Although the chances of winning a lottery jackpot are approximately one in 175,000,000, millions of people across America buy tickets every week. In one state, lottery ticket sales tops $9 billion each year; although winners are given up to one year to turn in their tickets, a staggering $800 million in lottery winnings remains unclaimed every year. Recently, two $1 million lottery ticket holders did not turn in their tickets: either they did not realize that they had won, or they lost their tickets. Either way, they missed the chance to invest, to travel, and to pay off debt.
There has been a lot of attention in the media — on television and on the internet — about the fact that some lotto winners overspend. Understandably so, because people have debts and need to pay off bills and other loans, but the reality is that if a lottery winner is careful and follows investing advice from a professional, they stand every chance of converting their surprise win into solid investments.
Once a person wins the lottery, they need to choose whether they want to receive their money in a structured settlement — also called an “annuity” — over the course of 30 years, or whether they want to receive a one-time, lump sum lottery payout. Annuity payments will increase over time, but are also fees of as much as 10% that the lottery winner must pay if they decide they want to access their money ahead of schedule.
Also, structured settlement annuity benefits can be subject to further taxation: up to 3% every year for management and maintenance fees. On winnings of $1 million, 3% would be $30,000 every year. Some lottery winners decide to convert their structured settlements into cash, opting for a lump sum lottery payout. Practically speaking, having more cash available can help new lottery winners make investments and pay bills, and could also help them save thousands every year in fees.
Once a lottery winner receives their lump sum lottery payout, studies show that their best course of action is to invest their money. Real estate can be an attractive investment option, and some lottery winners share their winnings with friends and family members. Paying off a 30-year fixed mortgage that originated a decade ago could save as much as $200,000 in interest, and lottery winners may be interested in a lump sum lottery payout once they realize how much they could save on interest alone.
