A self-made billionaire's advice for lotto winners: Cash or annuity?
Published 4:00 pm Tuesday, July 9, 2024
A self-made billionaire’s advice for lotto winners: Cash or annuity?
The Mega Millions jackpot hit $1.1 billion in March 2024, becoming the fifth-largest jackpot ever. The last two billion-dollar jackpots were in 2023; there was one each in 2022, 2021, and 2018.
More frequent billion-dollar winnings raise the question: Which payout option is better? Cash or annuity?
Mark Cuban, self-made billionaire and star of ABC’s “Shark Tank,” says winners should opt for an annuity rather than a lump sum.
Before discussing his reasoning, let’s examine the payout options for a $1.1 billion jackpot winner. If someone matches six numbers on their ticket, they’ll choose between receiving a lump sum of approximately $525.8 million or the $1.1 billion paid out as an annuity over 30 years.
With the annuity payments, the winner would see roughly $23 million annually after deducting federal taxes. Depending on their state laws, they would still have to pay state taxes. Typically, most winners choose the lump sum and can, in theory, start growing and investing that right away. However, Cuban has historically advised winners to take the annuity.
“Don’t take the lump sum,” he says. “You don’t want to blow it all in one spot.”
Taking the 30-year annuity will likely increase your net income, even after all the tax obligations. Plus, if you take the lump sum with the idea of investing, you’d need to make up nearly half a billion dollars through investments to equal the earnings from the annuity, which isn’t guaranteed. In fact, Cuban tells winners not to make investments.
“You don’t become a smart investor when you win the lottery,” he says. Don’t make investments. You can put it in the bank and live comfortably — forever.”
One billion dollars, or even a few hundred million dollars, is more than most Americans hope to achieve with their retirement accounts. If you win mass amounts like that in the lotto, is there a need to turn around and invest it?
Cuban seems to think it’s wiser not to take risks. He says, “You will sleep a lot better knowing you won’t lose the money.”
But Cuban doesn’t just advise taking the annuity and warn against investing. He offers a few other tidbits of wisdom for mass lottery winners. First and foremost, he says to hire a tax attorney.
Tax laws are already convoluted enough, but adding large sums of money, particularly from lottery winnings, just muddles the equation further. And you don’t need the IRS breathing down your neck. Your winnings should help alleviate stress, not add to it. So, hiring a tax attorney can help you navigate local and federal laws around your tax obligations for lottery winnings.
Cuban also says, “Tell all your friends and relatives no. They will ask. Tell them no.” Everyone seems to come out of the woodwork when they hear about someone they know winning the jackpot.
In this same vein, Cuban says, “If you are close to them, you already know who needs help and what they need. Feel free to help some, but talk to your accountant before you do anything, and remember this: no one needs one million dollars for anything. No one needs 100k for anything. Anyone who asks is not your friend.”
There you have it. Mark Cuban’s advice on winning the lottery. While most of us can only dream about it happening, winning the lottery isn’t the only way to gain wealth. Whether you are one of the lucky few who has won big or want to grow your wealth through more traditional means, everyone can benefit from a financial advisor to assess their portfolio and guide them on their journey to a successful financial future.
This story was produced by Benzinga and reviewed and distributed by Stacker Media.