The Mega Millions $1.28 billion jackpot would be a life-changing amount of money for the lucky winner or winners — but not necessarily in a good way.
Robert Pagliarini, author of “The Sudden Wealth Solution,” has been guiding lottery winners for decades. And he has seen plenty of people run through their winnings faster than you can say “jackpot!” Or, friends and family (and certainly office lottery pool players) can see their winnings tied up in legal battles for years, as the parties argue over who gets how much. About 70% of lottery winners lose or spend all the money in five years or less, after all.
“Money — especially when you’re talking about this level of money — absolutely upends people’s lives,” Pagliarini, the president of Pacifica Wealth Advisors, told MarketWatch. “You should be excited, but you should also be prepared, for sure.”
These are his five tips for what to do if you win the lottery, whether it’s this $1.28 billion Mega Millions jackpot, a Powerball prize or another sudden windfall.
Document that the winning ticket is YOURS
Sign your name on the winning ticket, take a picture of yourself holding the winning ticket — in fact, take a video of yourself holding the signed, winning ticket, for good measure.
“The first step is really all about securing the ticket … because whoever has it is the owner,” says Pagliarini. “There’s no record of you having purchased that ticket with those numbers. So having that ticket is everything.”
You have to document that this ticket is yours, which is why Pagliarini says legal experts recommend signing it. “I would absolutely sign it myself,” he adds.
And then put that ticket in a safe place, like a home safe or lockbox.
Don’t tell anyone yet!
You may want to sing the good news from the rooftops that your financial troubles are over. Problem is, everyone else’s troubles aren’t — and Pagliarini warns that, for your own personal safety and peace of mind, it’s better not to let the world know you’ve just become a billionaire overnight — if you can help it. Unfortunately, most states make you disclose that you’ve won.
“We’re used to seeing people with the big check on TV, which looks pretty cool — but now everybody in the entire world knows that you’re worth $1 billion. And that’s not really the kind of publicity that you want,” says Pagliarini. “You’re going to be hit up for lots of money requests as people come out of the woodwork. And that adds such a huge amount of stress when you’re in a situation that is already stressful.”
You generally have 180 days to collect the winnings, and you’re going to have to make some big, life-changing decisions during that time. Staying anonymous, if you can, will give you the space to make those decisions with a clear head.
Unfortunately, as noted, most states compel lottery winners to come forward publicly. If you have to reveal yourself and do press interviews, protect your personal information. Some past Powerball winners didn’t answer questions about any meaningful or personal significance associated with the winning numbers that they played, for example, or they refused to share details about their children. One couple simply moved out of their house and refused to speak with the media at all while they settled their affairs.
“My rule is basically, you tell one family member, and then you immediately try to get professional help,” Pagliarini adds. Which leads us to….
Get a lawyer and a financial adviser
Bring in the professional help as soon as you can. An attorney can help you decide the best time to claim your lottery prize, and offer more advice on keeping your ticket safe. They can also help navigate your rights and protect your best interests with regards to how much you need to present yourself publicly. And they can also help you manage your safety.
Meanwhile, a financial adviser can assess your financial situation and help you decide whether it makes sense to take a lump sum of cash, or to collect your winnings over annual payments. A financial adviser can also help you manage your money so that you can check things off your bucket list without overspending.
“You know you’ve won, and then typically you have about 180 days to collect the winnings,” says Pagliarini. “So you’ve got to do some serious planning.” You need all the help you can get.
Do you take the lump-sum payment or the annuity payment?
Pagliarini considers staying anonymous as the first big decision a lottery winner makes. The second most important question, however, is how they collect their winnings. Do you want to take a lump sum, or do you want to take the annuity (aka, a payout over time)?
“This is really the biggest financial decision you’ll ever make in your entire life,” he says. (Granted, it’s one that most of us will never have to make, since the odds of winning the lottery, let alone a jackpot of this size, are infinitesimal.)
He notes that most people take the lump-sum payment, and in some circumstances this can be a better decision. But keep in mind that if you win the $1.28 billion Mega Millions jackpot, you are not getting $1.28 billion.
“They send you about 60-ish percent of whatever the lump sum is, so you would get around $600 million instead of $1 billion,” Pagliarini notes. And after state taxes, depending on where you live, and federal taxes, that jackpot may be closer to $300 million in the end. Whereas, the annuity is given as 30 payments over 29 years, which will come closer to hitting the advertised $1.28 billion jackpot than lump-sum takers would get. So being patient can pay off in the long run, especially with a bigger prize like this.
As far as taxes are concerned, Pagliarini still leans toward annuity — especially for a smaller jackpot, like if it was $1 million. That’s because you would get a lump-sum payment of about $600,000, which would put you in the highest federal and state income tax bracket (for single filers anyway) that year — versus taking an extra $30,000 a year for 30 years. “That annuity payment is probably not going to catapult you into the highest tax bracket,” he says. But for a $1.28 billion jackpot like this, you’re going to be in the highest tax bracket whichever payout you choose, he says.
But there’s another reason to consider going the annuity route, Pagliarini says — it can save you from yourself.
“The biggest advantage of the lump-sum payout is that you get most of the money up front, and then you can do whatever you want with it,” he says, such as pay off debt, invest it, buy a house, etc. “But that actually happens to be the biggest disadvantage of the lump sum,” he continues. And that’s because, if you overspend your winnings and run out of cash with your lump sum, then you are out of luck. But the annuity payments are almost like a do-over each year, he says, because you can learn from your mistakes and spend the next annual windfall more wisely. “I’ve advised most people honestly to take the annuity,” he says. “It just allows you to really make mistakes, but have them not be a total derailment.”
If you still can’t make up your mind, he also has a free online quiz to help you decide whether you should take a lump sum or an annuity payment.
Keep it simple when deciding where to put your new money.
So you’ve secured your ticket, tried to keep it quiet, hired some professional help, and decided how you are going to collect your winnings. Then what do you do with all of this cash?
Every financial situation is different, of course, which is where a financial adviser can help you sort out the nuances to make this lottery win a real dream come true for you. But in general, Pagliarini recommends keeping things simple — even considering that this $1.28 billion jackpot (even whittled down to around $300 million after taxes) would allow you to do basically whatever you wanted to do.
“If I were meeting with you, we would sit down and make some serious decisions, and prioritize what you want to do,” he says, “such as paying off debt, and discussing what is on your wish list. Do you want to buy a new house or a second house, or buy your family houses?” He suggests pricing out your wish list together with your adviser to see whether you could afford to do everything you want.
But you still want money left over to live on. “We want to make sure the money left over is generating enough income so that they could survive on that for as long as they wanted — and particularly in this [Mega Millions jackpot] case, I’m sure generations would be able to survive on this amount of money,” he says. “I would invest in index funds. I wouldn’t get esoteric with limited partnerships and venture capital. Just go for a diversified portfolio, because as soon as you start deviating from ‘simple’ you can really increase your chances of just losing it all.”
He notes that because lottery winnings don’t feel “earned,” the prize may not feel like “real” money — which is one of the reasons so many lottery winners don’t manage their newfound wealth well. Again, about 70% of lottery winners lose or spend all that money in five years or less. “If the money doesn’t feel earned or real, you’re going to make decisions with that money that are probably not going to be in your best interest,” he adds. “You’re giving it away more freely, spending more freely, or freely investing in things a lot riskier than you would have done if you had to sweat and earn that money.”
So keep it simple. “Don’t think just because you have x-millions of dollars now that you really have to get ‘sophisticated,’” he adds.
And some bonus advice for office pools
This is more of an extra, hindsight tip for before you and your co-workers start throwing in a buck apiece for a long-shot bid at a jackpot like this. Pagliarini warns that office pools can get “tricky,” so it’s good to sign a contract setting some ground rules before you all pool together.
“There’s been a lot of litigation around office pools, because maybe somebody forgets to play one week, and that’s the week everyone wins. Or someone thought they played this week, but on this particular week they didn’t,” he says. “So loosey-goosey situations can end up in court to battle it out.”
A much simpler solution to avoid this is to have an office pool contract that spells out who is in this pool, how much they are contributing, and it also determines in advance whether the group will take the lump-sum payment or the annuity payment.
“Because the last thing that you want is to win $1 billion or $100 million dollars, and then to be tied up in court for four years,” he says. “That’s no fun.”