Many people fantasize about lottery winnings and spend countless hours planning how they will spend their jackpot.
While becoming a millionaire would free you from financial problems, winning large sums of money could bring more problems than ever imagined.
The biggest problem with lottery winnings is the majority of people who win have no money sense.
Research reveals nearly 80-percent of jackpot winners are broke within two years.
Instead of stashing some cash for their golden years, people tend to lose their minds and start spending money on mansions, fast cars, jewelry and travel.
The second problem with winning jackpots is taxes.
Lottery winnings are subject to state and federal taxes.
Depending on the amount and state, taxes could equate to 50-percent or more of total winnings.
Individuals who accept their payout in a lump sum receive substantially less than those who receive payment installments.
Powerball and mega million winnings are typically paid in annual installments over the course of twenty years through a structured settlement annuity.
Annuities are guaranteed by life insurance companies and paid in increments.
When individuals enter into a structured settlement agreement their lottery winnings usually fall into a lower tax bracket; allowing for a larger payout and less taxation.
The Lottery Commission generally pays about 65-percent of the winnings when distributing funds as a lump sum cash payment.
For example, if a person won $1 million Powerball jackpot, they would receive approximately $650,000.
Taxes would be applied against the full $1 million; making the final payout around $325,000.
Individuals who elect structured settlement payments would receive about $40,000 per year against a $1 million payout.
Depending on the tax rate, individuals would receive between $20,000 and $30,000 each year; giving them a total after-tax payout of between $400,000 to $600,000 These amounts are used for demonstration purposes only.
Lottery winnings will vary depending on personal tax status and state lottery regulations.
Prior to making a payout decision, experts recommend organizing a financial team which includes a financial advisor, tax accountant, and attorney.
Investing lottery winnings can potentially double or triple earnings.
Instead of spending money on material things, consider purchasing real estate, invest in stocks and bonds, purchase cash flow notes, or start a business.
Make certain to set aside at least 10-percent in an interest-bearing savings or money market account, or invest in certificates of deposit or savings bonds.
While lottery winnings can provide financial freedom, it can also present complex tax issues which require careful attention and planning.
Engaging in well thought-out investment strategies can minimize many of the tax consequences.
Multiple options exist for investing lottery winnings.
Wouldn't you rather build a solid investment portfolio instead of tossing away your financial windfall on materialistic things? Don't be like the rest.
Learn to invest!