{"id":14008,"date":"2018-10-20T01:33:04","date_gmt":"2018-10-20T01:33:04","guid":{"rendered":"http:\/\/www.lifeandnews.com\/articles\/?p=14008"},"modified":"2018-10-21T01:34:50","modified_gmt":"2018-10-21T01:34:50","slug":"how-winning-1-6-billion-in-mega-millions-could-still-lead-to-bankruptcy","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/how-winning-1-6-billion-in-mega-millions-could-still-lead-to-bankruptcy\/","title":{"rendered":"How winning $1.6 billion in Mega Millions could still lead to bankruptcy"},"content":{"rendered":"

Jay L. Zagorsky<\/a>, Boston University<\/a><\/em><\/span><\/p>\n

The U.S. Mega Millions lottery<\/a> jackpot swelled to a record US$1.6 billion after the 25 drawings held since the end of July \u2013 including the latest<\/a> on Oct. 19 \u2013 failed to yield a winner.<\/p>\n

That ties it for the largest lottery<\/a> grand prize the world has ever seen. The jackpot for the rival Powerball game also reached $1.6 billion<\/a> in 2016.<\/p>\n

The odds of winning<\/a> are very small, or about 1 in 303 million. You are about 400 times more likely to be hit by lightning<\/a>. If every adult<\/a> in the U.S. purchased just one ticket, each with a different number, there would still be a good chance \u2013 about 7 percent \u2013 that no winner emerges at a given drawing and the pot would grow even larger.<\/p>\n

But once a winner is declared, a more interesting question arises: What happens to all that money and the lucky ticket holder? As research by myself<\/a> and others shows, it\u2019s often not what you\u2019d expect. <\/p>\n

A smaller prize than it seems<\/h2>\n

The first thing to bear in mind is that while the jackpot is eye-wateringly large, the actual payout will be much less. <\/p>\n

If someone happens to claim it in the latest drawing, the winner would not actually receive $1.6 billion in one big check the next day. Assuming just one person wins it, he or she can either choose a lump sum payment that amounts to about $905 million or receive $1.6 billion worth of annual payments that get progressively higher over 30 years<\/a>. <\/p>\n

After that, the taxman gets to take a big bite. If the winner comes from a state without a lottery tax like Florida or Texas and chooses a lump sum, the federal government will take<\/a> about $217 million of that, leaving $688 million. But if he or she is unlucky enough to live in New York City \u2013 one of only two cities that have their own tax \u2013 that dwindles to about $573 million. <\/p>\n

That jackpot is starting to look a lot smaller, though it\u2019s still a fair chunk of change. <\/p>\n

Where windfalls go<\/h2>\n

The conventional wisdom is that winning the lottery will change your life. While that\u2019s probably always true, research suggests not always in the way you might hope.<\/p>\n

Economists Guido Imbens and Bruce Sacerdote and statistician Donald Rubin showed in a 2001 paper<\/a> that people tend to spend unexpected windfalls. Looking at lottery winners approximately 10 years after winning showed they saved just 16 cents of every dollar won. <\/p>\n

In my own research, I found that the average person in their 20s, 30s and 40s who was given an inheritance or large financial gift<\/a> quickly lost half the money through spending or poor investments. <\/p>\n

And other studies have found<\/a> that winning the lottery generally didn\u2019t help financially distressed people escape their troubles and instead only postponed the inevitable bankruptcy. One found<\/a> that a third of lottery winners go bankrupt. <\/p>\n

It\u2019s not easy to blow it all<\/h2>\n

So how exactly could a lottery winner blow through hundreds of millions of dollars so quickly? It\u2019s not easy. <\/p>\n

Demographic research on lottery players\u2019 characteristics shows that lottery playing peaks<\/a> when people are in the 30-39 age range and actually falls as people get older. And the average person in the U.S. lives to age 79<\/a>.<\/p>\n

So that means, assuming the winner is in her 30s, she would have about 45 years or so to spend the lump after-tax sum of, let\u2019s say, $900 million. That means she would have to spend a bit less than $20 million a year or roughly $55,000 per day to burn through it all \u2013 even more when you factor in interest accrued while it sits in the bank.<\/p>\n

In addition, really blowing it all means the winner has no assets to show for it. If he uses the money to buy luxury homes, Banksy paintings<\/a> and Ferraris and Aston Martins, his net worth wouldn\u2019t actually change and he\u2019d be able to retire with his wealth intact \u2013 assuming the investments kept their value or rose. <\/p>\n

Blowing through the money, which leads to bankruptcy and low savings rates, means the winner has nothing to show for his spending besides a good time. <\/p>\n

\n \"\"
\n Huntington Hartford inherited millions. He died with little to show for it.<\/span>
\n Diane Hartford\/Wikimedia Commons<\/a>, CC BY<\/a><\/span>
\n <\/figcaption><\/figure>\n

Riches to rags<\/h2>\n

And that\u2019s basically what a man named Huntington Hartford did. <\/p>\n

Hartford, who lived from 1911 to 2008, was the heir to the Great Atlantic & Pacific Tea Company<\/a> fortune. This company, which started just before the Civil War, is better known as the A&P supermarket chain. A&P was the first U.S. coast-to-coast food store, and from World War I to the 1960s was what Walmart<\/a> is for today\u2019s American shoppers. <\/p>\n

Hartford inherited approximately $90 million<\/a> when he was 12. Adjusting for inflation<\/a> means he was given over $1.3 billion as a child, after taxes. Yet Huntington declared bankruptcy<\/a> in New York in 1992, approximately 70 years after being handed one of the largest fortunes in the world. <\/p>\n

Hartford had the reverse Midas touch. He lost millions buying real estate, creating an art museum and sponsoring theaters and shows. He combined poor business skills with an exceptionally lavish lifestyle. After declaring bankruptcy, he lived as a recluse with a daughter in the Bahamas until he died. <\/p>\n

May the odds be ever in your favor<\/h2>\n

Hartford\u2019s life story, coupled with academic research, shows that coming into a windfall of cash doesn\u2019t always have a happy ending. Squandering that money is easier than it seems. <\/p>\n

If you\u2019re planning to play, I wish you good luck. If you play on winning, I wish you even more luck. <\/p>\n

Nevertheless, one key lesson, whether you play or not, is that when you get a windfall or win the lottery, plan ahead and resist the all-too-human temptation to spend all the money.<\/p>\n

This is an updated version of an article originally published<\/a> on Jan. 12, 2016.<\/em>\"The<\/p>\n

Jay L. Zagorsky<\/a>, Adjunct associate professor, Boston University<\/a><\/em><\/span><\/p>\n

This article is republished from The Conversation<\/a> under a Creative Commons license. Read the original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

Jay L. Zagorsky, Boston University The U.S. Mega Millions lottery jackpot swelled to a record US$1.6 billion after the 25 drawings held since the end of July \u2013 including the latest on Oct. 19 \u2013 failed to yield a winner. That ties it for the largest lottery grand prize the world has ever seen. The […]<\/p>\n","protected":false},"author":44,"featured_media":14003,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[5],"tags":[689,5271,5270,528,5269],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/14008"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=14008"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/14008\/revisions"}],"predecessor-version":[{"id":14009,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/14008\/revisions\/14009"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/14003"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=14008"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=14008"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=14008"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}