So you are saying there’s a chance to win the Powerball lottery. Well yes, but only an ever so slight one. You are much more likely to:
- Become the U.S. president
- Get attacked by a shark
- Get drafted into the NBA
But as not to be pessimistic, let’s focus on what you will need to do once you win the Powerball lottery tonight. First and foremost, get help immediately. That includes a CFP®, an attorney and a CPA. These professionals will have all of the answers to the thousand or so questions that will immediately fill your head after you match all of the winning numbers. With their help you will decide on the following:
Do You Take the Annuity or Opt for the Lump Sum?
Deciding whether to take the annuity or opt for the lump sum starts with calculating what the interest rate is when creating the annuity stream you are being offered. If after calculating that rate you believe you could earn a higher return managing the investments yourself, you may choose the lump sum.
There are a couple important caveats to think about though when making this decision. First, there are no true “guaranteed” returns; you may believe you can earn a certain return, but by taking on the lump sum you are also taking on investment risk. You may invest poorly and end up worse off.
Second, if you are a spendthrift you should likely take the annuity payout, limiting your access to your winnings.
Finally, there are tax implications that also need to be kept in mind that go beyond this post.
Should You Create a Trust?
Next you must decide whether to opt to collect the winnings as an individual or an entity, such as a trust. This depends on the laws of the state you reside in.
Some states will let you claim anonymously while others will not. Some may want everyone to know that their ship finally came, in but the majority of people would rather avoid having everyone from their town, including family members they didn’t know existed, show up at their front door looking for handouts.
What Do You Do With All That Money?
How to invest, spend and gift the winnings. Becoming an instant millionaire can bring with it many good and bad things. If you need proof just pop on an episode of TLC’s, “How the Lottery Changed My Life.” Unfortunately, much like many professional athletes, a lot of lottery winners end up spending/losing all of their winnings. It is important to have trustworthy professionals in place that can focus on building a financial plan around conserving and passing on all of the newfound wealth that comes with winning the lottery.
Your odds of winning are slight, let’s try and make sure your odds of keeping it are better.
If you haven’t recently reviewed your financial plan you should contact your CERTIFIED FINANCIAL PLANNER™ Practitioner.
If you aren’t currently working with a CERTIFIED FINANCIAL PLANNER™ Practitioner you can find one HERE.