Winning The Lottery Is A Bad Thing, And This Is Why

We all dream of hitting the jackpot, winning the lottery and suddenly coming into an enormous windfall of cash. Perhaps you even know exactly how you'd spend your lotto winnings. I'd buy a house in Los Angeles and one in Hawaii, for instance. I'd buy an SUV and a convertible. It is fun to dream about it. However, more often than not, people who win big lottery money find themselves broke within a few years. Reddit user BlakeClass outlines exactly why this happens and what you should do if you win the lottery.

History is littered with stories of how the winners of enormous jackpots fall down on their luck. People who win jackpots in the seven-figure and up range end up screwed with regularity.  People who win large jackpots tend to commit homicide, be the victim of homicide at the hands of a family member, overdose on drugs, be kidnapped, be convicted of drunk driving, and go bankrupt at a greater frequency than the general non-lottery winning population.

Consider the case of Jack Whittaker. In 2002, the West Virginia native won a $315 million lotto jackpot. Unlike many lottery winners, he was not down on his luck. At the time, he was the president of Diversified Enterprises Construction, a contracting firm. He had a net worth of over $17 million before winning the Powerball. He bought the winning ticket at a supermarket in Hurricane, West Virginia when he stopped to get a breakfast sandwich and put gas in his car. After the win, Whittaker took the $113.4 million cash payout. And then his life went off the rails.

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In August 2003, less than a year after Whittaker won the lottery, his car was broken into while it was parked at a West Virginia strip club. The thieves stole $545,000 in cash that he carried around in a suitcase. When he was asked why he would carry that much cash around he said: "Because I can." Now, no one will argue that one. That was a dumb move on his part, but also too true. Then, at a later date, two employees of the very same strip club plotted to put drugs in Whittaker's drinks to incapacitate him so that they could rob him. They were arrested.

You'd think he would learn his lesson and both stop carrying so much cash around and maybe find another strip club to hang out at. You'd be wrong. In late January 2004, his car was once again broken into. The thieves stole $200,000 in cash, which was recovered.

The hits kept on coming for Whittaker and his family. In September 2004, his granddaughter's on again, off again 18-year-old boyfriend was found dead in Whittaker's West Virginia home. He had overdosed. On December 20th of that same year, his 17-year-old granddaughter Brandi Bragg was found dead after being reported missing 11 days earlier. Her body was wrapped in a plastic tarp and dumped. Drugs were found in her system. The cause of death, however, was undetermined. No one was charged with the crime.

Within four years of his Powerball win, Whittaker was out of money – not just the $113 million lotto money, but also the $17 million he had made himself before the win. He was being sued by Caesar's Atlantic City for bouncing $1.5 million in checks. Those checks were to cover his gambling losses. He counter-sued, claiming that thieves stole all of his money by going to 12 different branches of City National Bank and cashing 12 checks that drained his account.

Then, in July 2009, 42-year-old Ginger Whittaker Bragg, Whittaker's daughter was found dead.

As if all of this isn't bad enough, on December 2nd, his home burned down, is a total loss and was not insured. Jack Whittaker blames his Powerball win for ruining his life.

The fact is, nearly one third of multi-million dollar lottery winners go bankrupt. Here are a few examples from BlakeClass' Reddit thread:

-Billie Bob Harrell, Jr. won $31 million in 1997. In 1999, he committed suicide. He had been subjected to incessant requests for money from family and friends. Billie Bob Harrell, Jr.: $31 million. Texas, 1997. As of 1999: Committed suicide in the wake of incessant requests for money from friends and family.

-William Post won $16.2 million in 1988. In 1989 his brother hired a contract killer to murder Post and his wife. His landlady sued for portion of the jackpot. He was convicted of assault for firing a gun at a debt collector. He declared bankruptcy. He died in 2006.

-Jeffrey Dampier won $20 million in 1996. He was kidnapped and murdered by his sister-in-law.

-Willie Hurt: won $3.1 million in 1989. By 1991 he was a cocaine addict, divorced, and broke. He was eventually indicted for murder.

And here's a list of just a handful of lottery winners who later declared bankruptcy or went totally broke:

-Evelyn Adams won $5.4 million in two jackpots in 1985 and 1986. As of 2001: Poor and living in a trailer gave away and gambled most of her fortune.

-Suzanne Mullins won $4.2 million in 1993. Completely broke now

-Shefik Tallmadge won $6.7 million in 1998. Later declared bankruptcy.

-Victoria Zell won $11 million in 2001 Now broke and serving seven year sentence for vehicular manslaughter.

-Janite Lee won $18 million in 1993. By 2001 she had filed for bankruptcy with $700 in assets.

So let's say you or someone you know wins the lottery. How can you avoid the curse of the lottery? It's easy. Just do nothing. Don't tell anyone. Not even your parents. Not even your best friend. Sit and wait and do not declare yourself the winner until you do a few things.

Hire a lawyer from a large, national firm. Make sure you are assigned to a partner who has been with the firm for a long time. Don't use your local or regular attorney. Use someone who has ZERO ties to your life, your family, and your friends. Get an attorney that specializes in Trusts and Estates from one of the 50 biggest law firms in the U.S.

You can make much better decisions with the lump sum that will end up paying out more annually than the state's annuity will. If you take the annuity you won't have access to the majority of your cash and the annual rate of return will barely beat inflation. You can do much better investing it in a standard fund. In general, you should expect to get about half of the original jackpot if you elect a lump sum. After that, you should expect to pay around 33% to state and federal taxes. Jack Whittaker's jackpot was $315 million. He took the lump-sum cash up-front option, which knocked off $145 million (46% of the total) leaving him with $170 million. That was then subject to withholding for taxes of $56 million (33%) leaving him with $114 million.

Generally, giving 20% or so of your after tax lump sum winnings to family and friends is being incredibly generous. Tell your lawyer this is what you want to do. 20% of $114 million is $22.8 million. That leaves you with $91.2 million. Do not ask your family what they want. Do not buy them a house. Do not give your family and friends cash. Tell your attorney to set up a series of trusts for your family that equal 20% of your after tax winnings. If you start to hand out cash out of generosity, that will come back to bite you in the butt. Setting up a trust or a managed fund for your family that is in the double digit millions is very generous.

Investment managers charge fees, usually a percentage of assets. If they charge 1% (which is low) they have to beat the market by 1% every year just to break even with a general market index fund. You don't need the extra return or the extra risk. Go for the index fund instead if you must invest in stocks. This is a hard rule to follow. They will come recommended by friends and family. They will be your second cousin on your mother's side. Investment managers will sound smart. You do not need them.

Use somewhere between 20% and 33% of your remaining $91.2 winnings to purchase a combination of longer term U.S. treasuries (5 or 10 year) This is your safety net. You will be protected from yourself. It will be tempting to become a big investor right away because "Even if I lose it all I still have $XX million left! Anyone could live on that comfortably for the rest of their life." That's not going to happen. Right now, you'll get around 3.5% on the 10 year U.S. treasury. With $18.2 million (20% of $91.2 mil after your generous family gift) invested in longer term U.S. treasury bonds you will get a return of $638,400 per year. If everything else blows up, you still have that, and you will be in the top 1% of income in the United States. Don't take the chance.

Now you have $72.9 million left. Be safe, put about half of this, or $36.4 million into an S&P 500 index fund that has low fees. Continue to resist the lure of investors. Don't. Remember that even if you lose every other dime, you have $638,400 per year you didn't have before that will keep coming in. You should return around 7.00% or so over the next 10 years. You should expect to touch not even a dime of this money for 10 or 15 or even 20 years. In 20 years $36.4 million could easily become $115 million.

You've provided for your family generously and you know you'll be getting $638,400 a year in salary because you made some wise, safe, investing choices. Go ahead and have fun with that remaining $36.4 million. Buy a house or three, a private jet, a super yacht. Become an angel investor and fund some startups – just not for anyone you know. Play the market with it. Enjoy it. But still do not give cash to friends and family and do not read mail from anyone you do not know. The sob stories will break your heart. Save yourself the anguish.

Thank you once again to Reddit user BlakeClass for the excellent advice.

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