I hope you will accept this in the spirit in which it's intended, and the following should not be construed as a personal attack.
The scenario you've outlined for yourself is doomed to fail from the outset. Let me explain what I mean:
You've won an 18 or 20 million dollar jackpot (depending on the state's tax structure), and now you have a cashier's check for 10 million and change. You've already planned to spend $2 million on houses, cars, clothes and insurance for your family, so now your win has been essentially reduced to $8 million in cash.
Let's say, by some miracle, you don't have any cost overruns in constructing your new homes, and that no family member suffers any catastrophic illness, so you now invest the remaining $8 million in tax-free municipal or government bonds, which currently yield about 1.8% (if any investment counselors or brokers are reading this, please correct me if this is not the current yield). This will pay you roughly $144,000.00 per year, every year that you leave the principal (the original $8M) intact.
After spending two million dollars in the first year, will you have enough left over to live for one year while your investments mature, without having to dip into the principal again? Will you be able to pay your living expenses, insurance premiums and property taxes and still have enough left over to maintain your new lifestyle on $144,000.00 a year for the rest of your life?
This is the point I was trying to make in my last lengthy post:
Don't spend - invest.
Let's look at the same scenario, but with one minor change. Let's say everything happens as outlined above, except that you DON"T spend $2M. Instead, you decide that, since you've never had that much money before, you're just going to sit on it for a year and then decide what to do. So, you put all ten million into the same municipal bonds and, at the end of the 12-month period, you now have $10,180,000.00. That extra $2M just earned you another $36,000.00, tax-free, which is more than many people make slaving away at their jobs for a year. See? The more you spend, the less you make in interest; when you spend a million, you're actually spending (one million) + (eighteen thousand) x (the number of years you have remaining in your lifetime). If you live another forty years, that $2M you spent could have earned you another $1.44M in capital gains. Now, you realize that you can take the $180k, buy a pretty decent house AND a new car, and you still have all of your $10M, so you can do it again next year. And the year after, and the year after that...
Provided that you don't spend a dime of the principal, you'll always have that money. I think that's what happened to these "stupid" people (I used the quotes because that word seems to come up a lot in the responses to this thread); they decided to spend "just a little," and then again, "it only costs $25k," and so on, until it was all gone. Personally, I would stop short of any name-calling, because one of the names in that article could easily have been mine. Actually, I'm thankful that I didn't win a jackpot when I was 25 or 30 years old, because I would probably have been in the same boat as these people. Back then, I didn't have the experience or discipline, nor the understanding of finance and global economics I enjoy today. I still have a great deal to learn, but writing government manuals, booklets, reports, pamphlets and brochures for various agencies gives me the opportunity to study figures and stats that ordinarily would never occur to me.
Ironically, it was while preparing an outline for a pamphlet about problem gambling that I stumbled onto this:
In order to attain a minimum personal income of one million dollars per year, after taxes, you'll need to win a jackpot of roughly $80M. Here's how it breaks down:
If you choose the cash option, you'll receive approximately 55% of the advertised jackpot, which comes to $44,000,000.00. Regardless of your state's withholding (Indiana withholds 28%), you'll end up paying 30% to 32% in federal taxes on your original win. Incidentally, the reason most states require you to claim your prize within 180 days is because, that way, you don't qualify for the lower, (federal) long-term capital gains rate. However, during the second and subsequent years, you will qualify for the lower rate, which, if I'm not mistaken, is now capped at 15%. Okay, back to our story. We'll use the lower tax rate of 30%, so the government will take $13,200,000.00, leaving you $30,800,000.00 (Depending on whether you see the glass as half-full or half-empty, you've either been ganked out of fifty million dollars, or you've just won thirty million). Now, you either earmark the $800k for living expenses, or leave it with the principal and invest it all in boring, dividend-paying stocks. Blue-chips usually pay a good dividend, and you're looking for one that yields at least four or five percent. If you keep the $800k and invest the remaining $30M at 4%, you would receive $1,200,000.00 per year before taxes. You can do the math for your state taxes, but the federal long-term capital gains tax, at 15%, would leave a net income of $1,020,000.00, or one million, twenty-thousand dollars per year, and you still have your original thirty million, so you're now making a million a year.
It's fun to dream, and who among this motley group hasn't fantasized about what it must be like to pay cash for a new house and car? Sometimes dreams come true, but the problem is that a reality check soon follows. Speaking for myself, I have only empathy for the people who lacked the skills to hold onto their new-found wealth. Their financial misfortunes cannot be construed as a measure of their intelligence since, without sound planning, the same could easily happen to any of us. To be perfectly honest, I don't know that it couldn't happen to me; I've never won that much money, so how can I possibly know how it would affect me, or my judgment?
"There but for the grace of God go I..." John Bradford wrote these words, sometime around 1510, on seeing a group of prisoners being led away to their executions. He was a 16th century holy man, but he was saying that any one of those men could have been him, had his own life taken a different course. He compared himself to criminals, realizing all the while that his life, or anyone's life, might easily have come to the same end as the condemned, had circumstances been just a little different. Back then, most men of the cloth believed they were chosen by God Himself to preside over their congregations; it was a calling, not a conscious choice, to enter the church.
We can all take a lesson here. Rather than saying, "Boy, those people really define stupidity," let's all have the good sense to realize that we have no clue what it's like to have that much responsibility. We won't know until and unless we win a jackpot. If it was only one person who lost his millions, I would gleefully join you in calling him Stupid. But the fact that there were several, indeed many, people who suffered the same fate, I consider the story a warning to be heeded. It's easy to speculate on what we think we would do while we're still dreaming of instant wealth, but then, we don't have a check in our hands.
That makes a big difference.
Come, Pinky; we must prepare for tomorrow night...