There’s no doubt about it: Holding a winning lottery ticket will transform your life.
After all, winnings in the multi-millions (even after taxes) mean winners never have to work a day again — as long as the money is well-managed. But a big windfall of cash comes with its own (often enviable) set of problems that can turn an incredible stroke of luck into financial misfortune. CNBC Select asked Andrew Stoltmann, an Investment Fraud Attorney who has represented a handful of lottery winners, to share his expertise on how to turn your winning ticket into a lifetime of leisure.
What we’ll cover
Should you take lottery winnings as a lump sum or in installments?
Stoltmann generally recommends that lottery winners accept their cash as installments over the course of a 25-year period.
“The reason for that is because the average lottery winner comes from a socioeconomic background where they usually don’t have the infrastructure set up to handle a massive $100 million+ payout,” he explains.
Many lottery winners don’t have a financial advisor, CPA or other financial expert who can help them manage their money. So it’s easy to make mistakes like overspending or not saving any money for a rainy day.
“We see common mistakes made by the winners who take the lump sum distribution,” Stoltmann says. “If you take the distributions over 25 years, you can make those common mistakes the first couple of years and still have most of the money left over.”
Some of those common mistakes Stoltmann described include making poor investment decisions, prolific spending, and not being able to say “no” to relatives who want a piece of your newfound wealth.
What should you do with your lottery winnings?
Once you’re ready to begin receiving your payments, the question becomes what to do with the money: Invest it? Buy a house? Or perhaps start a business? Of course, it’ll depend on your goals, which you can discuss with a certified financial professional. But there are some other steps you’ll want to take before putting that money to work.
The first thing to do is keep quiet. According to Stoltmann, it’s best to avoid sharing the news of your winnings with anyone beyond your immediate family. Extended family, friends and “long-lost relatives” could come seeking handouts.
Next, you want to assemble a financial team consisting of a CPA, a financial advisor, and a lawyer. Whether your immediate goals involve paying off all your debt or saving for your kids’ college tuition, these individuals can help you figure out how to translate your wealth into the life you want.
For instance, if your goal is to make sure you have money for retirement, your team may recommend that you open a Roth IRA or a traditional IRA so you can invest some of your winnings, which won’t be touched until after you reach age 59 1/2. Fidelity and Charles Schwab are two popular financial services firms that offer simple-to-navigate IRA accounts with low or no minimum deposit requirements. Fidelity doesn’t have a minimum deposit unless you’re using their robo-advisor service, and Charles Schwab has a minimum deposit requirement of $5,000.
Fidelity Investments
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Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No minimum to open a Fidelity Go® account, but minimum $10 balance for robo-advisor to start investing
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Fees
Fees may vary depending on the investment vehicle selected. Zero commission fees for stock, ETF, options trades and some mutual funds; zero transaction fees for over 3,400 mutual funds; $0.65 per options contract. Fidelity Go® has no advisory fees for balances under $25,000 (0.35% per year for balances of $25,000 and over and this includes access to unlimited 1-on-1 coaching calls from a Fidelity advisor)
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Bonus
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Investment vehicles
Robo-advisor: Fidelity Go® IRA: Traditional, Roth and Rollover IRAs Brokerage and trading: Fidelity Investments Trading Other: Fidelity Investments 529 College Savings; Fidelity HSA®
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Investment options
Stocks, bonds, ETFs, mutual funds, CDs, options and fractional shares
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Educational resources
Extensive tools and industry-leading, in-depth research from 20-plus independent providers
Charles Schwab
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Minimum deposit and balance
Minimum deposit and balance requirements may vary depending on the investment vehicle selected. No account minimum for active investing through Schwab One® Brokerage Account. Automated investing through Schwab Intelligent Portfolios® requires a $5,000 minimum deposit
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Fees
Fees may vary depending on the investment vehicle selected. Schwab One® Brokerage Account has no account fees, $0 commission fees for stock and ETF trades, $0 transaction fees for over 4,000 mutual funds and a $0.65 fee per options contract
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Bonus
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Investment vehicles
Robo-advisor: Schwab Intelligent Portfolios® and Schwab Intelligent Portfolios Premium™ IRA: Charles Schwab Traditional, Roth, Rollover, Inherited and Custodial IRAs; plus, a Personal Choice Retirement Account® (PCRA) Brokerage and trading: Schwab One® Brokerage Account, Brokerage Account + Specialized Platforms and Support for Trading, Schwab Global Account™ and Schwab Organization Account
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Investment options
Stocks, bonds, mutual funds, CDs and ETFs
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Educational resources
Extensive retirement planning tools
Finally, you should take the time to learn at least the basics of financial literacy yourself. Knowing how investment accounts, debt, credit scores, and other concepts work will help you make better decisions for your future.
Bottom line
While winning the lottery can be exciting, winners should proceed with caution and make sure they’re setting themselves up to maintain their newfound wealth over the long run. It’s recommended that winners receive their money as installments rather than as a lump sum to avoid making major mistakes and blowing through all of the cash.
Meet our experts
At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience. For this story, we interviewed Andrew Stoltmann, a Chicago-based attorney who has handled both criminal and civil matters in federal and state court, and primarily represents defrauded investors. He has also represented six previous lottery winners.
Why trust CNBC Select?
At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every article is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of investment products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best investment products.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
