Pathetic Situation Demands Better Solution

Here's a little "up yours" to the "cash now" companies who use "live your dreams" advertising.

On December 26, 2002, Powerball winner Jack Whittaker won just under $315,000,000! He elected the lump sum distribution option, paying him approxmately $113,000,000, in lieu of guaranteed future periodic payments. Now just over 4 years later he's broke. This is a story has got to be one of the greatest cases of sudden wealth syndrome financial mismanagment in history.  The story can be found here (2007 story), here and here (2005 story).

Perhaps state governments ought to mandate that a certain percentage of lottery winnings , if over a certain size, be paid out periodically. Some may say that is patronizing, but consider that full dissipation puts people on the dole and a fresh burden on the taxpayer. From a public policy standpoint something is terribly wrong. A yes/no decision at the local newspaper stand after forking over a couple of bucks hardly qualifies as financial planning.

Had Whittaker been able to accept even 10-20% of his winnings in the form of periodic payments, in lieu of all or nothing it might've saved him financially.  Had he accepted the whole thing in the form of payments over time he could have blown all his money up to that point, learned his lesson and gone on to living happily every after...at least from a financial standpoint.

Comments

[Structured Settlements 4Real]

Patrick, they already have the option to go all cash. However the only current options are generally cash or annuity. Having another option where a lottery ticket buyer could opt for a percentage, even as small as 10% in the form of an annuity would save a number of winners, like Whittaker from financial. ruin. In those states where all annuity is the only option then perhaps an option to have 80% annuity or 50% annuity would be more palatable to the state running the lottery.

[Patrick (CASH Only)]

A lottery winner should be entitled to the full cash value of the prize, (minus tax, etc withholdings) and not be forced to receive any of the winnings in the form of an annuity. This should also apply to "lifetime" prizes. Mr Whittaker is an adult, and was properly treated as such, when it came to the option of lump sum or 30 annual payments (unlike Powerball winners before late 1997; unfortunately some lottery winners, depending on the game, still do not have the option to collect their prize in lump sum.) Lottery winnings (before taxes and other withholdings) belong to the ticket holder, and NO PART of that money should automatically be invested in an annuity.