Almost 50% of Americans play the lottery regularly hoping that, maybe this time, they’ll be lucky enough to have picked the winning numbers. We speak about what we’d love to do with that money — holidays of a lifetime, a complete home makeover, paying off the mortgage — but what if you actually did win the jackpot? As much as winning the lottery might seem like a dream come true, few people consider how life-changing it can be.
With recent USA Powerball winners landing as much as $198 million in the draw, there’s more to think about than just how you’d spend your winnings. Here are some things you might not have thought about when you buy your lottery ticket.
Take your Time
Swept up in the excitement of a big win, it can be tempting to claim your lottery winnings right away. However, there is something to be said for holding off a little while. Of course, you want to make sure you have plenty of time – exactly how long you have to claim your bonus varies from 90 days to a year, depending on the state you’re in. You should use this time to seek financial advice to help you get things in order – 70% of people that go broke after landing a huge windfall.
Lump-Sum vs. Annuity Payments
Sure, you might land hundreds of millions on the lottery, but you don’t necessarily need to claim it all in one go. Lottery winners can choose whether to claim their winnings as a lump sum, or in annuity payments. Annuity payouts see winners receive one payment each year over 30 years, increasing by 5% each year to match inflation costs. Either way, you’ll pay tax on your winnings, but opting for annuity payments can make it easier to manage your funds and provides you with guaranteed income.
Of course, your preferred payment method will depend on a variety of factors, including how much you win. However, it’s important that you take this into account before you claim your payout.
You might win the jackpot prize, but you won’t get to take it all as cash. US lottery winnings are all subject to federal taxes, as well as any taxes that apply in your state. These range from nearly 9% in New York to just under 3% in North Dakota. The standard federal tax rate is 24%, and this amount is automatically deducted from your win. However, you must also consider the 37% income tax rate for gross income of $500,000 or more. In short, you could end up losing 45% of your winnings as tax, depending on where you live.
You can minimize the tax you’ll pay if you make a charity donation of up to 60% of your gross income, including your winnings. Similarly, you’re permitted to give other people up to $15,000 each a year, tax-free.
Is it Right to Go Public?
In Delaware, Kansas, Maryland, North Dakota, Ohio, and South Carolina, lottery winners can decide whether or not they want to go public with their lottery win.
In other US states, it’s a legal requirement to reveal lottery winners’ identities- though special exceptions have been made. As a result, it’s not just the bank account boost to which winners must adjust to, it’s a new-found sense of celebrity. While some winners might enjoy the limelight at first, swept up in the excitement, it can take its toll. Of course, the more people that know about your lottery win, the more likely you are to be asked for financial help. Some unlucky winners have even experienced negative impacts of the publicity, ranging from seemingly incessant press coverage to fallouts with family and friends.
Of course, you should consider the implications of this before you buy your lottery ticket – it’ll state your rights to anonymity on the ticket.
Hold off On Major Life Changes
It’s hardly surprising that, with US Powerball jackpots reaching the billions, you’d want to give up your day job or buy an extravagant new house or car if you won. However, it’s advisable to wait a little while before you make any of these moves.
While a billion dollars would certainly last you a while, you don’t want to make any hasty decisions that could be a hassle further down the line. Similarly, people need structure- quitting your job immediately might seem like a great idea, but this sudden shift in lifestyle can have a huge impact on your emotional wellbeing. Take time to consider how you’ll spend your time post lottery win before you make any big decisions.
Even if you’re one of the 25% of players who buy lottery tickets without any real belief that you’ll win, there’s always the possibility that the odds will land in your favour. Whether you’re playing the Mega Millions or your state lottery, there is the chance that you could walk away with some serious cash and it’s important that you take steps to protect yourself and your finances.