Everyone has dreamed of winning the lottery at some point in their lives, and why not? Winning the lottery can either solve all of your problems or spawn some entirely unforeseen problems of its own. Here are the top five reasons why the lottery system might not be all it is cracked up to be.
1. Taxes on Your Annuity
Right off the bat, you lose 25% of your lottery annuity to federal taxes. As if this is not enough, state taxes can cost you an additional 10%. Some annuities may even have yearly tax fees, costing you even more money.
2. Annual Upkeep Fees
The threat of annual tax fees is only increased when one has to consider annual upkeep fees. Annual fees for your annuity can reach as much as 3% of your total investment. Some annuities charge penalties reach 6 or 7% within the first seven years; meaning that money is lost every year you wait.
3. Subject to Early Withdrawal Fees
Waiting might just be the only thing you can do, as many annuities are specially set up to hit you with early withdrawal fees. If you withdraw the money before a certain length of time, or in some cases before the age of 59½, you will be subject to taxes plus an additional 10% early withdrawal penalty fee.
4. Lottery Annuity Payment Schedule
The most important part of an annuity is the money of course. The Mega Millions starts out with an initial payment followed by 29 annual lottery payments that increase every year by 5%. This means that a typical Mega Millions jackpot of $50 million would start with an initial payment of over $750,000 and future annual payments that would nearly reach $3.1 million dollars.
5. Love and Loss
Despite being entitled to more money than most people see in their entire lives, nearly half of lotto workers continue to work at their old job. Whether they will $500 million or just $1 million, nearly 70% of lotto winners will lose or spend all of their money in five years or less.
Still encouraged to go for the lottery? Many people have bypassed the unnecessary fees associated with annuity settlements by selling lottery payments to trusted companies who will continue to collect the cash after giving you a lump sum. Although you’ll never beat the lottery, at least you can find a way to still come out ahead.