How Lottery Winners Can Hang On To —and Grow — Their New Found Fortune
Since January 13, 2016, there have been seven Mega Millions or Powerball jackpots in excess of $1 billion, the most recent of which was won in California on July 19, 2023. Although the odds of winning are estimated to be about one in 300 million, interest increases when jackpots soar, with players hoping to turn a $2 ticket into a big win.
But according to chartered financial analyst (CFA), Steve Nielander, an SDSU alumnus (’84) and finance lecturer in the Fowler College of Business at San Diego State University, those few individuals who do win the lottery may want to hold off on any big spending sprees — at least not before they’ve done a little research and planning.
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To avoid the pitfalls that may come with overnight wealth, Nielander makes the following suggestions:
- Get Professional Advice:
Hire a team of experts that include an estate attorney, a CPA/accountant, and a financial planner or investment advisor. To find these professionals, you can either check around for referrals or look at various regional publications for the top professionals in your area.
- Decide How You Want to Receive Your Winnings:
Consult with your team to determine whether it’s best for you to take the winnings in a lump sum or in annuity (annual) payouts, usually over a period of 30 years. The lump sum payment would allow the funds to start compounding investment returns early on, but there are also more taxes taken from the lump sum. The annuity payout might be a better option for winners who are concerned about their ability to manage their funds properly and could help them avoid “blowing all their winnings” right away. - Verify Charitable Donations:
Before making any charitable donations, make sure they qualify as a 501(c)(3) organization so that you can receive the tax benefits. You should also consider offering your donation as an endowment, which provides the charity with ongoing benefits rather than funding a one-time gift. - Consider Anonymity:
Staying anonymous depends on if the winner wants to be known for their charitable donations and their work in the community. For example, if an individual wants their name on a public building, they would not be able to remain anonymous and would be subject to many requests for donations. However, if they want to avoid the public spotlight, they may want to remain anonymous.
For those dreaming of winning big, Nielander offers these words of caution: “Most people think that having all the money in the world would make them free to do everything they want without any worries,” he said. “But being wealthy and staying wealthy takes a tremendous amount of work and can be demanding. Staying wealthy can only happen with a great deal of planning and surrounding yourself with the right team.”
