A 53-year-old Massachusetts woman is the sole winner of Wednesday’s $758.7 million Powerball jackpot. Mavis Wanczyk has already quit her job. According to financial advice experts, she’s made a couple of poor decisions, too.
Let’s say the next lucky winner is you. How would you handle that incredible amount of money? What would you do? After the initial elation, it’s pretty obvious that sort of windfall would bring enormous complications into you life, and even some risks.
Here’s what you — and Wanczyk — shouldn’t do:
1. Don’t rush to claim the money
Wanczyk stepped forward immediately — much too soon, financial advisers say. “I have worked with lottery winners before,” says John Loyd, a financial planner in Fort Worth, Texas. “The biggest thing is to do nothing. Let the emotions and overwhelming feelings subside before making really any decision.”
Matt Chancey, a planner in Orlando, Florida, says you should consider waiting some time to claim the prize, in the hope that some of the media attention has died down.
Meantime, photocopy the ticket and put it in a safe deposit box. Powerball says you have 180 days from the drawing to claim your prize. Use the time “to be better prepared financially and emotionally for this life-changing event,” says John Ulin, a financial planner in Boca Raton.
2. Don’t tell people
This advice no longer applies to Wanczyk, of course. Lottery winners get nothing but scrutiny, scam artists, and appeals for money. If it’s allowed by the lottery in your state, keep it anonymous, say advisers. “Don’t tell anybody,” urges financial planner Leon LaBrecque in Troy, Mich.
“Claiming the lottery in your own name opens you and your family up to a mutiny of public scrutiny, unwanted publicity, and solicitations,” says Amy Hubble, a financial planner in Oklahoma City. Instead, she says, talk to an attorney. “They can assist you in setting up a trust, and connecting you with an appropriate trustee to privately claim your winnings.”
3. Don’t think this will fix your life
“Just because you win the lottery, it does not change you as a person,” warns Sandra Hayes, a former social worker who won a jackpot in 2006. You’ll be the same person with similar problems, just a lot more money. Many lottery winners let the money go to their heads, and it ends up causing them more problems than it was worth. “I wish I’d torn that ticket up,” Jack Whittaker, who won a Powerball jackpot in 2002, said later.
4. Do not become an amateur banker
“It may seem impossible to burn through $400 million but you will be approached by all sorts of people looking for investments, handouts (and) charitable gifts,” as well as “less-reputable people looking to swindle you,” says Byrke Sestok, a financial planner in White Plains, NY. “When you walk with a $400 million lump sum everyone is going to want a piece of you.”
Timothy Neuville, a financial planner in Irvine, CA, adds: “Change your cellphone number.” While you’re at it, change your address too.
Family and friends will start hitting you up. This will include relatives you barely know. If you must make a loan to people you know well, “insist on a promissory note,” says Kenneth Waltzer, a financial planner in Los Angeles, “and realize that most of these ‘loans’ will turn out to be gifts.”
5. Don’t rush to take the upfront cash payment
The one-time payout from this Powerball windfall is about $443 million. A better option is to spread the payments over 30 years.
Yes, financial theory says that you should take the cash and invest it for growth. But getting that money at once poses all sorts of dangers and problems. “Learning how to handle such a large sum takes time,” warns Joyce Streithorst, a planner in Melville, NY. “If you take the annuity option you will always have huge income for three decades, and dramatically reduce the risk of ever blowing all the money,” Sestok adds.
6. Don’t try to handle it on your own
Everything from taxes to estate planning just got really, really complicated — and risky. “You will want an attorney, accountant, and financial planner,” says Mark Beaver, a planner in Dublin, Ohio. Don’t hire buddies, or friends, or friends of friends. Hire reputable independent professionals with the right qualifications and experience. Hire a financial adviser who is paid only by you through fees, not by commissions on products sold to you. Waltzer says to get a financial planner you trust, and create a plan, before you claim the prize or touch a nickel.
7. Don’t become rich without a comprehensive financial plan
“A plan will help you avoid becoming one of the statistics of lottery winners that find themselves (almost unbelievably) out of money down the road,” Beaver says. “Even though it seems like you could never spend all that money, budgeting how and when you spend is still or even more important,” he adds. Among your new considerations: spending, investing, protecting your assets, and how to make philanthropic donations.
8. Don’t try to become an investment genius
History is littered with people who blew fortunes on scam artists, bad ideas, or both. “Do not end up as a story on the TV show ‘American Greed,’” warns Jon Ulin, a financial planner in Boca Raton, Fla. And think twice about investing in anything complicated or “exclusive” or that you don’t understand. Remember that over time most hedge funds have done worse than the stock market after fees. And that you now have so much money, you don’t need to be aggressive. “There is no need to swing for the fences,” says Ulin. Billionaire investor Warren Buffett himself recommends stock index funds.
9. Don’t go crazy spending money
Don’t rush out to buy a massive new house, and a boat, and a Ferrari. “Allow yourself a small token amount of money at first to spend,” says Richard Gotterer, a planner in Miami, “then don’t touch the funds or change your lifestyle for the first six months. Let the reality set in.” Remember, people get used to their new level of spending fast. It won’t end up making you much happier. But it can quickly diminish your wealth.
10. Don’t underestimate taxes
You’ll pay taxes on your winnings. But you will also have to pay them each year on that expensive mansion and vineyard you bought, and on other luxury assets. You’ll pay taxes on investment gains. And you’ll pay them on gifts. If you don’t plan things right,” cautions Ulin, the Florida adviser, “the US government may end up being your largest beneficiary.”
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