In celebrity bankruptcies, Uncategorized

What would you do if you won the lottery?

With the Mega Millions lottery at over $1.5 billion, that’s a question lots of people are having fun kicking around. How would you spend your fortune?

First, you don’t get $1.5 billion handed to you. Winners can take a lump sum, which would be about $878 million in this case, or a stream of payments that total $1.5 billion over 30 years. Then, of course, the tax man cometh. Assuming you take the lump sum and further assuming you don’t live in a state that has a lottery tax, the feds will take about 24%. State income taxes will take another 7%-10%. So your $878 million is now roughly $600 million. Not a bad chunk of change.

Research shows that, on average, people who receive large windfalls end up losing about 84% of the windfall within 10 years after receiving it. Human beings are just bad at saving. It’s why professional sports leagues like the NFL, NBA and MLB have financial management classes for the players. All of a sudden a young man or woman who has never had much gets a multi-million paycheck. It’s gone and within a few years of ending their careers, they file bankruptcy. So the odds are that 10 years after receiving your $600 million, you’ll have $96 million left. Still not too shabby.

But wait, there’s more. You could be another Huntington Hartford. Huntington was heir to the Great Atlantic and Pacific Tea Company in 1923. At age 12 he inherited $90 million, after taxes. That’s $1.3 billion in today’s dollar. Everything Huntington touched turned to dust. He lost money in real estate, art, backing theater and music and an exceptionally lavish lifestyle. In 1992 at age 81 he filed bankruptcy.

So if you’re buying lottery tickets, good luck (remember, the odds are about one in 303 million). If you win, even better luck, because the odds are far greater that you’ll squander it than that you’ll win in the first place.

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