5 Common Sense Lotto Realities Everyone Ignores
With jackpots reaching the hundreds of millions, there is little doubt that a lottery winner’s life will change forever.
However, the lucky few who hit the jackpot can be blinded by the dollar signs and ignore the realities that come with their new fortune.
Do you feel lucky, punk?! Ignore these common sense realities at your own risk…
You Have to Pay Taxes on Your Winnings
Lottery wins greater than $600.01 are subject to federal withholding tax. If you win the big prize, 25% of your total earnings are withheld from the initial prize. However, if you think that is where your tax burden ends, you are going to be in for big surprises come April 15.
Depending on the size of the prize, the federal tax burden alone could be much larger than the initial amount withheld. On top of that, your state takes a piece of the pie as well, leaving you with far less than what was printed on your jumbo-check.
Think of lottery winnings as income. If you win a $12 million lottery jackpot, the government now views you as having a $12 million dollar salary, and taxes accordingly. Welcome to the highest tax bracket.
Quick Pick vs. Lucky Numbers: Which Is Better?
Think your lucky numbers will help you win big? Actually, a greater percentage of lottery winners use a quick pick option (where a machine selects a list of random numbers) than winners who choose their own numbers. What’s more, more lottery players use the quick pick option than their own lucky numbers.
In reality, the percentage of winners using the quick pick option is about the same percentage of players who use their lucky numbers. In other words, it doesn’t really matter how you pick your numbers.
Statistically, the odds are the same that any combination of numbers will be picked. So, it doesn’t matter if you choose lucky numbers or let the machine choose for you. There is no predictable method to picking the winning numbers of the lottery.
The Odds of Hitting the Jackpot Are Microscopic
It is common knowledge that the odds are poor that you will win the lottery jackpot. However, hope still springs eternal. Someone has to win, right?
Eventually, yes. In fact, the chance of a multi-state jackpot win is 1 in 175,711,536. For a single state lottery, the odds are better, but still long, 1 in 18 million.
You may have heard that the odds are better that you will get struck by lightning than win the lottery -- it's true. In fact, an individual is 300 times more likely to get struck by lightning than to win a multi-state jackpot and 31 times more likely to get struck by lightning than win a state lottery prize.
A Lottery Win Isn’t Always a “Win”
Buying a lottery ticket that has all of the correct numbers on it doesn’t guarantee a lottery win. If you misplace a winning lottery ticket, you won’t be able to convince anyone you are the winner.
Lottery tickets are considered cash and unless you sign the back of the ticket, there is no way to know who really purchased the ticket. So the best way to avoid losing it is to sign the back of the ticket, which prevents anyone else from cashing it in.
The Big Prize Can Be a Huge Burden
What seems like it would be the greatest day imaginable has turned into a curse for many lottery winners. Simply put, it isn’t always all it is cracked up to be. The horror stories of squandered millions and destroyed lives often outnumber the joyous ones.
One of the most tragic cases was one of Billy Bob Harrell. In 1997, Harrell won $31 million in the Texas lottery. Less than two years after the win, the toll on his marriage and financial stress was overwhelming and Harrell committed suicide. Before his death, he was quoted saying, “Winning the lottery is the worst thing that ever happened to me.”
The Investing Answer: The thought of winning a lottery jackpot can be mind boggling. It is difficult to comprehend the life change that accompanies all the money that is thrust upon these new millionaires. If your lucky numbers are drawn, your best bet to smooth the transition and steer through these potential hurdles is the assistance of a qualified tax lawyer and financial planner.