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What would the experts do with a lottery jackpot?

Topic closed. 65 replies. Last post 11 years ago by sirbrad.

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Posted: March 11, 2006, 12:05 am - IP Logged

Uncle Jim - There's nothing hard hearted about your assessment of deductions and charitable donations.  Deductions are great if they're for money you either needed or wanted to spend anyway, but giving away $1 and saving 35 to 45 cents on your taxes leaves you with 55 to 65 cents less than you started with. That's just simple math and math has no feelings. In figuring how much I would actually get from a substantial win I just assume that as a practical matter I'd pay the maximum rate on all of it. Since I'm in NY, my total tax bill would be about 43%.  The lower rates on part of it would mean that I'd really pay about 40k less, but that's relatively meaningless in figuring out my net on a large sum. I'd rather pay less in taxes, but not as a result of having substantial deductions. That doesn't mean I wouldn't like to take advantage of deductions, though. The reasons I would much rather pocket 100 million than 10 million are less about overindulging my own desire than being able to share generously with recipients of my choosing. There are half a dozen people whose company I'd like on my next trip to the South Pacific, and others I'd take on different trips. I can easily think of donating millions just in charitable areas that would benefit my own selfish interests, let alone other worthy causes.  The reality is that even if I did pocket 100 million,I still couldn't do everything I might like to do beyond my own indulgences.

As far as inflation goes, it's been fairly low for quite a while, but in planning for security I'd plan for an increase and I'd plan for inflation over a long period of time.  What if I live to 100? People can laugh all they want at this, but if you win the lottery you're going to be living on a fixed income. Rates of return will fluctuate, but nobody will be giving you a raise, My plan is for my life style to improve or at least remain the same with each new year.  Even with modest inflation the 300k that would let me indulge most of my reasonable desires may be mere subsistence before I die. With an income of a million bucks a year I'd still put some aside so that my future income would increase.

 

mangeydog - Try reading it again. The point is that the people who lost money in those companies didn't lose it because they chose  to invest in high risk areas. The current Enron trial is about deliberately making the company apparently stable when it wasn't. One other poster said they'd put 100% in the stock market. Depending on their age and what kind of companies they choose that's not necessarily a really bad idea, but any investment in the market means accepting higher risk in the hopes of higher rewards. What's apparent just down the road could turn out to be quite different from what's apparent today. Putting all of a major windfall into even a broad range of stocks would have turned out very poorly if done in the summer of '29 or summer of '87.  When the winner recent MM winner comes forward Microsoft  will be just one really good operating system away from losing most of their value if it's somebody else who develops it, but today they're apparently a pretty good investment.


dvdiva - The advisor talking about not buying a new house is talking about his own plan for himself, and he's a 47 yo financial advisor. He probably already has a decent house and a dependable car. I'm sure he doesn't have clients who rent their home and drive cars that break down every month, but if he's like other advisors most of his clients are middle class. Some people who are middle class buy boats or other expensive toys, and some invest the money for a comfortable retirement.

If a lottery winner is living someplace that's dangerous they should move as soon as their credit allows, but that still doesn't mean they should run out and buy a house right away. The advisor didn't say they shouldn't buy a car, he said he would skip the new "cars", and it's worth noting that it looks like the statement was related to having had a client who won the lottery and lost it all. A lot of people who get a big windfall do run out and buy far more house than they need and several fancy cars. If the annual income from your investments lets you do that it's one thing, but spending big chunks of the principal without careful consideration is another. The lost income from buying a $1 million house means the house will cost perhaps $35,000 per year before you even start paying the bills. He may have said it dfferently than you, but his point is also that a Ferrari and waterfront home may not be a wise decision.

>When the winner recent MM winner comes forward Microsoft  will be just

>one really good operating system away from losing most of their value

>if it's somebody else who develops it, but today they're apparently a

>pretty good investment.

 

If you look to invest in Micro$oft  look at a graph of their stock value.... FLAT for 2 years...  Most of their income comes from 2 areas... Operating systems and Office suites...  And the replacement are already there  www.distrowatch.com for the operating system, Free!  and www.openoffice.org for the office suite also Free!

(I have been free of Micro$oft now for 6 years)

 

As to the money, especially if I have above $3 or $4 million, I would definately give a bunch of it away...  Not because of investment, but because it's right to do...

 

 Then some great remote country Wyoming or South Dakota land (state tax  free), a new car (mine has 130,000 miles on it), then some investments for me and the kids....  But no gold dinnerware, no million $ anything... A nice small house, (an indoor swimming pool as my big luxury) and I'm set!  Kick back and stare at the night skies! After 35 years of working life I've had enough! I've had a whole 4 days off of work this year. Jan 1 & 2 because the plant was closed, Jan 25 for the birth of my granddaughter and Mar 5 beacuse I wanted a day off!

 

MarkP 

 

    justxploring's avatar - villiarna
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    Posted: March 11, 2006, 12:24 am - IP Logged

     

    What the financial adviser said in the OP sounds grat for the most part, but I've got to wonder if the financial adviser him or herslef made a score like a lottery jackpot how much of their own advice they'd follow?

     "What happened to that financial adviser that was telling lottery winners what to do?"

    "Oh, they hit some lottery, quit, and went to Vegas". 

    "AMEN!"  A few years ago a doctor I was seeing for natural healing overdosed on cocaine.  It was in the local newspaper. So much for practice what you preach!

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      Posted: March 11, 2006, 12:33 am - IP Logged

      "the tax is at 38% for the government"

      Just curious how you are calculating 38% . . the 2006 Federal Tax Rate Schedules indicate the highest rate is around 35%.

      http://www.irs.gov/formspubs/article/0,,id=150856,00.html

        LOTTOMIKE's avatar - cash money.jpg
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        Posted: March 11, 2006, 12:37 am - IP Logged

        "the tax is at 38% for the government"

        Just curious how you are calculating 38% . . the 2006 Federal Tax Rate Schedules indicate the highest rate is around 35%.

        http://www.irs.gov/formspubs/article/0,,id=150856,00.html

        and just what does the government do with all this money they tax on the powerball and mega millions???

          justxploring's avatar - villiarna
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          Posted: March 11, 2006, 12:41 am - IP Logged

          "and just what does the government do with all this money they tax on the powerball and mega millions???"

          I think they're spending it on a national study on lottery addiction!  Smiley

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            Posted: March 11, 2006, 12:52 am - IP Logged
            What I still cannot figure out tax wise about the lottery is, what if one chooses to only live off the principal and had no interest bearing accounts, would they still have to pay a tax on their winnings every year? I heard that you only had to pay once (35%) and never have to deal with the IRS after that?
            That should be the case, because after once it is no longer income coming in. I could easily live off the principal and still never use it all for a jackpot of about 3 million or more. Say I wanted to live a luxurious lifestyle, where I am from $5,000 a month would buy that, even much less. I consider $5,000 a month the maximum I would ever spend, but more realistically it would never be more than $2,000-$3,000 probably.
            Even at $5,000 a month that would be $60,000 a year. $3,000,000 for 50 years. So if you won like $20 million, or even a ridiculous $300 million, why would you even need to bother with interest if you had no family to pass it on to? Would you still be taxed yearly? I would rather live off the principal if it meant never having deal with the IRS again. They get too much money as it is.

            Are you joking? Many of my interests are in things that don't cost much more than gas money to drive someplace, so I could be pretty happy on 2 or 300k per year. If I could make 100 to 150k without even getting out of bed I might even retire now and be a bit conservative about my spending. Given a more generous income I'd be more than happy to spend 50k on travel, though I don't see myself staying in any outrageously expensive resorts. If you continued to get by on less than 100k when you could easily afford to spend 2,3 or 5 times that much, I'd be very impressed and I'd wonder why you bother throwing your money away on lottery tickets.

            As far as taxes and investments,  income tax is only assessed against income. If your income is zero you owe zero income tax, regardless of how much money you have. That won't guarantee that you won't owe taxes on the principal, though. There are some places that assess an asset tax, and asset taxes apply to just about everything you own, from cars and boats to your bank accounts, stocks and bonds. Actually, almost every place already has an asset tax, but in most places it's limited to real property. A national asset tax is also one of the ideas that has been proposed as a reform of the current income tax system. The simple version is that if you netted 10 million from the lottery and kept it instead of squandering it, every year you'd have to fork over a percentage.

            As for living off of the uninvested principal, why would you do that if you've got any sense? Taxes may not take any of the principal every year, but inflation will. For every million you have inflation of 2.7% (about the average for the last 6 years) will take $27,000, and in 25 years your remaining principal would be worth only half of its present value.  Doing it just so you didn't have to give a share to the IRS would be downright stupid since even if the IRS took 75% you'd still have more money because you invested the principal. If you want to make things really simple, just invest it all in government bonds. The interest rate won't be fantastic, but it will be hundred of times what your mattress pays. You wouldn't be able to avoid taxes completely, but you could certainly simplify them. Write down your gross income, subtract your personal exemption, and pay the taxes owed on the remainder. Or you could pay an accountant to do it. The expense shouldn't be much of a hardship if you've won the lottery.

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              Posted: March 11, 2006, 1:05 am - IP Logged

              I'd question anyone deterring the investment in real estate. It rarely drops and if given the right location one can fair well in the real estate market. Its equity not a liability.  Buying acrage is the first step. Why? Because at some point a city will expand and when it does, its the local builders who will salivate and bid ridiculous amounts to get the rights to that property. My co-worker is already in this market.Bought farmland (25 acres) at 42k because it was so far out in a rural area. Today he's selling it to developers for 95k per quarter acre! I never knew dirt could cost so much!

              Only 10% of my (wishfull thinking) winnings would go to township bonds. A portion would go to some medical groups for finding cures and aiding families who need financial help.

              My family would get houses (good equity investment!) and be set up with trust funds.

              Unless you lived and had money in the stocks back in the 1990's you have no idea what its like to see your hard working money just vanish! And it happened in a manner that didnt allow a person to bounce back! It was gone. Poof! Never again will I trust an advisor to tell me how to handle my money. I'd trust a few folks here with decent suggestions but the end result is simiple. Its no ones business but your own in what you do with your winnings. (barring any taxes or illegal activities of course).

               

              Real estate values rarely drop? You should ask Donald Trump how he nearly lost it all after becoming a billionaire. Ask anybody in the Hudson Valley who sold their home in the first  few years after IBM laid off thousands of employees. The same story has happened in many other places, and many economists believe the recent housing bubble is likely to burst on a far larger scale. Real estate may represent equity, but it isn't especially liquid and it carries liability, both in taxes and any other upkeep, and in the litigious sense, since an injured party may sue you as the property owner.

              That's not to say that real estate is a bad investment, but like every other investment you aren't likely to do well if you don't buy the right things at the right time.  You also need to decide what mix of income and appreciation you want. Real estate isn't a convenient way to generate income unless you want to be a lottery winner who works as a landlord. Personally I'd rather be a lottery winner who's retired, so any real estate investments I'd make would be for long term appreciation.

              Buying low and selling high is a great idea, but the highs and lows are only easy to see in hindsight.  Historically, both real estate and stocks have been good investments as long as you're in for the long term, but if you need money when the price is low or you buy the wrong thing your investment may turn out poorly. It's easy to buy relatively small quantities of a lot of different stocks to reduce your risk, but it's not very practical to buy lots of inexpensive pieces of property. You can invest in REIT's, but that basically puts you back in the stock market.

              I'm curious about  your reference to losing money in the 90's and not being able to bounce back. There are certainly plenty of people who lost nearly everything, but that has pretty much always required putting all of your eggs in the wrong basket. As the article mentions, anybody who had their money in Microsoft and Intel through the 90's did very well. Depending on how long your coworker has owned the property he may have done much better than those who invested in Microsoft, but somewhere there are also a lot of people whose property has barely kept pace with inflation, and a few whose property has become a superfund site since they invested in it.

                sirbrad's avatar - Lottery-062.jpg
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                Posted: March 11, 2006, 6:13 am - IP Logged

                Say I wanted to live a luxurious lifestyle, where I am from $5,000 a month would buy that, even much less.

                Luxury is $5K a month - $60K a year?  I'd pay my chauffer more then that, and provide his car!  Man, Pennsylvania gasline tax would eat a large portion of that!

                Like I said I don't need a lot, and that would be more than enough for me. Plus I walk a lot. LOL As luxurious as I would ever need in this area.

                  sirbrad's avatar - Lottery-062.jpg
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                  Posted: March 11, 2006, 6:41 am - IP Logged

                  Another very astute observation GameGrl. But you are right again, being I came from practically nothing, and grew up with the bare minimum, I learned quickly to value what I already did have in life and to never take anything for granted like most do. Everything I have now I earned through my own hard work, intelligence, and wisdom derived from years of hardship and simply just trying to get by. That is why you will never hear me complaining about winning a lucky for life jackpot

                  Everyone talks about greed, and lavish spending and seem to disregard what they already have, or the other successes they achieved in life. For me a jackpot win is not going to be a ticket, or an open invitation to opulent abuse, but simply to provide all the necessities in life and those few things that I always wanted that I never could have. But still very modest in nature.

                  No 20 cars, 10 houses, butlers, maids, and team of leeches for me.

                  I want the money to actually last. Ironically all these financial planners, advisors, lawyers, etc, are usually the ones going around saying how badly we need them after a jackpot win, because they all want a piece of the big pie. You can also bet they want in for the long haul too. I am not one who likes to be surrounding by groups of people, I prefer to do things my own way.

                  This is what has gotten me to where I am today, and out of the corporate world for the most part, and self-employed. Being able to actually earn money from something you love doing in life is unparalleled by anything but a jackpot win. The only difference is that you would have a lot more security, and it would then be a CHOICE as to whether you wanted to do what you loved for income. It would be a lot easier to blow all that money then to actually utilize it wisely. As hard as it is to win a jackpot, no way would I do anything to jeopardize it afterwards.

                  Around here $5,000 a month, and unlimited free time will buy you a great lifestyle. Heck even a lot less. I would be happy just to have a home paid off, and no debts whatsoever. I would use the money to boost, and increase my intelligence and overall lifestyle, not diminish it with irresponsibility.

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                    Posted: March 11, 2006, 6:47 am - IP Logged

                    Say I wanted to live a luxurious lifestyle, where I am from $5,000 a month would buy that, even much less.

                    Luxury is $5K a month - $60K a year?  I'd pay my chauffer more then that, and provide his car!  Man, Pennsylvania gasline tax would eat a large portion of that!

                    Like I said I don't need a lot, and that would be more than enough for me. Plus I walk a lot. LOL As luxurious as I would ever need in this area.

                    CBS just issued a study (YEAH I know CBS!) stating that for a person in their 30's in 2006, they will need a minimum of $200,000 dollars during retirement for O-N-L-Y medical expenses; double that if you live past 80.  Had a heart attack lately?  Had bypass surgery, or just every day surgery, lately?  I had the whole gambit a few years back.  In New Jersey, the medical costs were half a million dollars.  In my life time I have had the benefit of the Government or a good medical insurance.  Into the fuuture, that will will not be there.  Try a lomg life, not a 20-year old life, on $60K a year.  You're not visualizing the financial future, you're looking at yesterdays expenses.

                    Cheers

                    |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                    I only trust myself - and that's a questionable choice

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                      Posted: March 11, 2006, 6:55 am - IP Logged

                      "the tax is at 38% for the government"

                      Just curious how you are calculating 38% . . the 2006 Federal Tax Rate Schedules indicate the highest rate is around 35%.

                      http://www.irs.gov/formspubs/article/0,,id=150856,00.html

                      When you're dealing with muli-millions, and have the money for the same type of experts who write the laws, it doesn't matter whether it is 35%, 38%, or 40%.  Ted "The Swimmer" Kennedy and John "Stab A Veteran In The Back" Kerry aren't paying those percentages, and no other rich person will either.  Unless you are dumber then dirt and couldn't find your butt with both hands.  Get money, have money - keep money!

                      Cheers

                      |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                      I only trust myself - and that's a questionable choice

                        sirbrad's avatar - Lottery-062.jpg
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                        Posted: March 11, 2006, 7:02 am - IP Logged

                        Well as I said, it will all be determined by the size of the jackpot I win. I would most likely have plenty of money sitting in the wings for inflation, and I was not talking about that. I would still only continue living as modest as possible. If $60,000 becomes $200,000 a year, which I highy doubt where I live now, then I would have it anyway regardless. Especially since I lived off of $60,000 MAXIMUM a year for as long as I could.

                        I would most likely invest, as I know that the loss to taxes would still not be as much money as you would make from the interest, I was simply bringing up a point and just trying to see just how long the arm of the IRS really is. Personally though I would not want millions to be left to someone else unless I decided to have more family. So I would not have any problem spending the principal of $300 million or a lot less, and never earning a dime of interest.

                        I could spend $10,000 a DAY and still only spend 3.6 million a year! By the time inflation gets that high, the sun will have burned out.

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                          Posted: March 11, 2006, 8:25 am - IP Logged

                          Well as I said, it will all be determined by the size of the jackpot I win. I would most likely have plenty of money sitting in the wings for inflation, and I was not talking about that. I would still only continue living as modest as possible. If $60,000 becomes $200,000 a year, which I highy doubt where I live now, then I would have it anyway regardless. Especially since I lived off of $60,000 MAXIMUM a year for as long as I could.

                          I would most likely invest, as I know that the loss to taxes would still not be as much money as you would make from the interest, I was simply bringing up a point and just trying to see just how long the arm of the IRS really is. Personally though I would not want millions to be left to someone else unless I decided to have more family. So I would not have any problem spending the principal of $300 million or a lot less, and never earning a dime of interest.

                          I could spend $10,000 a DAY and still only spend 3.6 million a year! By the time inflation gets that high, the sun will have burned out.

                          Why waste time investing it, you only need $60K a year MAXIMUM; maximum inferring N-E-V-E-R to be exceeded.  $60,000 times one hundred years, since you'll not be getting sick, comes to roughly $6,000,000. Throw the rest it out a building window. Even safer, set it on fire in a giant dumpster. Why be bothered with the problem. No tax problem, no inflation problem, no interest problem. No bull dung talk! Keeping any other amount, would go against everything you have said.  I'm willing to stand by my position of spend, spend, spend; enough, is never enough.  Are you willing to stand by your position you will N-E-V-E-R have a need to exceed a MAXIMUM of $5K a month?

                          Cheers

                          |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                          I only trust myself - and that's a questionable choice

                            sirbrad's avatar - Lottery-062.jpg
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                            Posted: March 11, 2006, 8:47 am - IP Logged

                            On average yes, at least for many years. Not saying that I would not ever have to spend more than that, but never more than that every month. Not anytime soon. Although I do plan for the future, I am more concerned about living NOW.

                            You are much older than I am, so of course you want to spend spend spend. If I was in your position then I would probably do close to the same. You are right, I have no intentions of getting sick. I am an avid fitness buff, and nutritional expert and do not engage in the bad habits that seem to plague mankind every day.

                            Most people have no one to blame but themselves for their ailments, as it was their bad habits during their "invincible youth" that lead to their poor health in their golden years. Give or take a few 'natural cause' diseases. The lottery is like everything else, a 'personal decision' based upon 'personal circumstances'...not one universal law.

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                              Posted: March 11, 2006, 9:14 am - IP Logged

                              On average yes, at least for many years. Not saying that I would not ever have to spend more than that, but never more than that every month. Not anytime soon. Although I do plan for the future, I am more concerned about living NOW.

                              You are much older than I am, so of course you want to spend spend spend. If I was in your position then I would probably do close to the same. You are right, I have no intentions of getting sick. I am an avid fitness buff, and nutritional expert and do not engage in the bad habits that seem to plague mankind every day.

                              Most people have no one to blame but themselves for their ailments, as it was their bad habits during their "invincible youth" that lead to their poor health in their golden years. Give or take a few 'natural cause' diseases. The lottery is like everything else, a 'personal decision' based upon 'personal circumstances'...not one universal law.

                              Ahh, so now the modification of the absolute begins.  It always does with the perfect 

                              Ever heard of asbestos?  Perfectly physical people were in the wrong place at the wrong time.  Ever heard of a multilated body due to a drunk driver?  Ever heard of Bruce Lee? 

                              Plan for the worst, prepare for the worst. Enjoy the best, don't settle.  It is how I got to my age.  I didn't walk through the bush in 'Nam thinking I was in perfect physical shape, which I was - 10 miles in full combat gear, running, was normal every morning exercise.  Carry around five hundred rounds of ammunitions on your back, twenty-four/seven for weeks, and tell me again what kind of shape you are in.  I made it because I preplanned my life weeks in advanced.  I prepared and thought of every possible action, and practiced options upon optioins until they became like breathing. I became a Ranger, then joined Special Forces.  Not to be a hero.  Because I knew they had the best training on this planet on how to survive.  Billions of man hours went into thinking of ways to train me to live - in combat, and on the New Jersey Turnpike.  Take advantage of the best there is in life; especially when the training is not only free, you're being paid for it! I always remembered the golden rule" DON'T DIE!  Break that rule, and all other rules are meaningless.  I am where I am because of that rule.  Heart attacks, by pass surgery, bullet wounds, shot out of the sky, I never violated that rule.

                              Right now I have the perfect retirement planned - for me.  Fishing.  My own, fully paid for, home.  ZERO debt.  A truck with no payments. Three retirements checks.  Friends I would trust with my life - friends I have trusted with my life.  Ten months and counting, maybe fourteen; depending on the weather.

                              But that is not my goal.  If it was, I would quit this lottery silliness, and buy health bars with the money.  I plan to win a multi-million dollars and have more fun than I can plan for.  I have spend ten years planning on spending money in every way known to man.  Every year, I find another way to spend more.  Next year, I will find yet another thing to spend money on.  Fishing is for not having unlimited wealth.  Uncensored fun is for having unlimited wealth.  I am have been around the world, literally, several times.  I have looked at so many beautiful women I lost count.  With a jackpot, I intend to do it all over again.  If Iget tired of looking at beautiful women, then I will move to some hick town and settle for looking at the teeny-popper at the 7-11 store.

                               

                              Cheers

                              |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                              I only trust myself - and that's a questionable choice