I heard a story on the radio this morning about a "local" woman who won the 6th largest jackpot in the PA lottery's history. $36 million.
Even before I got this on the radio, I was thinking about winning the lottery. IE.- What I would do with the money. I think I might have mentioned some things I would like to do, but I just wanted to put them all down to share with the rest of you.
First off, anyone that I've spoken to previously about this knows that I have a specific lower limit for winnings. $44 million. I won't even bother playing if the winnings aren't that much. People scoff, saying that they'd take much less. Sure, I'll take whatever I win, but I'm not going to bother for less than that. Why? Here is some economic background.
The announced prize is always what you get if you choose the annuity. The annuity is the yearly payment of a fixed amount over 20 years. The lump sum payment is usually half of the total annuity. The truth is that it doesn't matter which you take, it's all the same money in the end.
There are companies that will buy out your annuity for a smaller overall lump sum, and there are companies that will invest your money to give you annual payments for 20 years.
Since part of what I want to do with the money (as I will explain later) is never have to work again, I have to invest this money so that the payments never end. This means I would probably do better with the lump sum invested in the front rather than skim off the annuity every year and save the rest to invest.
But why $44 million? Because half of that (from taking the lump sum instead of the annuity) is $22 million. And after taxes, it's more like $11 million. So the actual in-pocket money is $11 million.
Out of that, I'd pay off everything. I'll tell you up front that this is not a good plan, but I don't want to have to worry about it. Why is this not a good plan? Think about it like this... Choose one:
- You have $100k. You can use the entire $100k to pay off your house today, but have no money tomorrow.
- You have $100k. You can pay a mortgage on the $100k house, and invest your $100k. If the interest rate on the investment is more than the rate on the mortgage, you will have money left over when the house is paid off.
In essence, it's always better to pay off a loan with the interest from an investment than it is to cut into the principal. Anyway, I won't be doing that. All of my debts will be paid with part of the principal.
Assume that I have $200k in debts. That's probably high, but good enough. I've still got a bit over $10million. Assuming I can get a 3% yearly interest investment, I can spend half of that money and still earn enough interest every year to account for both Berta and my salaries, which we won't be receiving any more because we'll quit work. (Keep in mind, too, that all of our "salary" money at this point is free cash, because all of our debts are paid.)
Here's where the crazy buying starts.
I don't know that I want to list a ton of stuff that I would like to have. Certainly, I think we would shop for a new house. There would be a study with many shelves for books, as well as a separate livingroom and rec room. There would be a great big kitchen with lots of counter space. The computers would live in a room of their own, maybe just the office, but with a nice network and high-speed connection. A nice porch and an in-ground pool would finish it off well.
I'm pretty satisfied with my current car, but Berta might like to look for something new and souped-up. I wouldn't mind a family car with some features for when Abby gets older. Seat-back TVs with a PS2. In-dash GPS. Big cushy seats like in those Cadillacs.
We'd put some money away for Abby's education, which would be all private school. It would be pretty easy to dump all kinds of money into a 529 account.
Then there's the trivial things like a new computer and a nicely integrated entertainment system. We could get outdoor equipment, like bikes or snowboards. Some home exercise equipment for a gym might be cool.
And travel. I don't want to be cliche and say, "If I won the lottery, I'd travel." But I would. I want to drive around the country. I want to see things close-up rather than fly over them, and want to experience the oddball attractions. I'd like to visit strange countries. I want to see the Great Wall, I'd like to see Australia. I've always wanted to go to Cairo, and a completely recreational trip back to see the Taj Mahal might be nice, too.
$5 million could probably do all of that.
If I win the lottery this year, I'd charter a jet to fly everyone to Florida who is going this year. I think even if the winnings are low, like $12k, I might do that. It would be an experience.
If there was more money, like from a Powerball lottery, I'd build one of those Air Car factories, and install air pumps in all the service stations in this region.
I'd also try to keep the news of the lottery winnings from Berta as long as I could. Not so that I could spend all the money without her, but because I have this fantasy of working out all of the details of winning and then going through with this elaborate plan of surprising her with it. One weekend, we would take a ride and end up at the airport, and I would produce tickets for the three of us to go somewhere that Berta would like, like Cancun or someplace else warm, and she would be so surprised.
Everyone likes to say that they would share their new wealth with their friends. I'm not going to say that. It's not that my friends would not see the benefit of my wealth, but I feel that I'm pretty generous with my friends as it is. I wouldn't change in being this generous, I would just have more money to be generous with. So why make any promises to fill anyone's pockets? My promise - "Don't worry."
Oh, well, it's nice to think about, but the chances are ridiculously slim. You never know, though.
