Let’s understand one important thing about the lottery. Even if you win $1 million jackpot, it does not necessarily make you a millionaire. Instead, it will only make you a thousandaire.
How is it possible? Let me explain it to you 🙂
Many people are surprised when I told them that even if they win a huge amount of prize from a lottery, they will not receive the whole prize immediately. In fact, they will have to wait for 20 – 25 years until they receive the prize, after the tax. Each year during that 20 – 25 years, they will receive around $50,000, before tax. Depending on your situation and state, you may be also required to pay additional income tax. In most cases, you will be left with only $36,000 per year or even less, depending on those extra taxes.
That’s not all. Do you realize that the $36,000 per year you receive today could only afford $11,225 lifestyle in the future, right after you received your last part of the prize? Yep, all thanks to the inflation. You get more today to get less in the future. Surprised? Well, you are not the first one.
There is another option, though. You can get the whole prize as a lump sum, but only if your state allows it. As long as we know, this option is only available in Oregon, Ohio, Colorado, and Arizona. Furthermore, the state clearly limits that this option should only be given to new winners. That means if you ever win the prize, you will be left with no option, but receiving the prize in 20 – 25 years.
As for the lump sum, this is not a better option from the first one. The tax is incredibly higher from the first option. If you choose this option, you will have to pay 40 – 50% tax. This rate will leave you with around 50% of the prize, which is quite normal.
If you turn the money on some kind of investment with at least 10% of annual return, you can double the prize every 7.2 years. If in the 7th year, you have received $252,000 without investment, then if you invest your money, you would have around $504,000 at the end of the same year. At my point of view, at the end everything will depend on you. You should know how to manage your funds and make money out of it. The lottery may grant you millions of dollar, but in fact you will not receive that much. It will up to you to make your fortune. You can choose any kind of investment, but make sure the return rate is at least 10% to make it worth your effort. This is because you will only see the ‘considerable’ amount after years of investment. Don’t lose to the tax if you can make more money out of it.