Let’s play the “What If?” game? What if I won the Powerball which is listed at $900 million with a cash value of $558 million. Either way, that is a lot of money! Disclaimer: I am NOT endorsing or condoning playing the lottery. That is your own choice that I will not judge you on.
If you were to win the Powerball; what would you do with all your winnings? Who would tell? If it was me… In the words of Keith Sweat..
But we are talking about you…. Most people would say, “SHOW ME THE MONEY?!” They would want a lump sum of money in their bank account right away. Then here come the following people: your Momma who wants to start her own restaurant, your Uncle Junebug who always wanted to start their own barbershop, friend who now wants to start their rap career but want a custom studio, and your girlfriend/boyfriend who is looking for you to wine and dine because they feel they deserve it. Crazy right? But so true!!
Let’s look through your financial lens and see how much you would actually win. The estimated value of the Powerball is $900 million. You actually win $558 million (62% of the estimated value). Let’s not forget about the T word….TAXES! There is a 25% Federal Tax Reduction which will be taken off the top (think $135 million). You must pay Caesar what is due to Caesar or He will come for you and take the shirt off of your back. Now you will bring home about $419 million. Your hometown state also needs their coins too. State Taxes vary from state to state. I will use the state of Illinois as an example. According to USA MEGA, Illinois has a 3.75 state tax.
Now the question is… how should I get my winnings: lump sum or annuity? The common person would say LUMP SUM!!! Is that correct? NO!!!! The most financially responsible thing is to do an annuity payments. This DIVA will tell you why. What is annuity? Glad you ask! Annuity is a fixed sum of money that is paid to someone for the rest of their lifetime. Bonus: if you die suddenly; your family can continue to receive annuity payments for the rest of their lives too! Morbid I know but hey you gotta be realistic.
Anywho… Back to the math. If you receive a lump sum payment, you will receive about $398 million. If you choose annuity payments, you will receive about $642 million. If you choose to get a lump sum, then you will pay more taxes off the top. If you choose an annuity; you will only pay taxes on the payments made to you annually. That means more money in your pocket!
So if you or I do win the Powerball tonight; please choose the annuity payments. Don’t forget to bless your fellow Financial Diva a coin or two for giving you this advice. In the meantime; keep SAVING and INVESTING DIVAS!!!
-Miss Diva Dollars