Dear Mega Millions Winner

Dear Mega Millions Winner

Congratulations, _____________! With one quick trip to 7-11 you’ve complicated your life forever. Welcome to the rest of your life being asked for money! Or worse:

“Bud Post lost $16.2 million within a nightmarish year – his own brother put a hit out on him.”

You have many lifechanging decisions ahead of you, but one of the first is this: do you take your proceeds as a single lump sum or spread them out via the annuity option?
As much as we’d love you to take the lump sum and invest it here with Meridian, we actually highly recommend that you take the annuity. Here’s why:

  1. Less Money – If you take the lump sum, then the amount you get is actually discounted back to the present value of the future jackpot. So, for example—today’s drawing for $1.6 billion is actually worth a lump sum of $904.9 million.
  2. Huge Tax Bill – If you take the lump sum, the entire cash amount is included in your taxes in the year that you receive it. So, in 2018, you will be paying taxes at the highest rate of 37%–then add state tax on the winnings as well, and the tax rate could be closer to 43%. When you take the annuity, you spread the income—and therefore the taxes due—over several tax seasons.
  3. Investment Success – Getting the advertised jackpot value if you take a lump sum is contingent on your investment returns of the full lump sum—seeing as almost half of that lump sum will be gobbled by taxes, you have to earn a significantly higher return than the lotto authority to generate the same annuity income stream.
  4. Human nature – The stories of lottery winners who blew through their jackpot money and are now destitute are all over. If you take the lump sum, you get one chance to manage your money wisely. If you take the annuity, you can blow it one year and still have a second…or third…or fourth…chance.
Ethan contemplating what do do with his winnings

If for some reason, you ignore our advice and take the lump sum—feel free to call for portfolio management… 😉

Good luck everyone!

Categories : Financial Planning

Leave a Reply

Your email address will not be published. Required fields are marked *