for a lottery windfall or if you’re aiming to get your finances on track. Bright studies your finances, analyzes your goals and builds a step-by-step guide, automatically.

Recommended Readings:

Quick ways to become debt free

Tips to avoid common budget mistakes

MoneyScience™ Team
Bright Money

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