As of this writing, the Powerball jackpot is up to $1.4 Billion. Billion! Even after taking the lump sum (about 867.9 Million) and paying taxes (another ~33% of that) that still leaves you with $581.5 Million. That’s a boatload of cash for someone to take home.
A while ago I came across a fantastic comment thread on reddit outlining what to do if you win a huge jackpot like this. The odds of winning the largest jackpot in US history are roughly 1 in 292.2 million. In other words, you’re 25x more likely to become President of the United States than have a winning ticket. I’m going to summarize it here in case anyone reading this happens to win. Feel free to throw a few bucks my way if this ends up helping you.
Step 0: Do NOTHING
This is the most important thing to remember. If you win, do not declare yourself the winner yet. Don’t tell a soul. Resist the irresistible urge to tell your friends and family.
Immediately retain an attorney
Get a partner from a large national firm. Do not use your local attorney. Do not use your long-standing family attorney. You want someone who has no connections whatsoever with your family, your friends, or your community.
Look up a “Trust and Estates” partner from one of the largest 50 firms in the US with an office near you on Martindale, head to their office, and get them on retainer.
Decide right now how much to give away to family and friends
The reddit user, BlakeClass, suggests no more than 20% of the winnings. With a take home of $581.5M, that’s over $116M to family and friends. That’s extremely generous and still leaves you with over $465 million cash.
Figure out the number. Tell your lawyer. Don’t change it.
Do not consult with family on what this number should be. The advice will be tainted and skewed by conflict of interest.
“If other family members find out that Aunt Berta was consulted and they weren’t you will never hear the end of it. Neither will Aunt Berta. This might later form the basis for an allegation that Aunt Berta unduly influenced you and a lawsuit might magically appear on this basis.”
Do NOT give anyone cash. Ever. Tell your attorney you want to set up a series of trusts to provide for your loved ones. It can be empowered to fund higher education, help with a house purchase, whatever. Just avoid getting tangled in the messiness of handing out cash.
Purchase a safety net
Immediately purchase a combination of US Treasuries with 20-33% of what you aren’t giving to family and friends. 5 or 10 year Treasuries are a good idea, and perhaps even another G7 treasury instrument. This is your safety net. You will be protected… from yourself.
Right now, you’ll get around 2.2% yield on the 10 year U.S. treasury. With $93 million (20% of $465.2 million after your absurdly generous family gift) invested in those you will pull down $2,046,000 per year. If everything else blows up, you still have that.
That leaves 80% of $465.2 million. BlakeClass suggests dumping half, or $186 million, into S&P 500 Index fund with low fees. Expect not to touch this for 10, 15, 20 years or more. It will grow at market rate giving you decent returns for no effort.
Have fun being a millionaire!
You have a safety net in place. You have provided for your family and friends beyond their wildest dreams and you don’t need to worry about giving anyone cash. You know you’ll be getting over $2 million per year unless the country is burning to the ground. You have a huge nest egg growing at market rates. And you still have $186 million in cash.
So what now?
Do whatever you want with the rest of that money. Buy a nice house or two. Get that Lamborghini you’ve wanted since you were 10 years old. Travel the world. Blow half of it in Vegas. Play and have fun! Even if you burn through it all in a year you’re set up with more financial security than 99% of Americans.
And please let me know if you do win.
Updated numbers for January 13, 2015
- Jackpot: $1.5 Billion
- Lump sum: $930 Million
- After Taxes: $623 Million
- Family/Friends (20%): $124.6 Million
- US Treasuries: $100 Million
- Return on Treasuries: $2,200,000 per year
- S&P 500 Index Fund: $199.2 Million
- Remaining CASH: $199.2 Million