humor

Lots of Luck

Well, the lottery has once more reached Brobdingnagian levels and the crowd is once more madding with the idea of what to do with all that money. (Or “ALL THAT MONEY!!!!” as some are wont to put it.) Ideas range from the stupid [1] to the idiotic [2]. And, not being one to let a good meme go to waste, I’ve once more laid out some ideas for you.

If you take the money as a lump sum (don’t, because [1]) and are the sole winner [3], then you’ll have a total of about $552,600,000 after taxes [4]. If you are smarter and take the annual distribution and are the sole winner [5], then you’ll have about $30,700,000 after taxes every year for 30 years (assuming that they don’t raise the marginal rate); that works out to a total win of $921,000,000 which practically doubles your money right there. (This is the only bet you are guaranteed to win in the lottery business!)

So what can you do with all that lovely lucre? Well, you could start simple and go to the movies to relax; your annual winnings would let you take 3,757,650 people with you (but they’d have to buy their own snacks). Or you could treat a friend to a cup of coffee; the lump sum would buy 67,637,699 cups of joe to go. You could send your kids to school for four years; if you had 321 kids who wanted to go to an out-of-state public university, you could just cover their tuition with your annual pay. But you’d better take the lump sum if they want to go to a private college; doing that would let you send 4,263 students – though you’d be broke afterwards. (Most parents can sympathize with this.)

Or you could pay for your daughter’s wedding. If you had 20,897 daughters you could just cover their costs with the lump-sum. Or you could buy a new house. With the annual payment, you’d be able to pick up 112 houses each year. But what good is a house without a new car? The annual payment would let you buy 915 average new cars each year. Or you could just hire folks. If you were to pay the median wage [6], you could hire 1,064 folks with your annual payment (not including payroll taxes).

As for me, I’d just take it easy. I’d take the annual payment, invest ½ of my annual winnings in long-term stocks and bonds [7], and play with the remaining money. Sure, it would be a bit of a scrimp trying to live on “just” $15,000,000 a year – but I’m willing to make that sacrifice!

John

[1] E.g., take it as a lump-sum. Doing that is just plain stupid. Time after time, lottery winners take the payout as a lump-sum only to discover that (a) they can spend it faster than they make it and (b0 they forgot to include some vital expense (such as taxes). As a result, they inevitably end up broke. Instead, the smarter thing to do is to take the payoff as an annuity. That way, even if you blow all your money in one year, you’ll get another lump of money the next year to play with.

[2] E.g., the much-derided “Divide it among everyone in America and make us all millionaires!”. That meme was started by someone who doesn’t know the difference between $1,500,000,000 (the amount of the jackpot) and $1,500,000,000,000,000 (what it would take to give everyone in America $4,000,000).

[3] This is extremely unlikely. Typically when the jackpot reaches this level, there are multiple winners. Personally, I expect there to be between three and six winning tickets on this round; each ticket would get an equal share in the prize money (no matter how many people paid into the ticket to buy it). Of course, if I am wrong and the jackpot rolls over again, we could be looking at a $4,000,000,000 jackpot the next time. Wowser!

[4] Why “about”? Two reasons. First, we won’t know the actual jackpot until the drawing is held (and possibly not until after if the fever goes on the way it is right now). And second, your actual tax burden depends on where you bought the ticket and how your state of residence taxes out of state income (if you bought the ticket out of state). For example, I live in Oklahoma but buy my lottery tickets in Texas because Texas has no income tax. As a result, I would only have to pay federal taxes on the jackpot. But someone who lives in New York but bought a Texas ticket might have to pay New York income taxes on the winnings. This is why the experts tell you to consult an expert!

[5] Which you can do even if someone with another winning ticket takes a lump-sum distribution.

[6] There is a difference between the median wage and the average wage because income and net worth distribution in America are decidedly skewed. There are a few folks (the famous 1%) who own 80% of the wealth, and a lot of folks (the 99%) who own the remainder. The median tells us that half of the families in America earn more than $28,581 and half earn less, while the average or mean just tells us that everyone would earn $44,569 if we took all of the income and spread it out evenly. When the mean and the median are far apart, that is typically a bad sign for an economy because it means that there is a wide (and typically hard to bridge) gap between the upper class and everyone else. The gap has actually been increasing over the past few decades which is good evidence that “trickle down economics” is a failure.

[7] Why invest half of my money? Because if I can manage an average annual rate of return of just 4%, then at the end of 30 years (when the annuity runs out), I’d have $48,650,963. I could then pay taxes ($18,779,271) and have $29,871,691 left to play with! If I do the same thing over again with each year’s annuity, I’d have a never ending money machine!

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