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Oct 3, 2006, 1:27 pm (32 comments)
A government worker and grandfather from the Topeka area stepped forward Monday to claim the $15 million Powerball jackpot from Wednesday's drawing.
The man, who under state law can remain anonymous, chose to take a cash lump-sum payment of $7.17 million instead of the entire amount over 29 years. After taxes, he took home a little more than $5 million.
"I'm now referring to my life as BP (Before Powerball) and AP (After Powerball)," he said. "Last Tuesday I was worried about how I was going to come up with the money to repair the leaky pipes in my old house and put new tires on my vehicle. That was BP. Now I have the AP attitude of, 'Who needs new tires? I can just buy a new vehicle.'"
The winner said he bought the Quick Pick ticket — with the winning combination 23-28-33-35-49-16 — at Dillons 64, a Topeka convenience store. The store, which sold a scratch-off Run the Table ticket worth $75,000 last week, will receive a $10,000 bonus from the Kansas Lottery.
The man said he has grown children and grandchildren and said he plans to use the money to travel, help his kids and plan a family reunion at "some exotic place that we couldn't have afforded before."
He said he also plans to continue working, although he said he might retire earlier than he had planned.
AP
I like the BP/AP attitude, except I hope he keeps it in perspective. If I won a lot of money, but my car looked and ran well, I'd just get the new tires.
Congratulations to the Kansas winner stepping forward and take cash. I hope he doesn't have financial problems later in life.
Like the rest of you I am sure, I'd take $5 million bucks, but there is something a bit wrong when you win $15 million and only get a tad over 1/3rd of it.........
He didn't win 15 million. He won just over 7 million, and got to keep about 60% of it. I'd reather get more, but I could scrape by with 60% of 7 million.
I was also worried about putting new tires on my car. Fortunately, I purchased 2 used ones in good condition
. I had the same situation, but I was not the winner.
Congratulation to the lucky man.
CONGRATS TO HIM. MAY HE SPEND IT WISELY AND DO SOME INVESTING WITH IT.
How do you figure ?
It was advertised as 'a 15 million dollar jackpot', so he won 15 million, and got out of it with a bit over 5 million, after TAXES.
I agree, guesser. The annuity payment is such baloney, since he got less than 1/2 of the jackpot. At least he should have received $7.5 or $8 million. In FL most of the Lotto jackpots are paid at 55% or more, so that would be around $8.2M here. Also, I always read that people take home much more than I calculate. Federal tax can be as high as 35%. I'm not sure if Kansas has a state tax. So I figure after all taxes are paid, he'll really only have between $4 - $4.5M. I agree it's a heck of a lot of money and I'll take it, but like a set of tires, the jackpots are often overinflated.
Justxploring...regarding your comment about people taking home more then you calculate, here is what I came up with regarding this situation.
Lump Sum $7,170,172 (found on Powerball web site)
Federal witholding $1,792,543 (25%)
KS State witholding $358,509 (5% per USA Mega web site)
Take Home $5,019,120
Additional Federal Tax $ 717,017 (10% based on 35% maximum rate)
Additional State Tax $ 103,967 (1.45% based upon 6.45% maximum rate)
Net proceeds $4,198,136
The comment regarding people taking home more then you calculate, maybe this will help. The take home amount is based upon the deduction of witholding taxes. When the media reports an amount after taxes they are referring to witholding taxes only. It is safe to say that lottery jackpot winners owe additional money come year end tax time. The above is based upon using the maximum tax rate for both federal and state taxes. A tax pro might be able to lessen the tax burden.
Looks like your estimate of $4 - $4.5 million is in the ballpark.
Thanks CA LotteryGuy. It's just so obvious to me that so much of this is advertising hype. I mean, who wouldn't want $4.1M? However, $15M sounds so much sweeter to most people. I know they only take out 25% (same in FL) for Federal, but I always figure that a winner should put aside another 10%. If he has a good accountant, it might be lower but I'll bet the IRS pays special attention to people who win several million.
For some reason, many people think 28% is the maximum tax, which isn't true as we know. My complaint was that, just like the media and the politicians, leaving out little details can be very misleading. For example, if someone asked me "How old are you?" and I answered "I'm 45" it would be true, but only if you have Math Dyslexia.
(PS: I'm really 55, but then the example doesn't work. )
Well, it isn't really baloney, if you want $15 million, you take the annuity, you'll get 15 million. Everyone has to pay taxes, me, you and the winner - so that's no news flash.
As far as 'he should have received x or y' well, that's not how lump sums are calculated. Lump sums are based upon interest rates. When interest rates are higher, lump sums go down. When interest rates are lower, lump sums go up. Rates have been rising steadily over the past year, so lump sum payments are going lower. There's nothing underhanded about it, just simple mathematics.
nc6string....compared to interest rates, the length of the annuity plays a bigger role in the value of an annuity. The longer the annuity, the lower the lump sum.
No where was this more evident then a few weeks ago when Powerball and Mega Milions each had annuity values of $15 million. The lump sum for Mega Millions (a 26 year annuity) was around $8.9 million while Powerball (a 29 year annuity) was valued at $7.1 million. Since they both fund with governemnt securities, the two games probably have very similar interest rates.
I didn't post that to start a debate or an argument. I know how to multiply and divide without using a calculator. I also have probably been to more seminars on annuities than most people, unless someone is also a licensed advisor. Still doesn't change my opinion of Powerball and its cash payout.
Had to get the phone, so I couldn't edit...too late. Does anyone know how many PB or MM winners have actually chosen to take the annuity? The Washington Post reported this, but it was in 2003. I was curious and can't find the information.
"Everybody takes the money, says Powerball spokesman Mahoney. In all the years of mega-jackpots, he said, only one big winner has ever wanted the annuity. "
It's just that for so many years people have chosen the lump sum and out of all these people, I'm guessing a few of them have to be pretty smart investors. A big winner in FL was a successful stockbroker and he took the cash. I realize that to win the lottery a person doesn't have to be too bright, but if nobody chooses annual payments, then it either means after winning they realize it's the best choice, someone is lying to them and they all get duped, or they all made a big mistake.
So where did the missing $7,829,828.00 go ?
(Rhetorical question)
Or the 'you can't take it with you' thoughts kick in.
I've never seen an armored car follow a hearse to a cemetary...
Oh, I know you're kidding, but I do understand why they don't pay the whole $15M. I just think they deduct too much from it to pay the lump sum. The balance is supposed to be the amount that will eventually (in 30 years) become the jackpot. My "rant" (actually it isn't a rant, just an observation) is that they are using the very lowest interest rate, although many might argue that government bonds are the safest. Large investments can play with one's emotions, so what one chooses to do with money is often whatever the tummy can handle. Will you puke if you lose a fortune or will you explode if you don't make one? A lot of people don't appreciate "safe" when everyone else is making a bundle. (look at the Dow today) They only like "safe" when everyone else is losing money.
They actually work very hard to get bidders with the highest rates, because doing so will make the annuity jackpot higher, which in turn drives more sales. It's not like MUSL executives are hoping to pay out a lower cash jackpot, and they pocket the difference or something. They pay out whatever there is, in its entirety.
In fact, Chuck Strutt (head of MUSL) posted several messages at Lottery Post describing exactly how they calculate the annuity, based upon how much cash they have. (Not the other way around.) www.usamega.com includes breakdowns of cash vs. annuity, including the 29-year (30-payment) payout chart for every state on the Jackpot Analysis page.
Todd...how would one find the postings by Chuck Strutt regarding how MUSL calculates the annuity?
Also is it right to believe that Mega Millions would follow a similar procedure?
"They actually work very hard to get bidders with the highest rates..." Todd
I never said they didn't. I don't think there is some sort of conspiracy. I was only saying that usually the higher the risk, the higher the gain (and also the higher the possibility of loss) Increase in value is often related to how safe the investment is, although not always. Anyway, I don't care - just give me $200 million anyway you want to and I'll take it.
Use the search feature for posts by Chuck32. Mega Millions uses a different procedure. They have equal installments, and Powerball uses annually increasing payments. But before going on any further, you really should check out all the info at www.usamega.com, because it's all there.
The thread in which Chuck explained things was in a thread about a pool winning PB, when the usual debates about annuity vs cash started. You can start here: https://www.lotterypost.com/news/139681.htm?p=2
As Todd pointed out, MM pays out on a different schedule, but other than that the procedure is similar. Seek bids, buy the annuity, send a check each year. It is, naturally, the annuity that is determined by interest rates. Ticket sales generate cash, and the cash is used to buy the annuity if the winner decides to take it.
You got that right.
It was about this time 4 years ago when folks would DIE for something they could make 6% on in the stock market, because most folks were losing money. I was making 8% and thought I was the richest guy around, and to show how things have gone since then, I've been making about 18% every year, and that's BAD - or at least average by today's standards.
I made a small fortune speculating on oil in 1998, and I also lost a bit speculating on something else I sold too soon on in 1997, but any + is better than any - .
I agree, the length of the annuity is very important, but the length of the Powerball payout has not changed in some time, yet, people have noticed the lump sums on Powerball going from about 55% or so last year, to now under 50%, in which case, is all a function of rising interest rates.
hey another lucky person, well spend it wisely, i only wish the percentage was a little lower when they take out the taxes , so you get at least 75% instead of 30% , but hey good luck to all us guys who keep playing ,our time is soon,then when i win i will throw a block party for everyone on lottery post in the bahamas, and we will party like its our birthday,
The Powerball Annuity payout was changed last year to a graduated annuity payout - with each year's payment going up by 4%. If you had a lump of cash and wanted to set up your future, any financial advisor worth their salt would recommended a graduated annuity. Tough to live on even $1 million a year if it never keeps up with inflation. Lottery payouts that are equal really are not meeting the needs of a winner that wants to sit on the beach and not think about the money. The graduated annuity means that a little more money is invested longer and so the earnings grow more for the winner. Of course, the cash does not go "down" at all. The earnings go up and the difference between the two grows wider. People do an odd thing whey they focus on the "cash percentage" number. They should be looking at the reciprocal - the annuity percentage number. If you want a bigger cash percentage number, that is easy to do. Just refuse some of the annuity. If you earn 0% percent interest, you can even make the cash percentage 100%.
Taxes take a bigger bite than most people realize - more than is typically reported by the press as "after tax" - as CA Lottery Guy correctly pointed out. Most winners come closer to taking home 45% to 50% of the CASH prize. As someone said, we all pay taxes, so we should be used to that (we just are not all used to being in this tax bracket). No one takes a job and when told the salary asks, "Yeah, but what is that after taxes?"
To the one who says they can earn more than the annuity and that the lottery is running a scam - run the numbers. Take an example of a $100 million annuity jackpot where the winners ends up with maybe $25 million CASH after tax and start investing that. Remember that it is paid out as a stream of income every year - you don't get to hold the cash and compound the earnings. It is hard to take $25 million and beat a lottery that is investing twice the amount (pre-tax). Oh, and then guarantee the income stream.
Most folks do take the cash (only 2 out of 14 winners took annuity in 2005). Their financial advisors always tell them to take cash. Let's see, I am a financial advisor and some guy just fell into $80 million in cash – he has no financial experience - I earn my living based on investing money - what to do - what to do? Not that I would ever suggest that someone would act in their own interest. Likely, they just have a lot of confidence in their investment ability - and indeed, a smart or lucky person willing to take some risk can do better. But every independent finance professor and syndicated financial columnist I've talked to who has done the math and asks "Why do they always take the cash?" You have to decide whether a 100% guaranteed return of 8% is a good deal or not (this is the true comparision to the lottery annuity).
Actually (with a tip to CASH ONLY), this year is really a pretty good time to consider taking the cash. Even though it means working hard to protect your money and accepting some risk (goody-bye beach dreams), the maximum federal income tax rate (35%) is at an all-time low. If you are going to take the hit at some point in your life, this might be the year to do it. With tax rates so low, you really only have to approach earning 8% in the current environment to equal the lottery's annuity stream. Of course working hard to safely earn the exact same interest stream is not the point, you want to beat it, so you'll want to earn more than 8%. Can it be done? Of course. Not without risk, but it can be done. There are investors that earn more than that all the time - and there are investors that lose it all. The trick is to buy low, sell highOne writer says that the annuity is advertising hype. That may be a little strong. Lotteries are in a business and a business will always focus on the positive, but the lotteries announce both the cash and annuity amounts. I’m not sure what the lottery could do to be more open and honest about it. The cash amount is the true “present value” of the prize; the annuity is total dollars that the lottery can pay out after investing the cash pre-tax for you. You can’t confuse what a reporter writes as coming from the lottery.
nc6string...while the length of the Powerball annuity has not changed, the annuity payment schedule has changed. In the summer of 2005 Powerball went from an equal payout schedule to a graduated (4% increase per year) schedule. This change means the amount of cash set aside for the jackpot can purchase a larger annuity. This means a bigger advertised jackpot which in turn lessens the percentage of the cash payout of the jackpot.
Interest rates do have an effect. Earlier this year the payout percentage was 44.2%. The most recent was 48.4% That is a direct result of changing interest rates.
These two factors are why people are noticing the lump sum % of the jackpots for Powerball going down from earlier levels.
I remember when that happened, and the only thing I remember thinking was that I hope NC chooses Mega Millions instead of Powerball - didn't happen of course. The only thing the change did, I think, is lessen the chance (to about zero) that anyone would ever take the annuity option. The amount you get per year, in the first few years, seems so out of proportion with the total amount won, I can't see anyone taking it. It's like having a father, doling out an allowance again, "Son, when you get a little older, I'll raise your allowance..." No thanks!
The guy who said it would be tough to live on 1 million a year for 25 to 30 years - I trust you were kidding.
Just hardly half-kididng about being tough to live on 1 million a year for 29 years. Most people quickly get used to their income. Having $1 million a year is great for the year or three, but then you start noticing that the docking fees on your yacht keep going up. The cost of a new Rolls-Royce has continued to rise. Your service staff keeps wanting raises. Those monthly trips to Europe keep rising with higher first class costs and luxury suite costs. Without an inflationary increase in your income, your "true" income - your lifestyle begins to decline. If you do a little math, you will find that a $1 million needs to be $1.4 million in 10 years; $1.8 million in 15 years; and goes over $2 million in 20 years - just to stay the same. Any investment advisor setting up an annuity stream for someone will certainly set up a graduated stream. To do otherwise would be irresponsible.
Living on a fixed income for a long time obviously has its down-side, but what you're describing is stupidity. Being stupid is a much bigger problem than an income that doesn't go up. I could spend the 600 grand a year I'd net after earning a million bucks a year, and I could probably do it pretty easily, but only by being stupid or reckless. 600 grand a year is enough to live extremely nicely and still make an annual investment that's considerably more than the average household income.
Of course I do see some posts here that indicate that a fair number of people might follow the wrong path. When people talk about how they'd spend a windfall of a couple of hundred grand to a million bucks there's a lot of talk about vacations, new cars, new houses, etc, but few posts about saving most of it for retirement. How many people with a typical household income are already putting away the 10 or 20 grand a year for their retirement that they could by investing the majority of a windfall?
One of the problems with annuities is that a lot of peole will start living within their means, but just barely within their means. For those people, even a 10% annual increase will probably just result in a 10% increase in spending.There's no question that a lot of people would be better off choosing the annuity, but I think the people who would benefit the most are among the least likely to do so.
I can only agree with you, but then I'm one of those people who seem to always need to spend it all. I have a CPA friend who manages to spend less than 100% of their income and I imagine that about 5% of the population can do that. I could really be socking it away if only I stayed living on $12,000 a year. My only excuse is that you do have to live a little for today - you never know when it will all end. I do know that when I'm stuck in that cheap retirement home while my buddy is getting luxurous bed baths and the tastiest of pureed foods, I'll probably be jeolous (well, maybe not). I've heard wealthy folks say - "It all goes to the same thing, no matter how much you make, your house ($10 million instead of $150,000), your cars, and your recreation. Of course, those things all mean different things to different folks.
I can handle money very well because we never had it when I was growing up, it was just me and mom.
She worked minimum wage jobs, I worked in Jr. High, High School and College.
Momma preached to me from day one 'stay out of debt', and except for student loans, I have. I live every day as if I was
making $18,000 a year, and I made about 3x-4x that amount, but I still lived as cheap as I could, no telling when your job might disappear. I parlayed $60,000 in the stock market to almost a million, gave back 10%, then got out of the market. It's all in an IRA I can't have anyway, until I retire.
My job HAS disappeared - twice in four years, thank god we have no debt at all except for our mortgage, and I have saved enough that I don't need to worry for quite a long time, hopefully I will land another job soon, and get my wife off my back (she works).
It all comes back to priorities, how you were raised, what life has taught you.
I could very easily spend a few hundred dollars on lottery tickets every drawing, I limit myself to 10. I'm not so tight that I squeek, but I do have the philosophy that 'you can't take it with you', so I do indulge once in awhile.