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You won the lottery! Now what?

KA-CHING! You are the proud owner of a winning lottery or power ball ticket. You're hoarse from screaming and cheering, but now what? Should you tell anyone? Hire an attorney? Go on a round-the-world cruise? Go out and buy the fastest car money can buy? Take a limo to lottery headquarters and call a press conference?

Here's what the experts have to say.

If you win, take the lump sum, says Craig Wallace, a senior funding officer for a company that buys lottery annuity payments in exchange for lump sums.

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"People are far better off taking a lump sum and investing it than taking the annuity. It's bad for my business, but it is definitely the way to go.

"If you choose the annuity, what you're choosing is a fixed amount of money a year for 20, 25, even 30 years down the road. In some states the money will escalate somewhat. For example, in Colorado, the money grows at 3.7 percent a year on a 25-year payout. In Florida, the payments are stretched out for 30 years, that's the worst in the country," he says.

"You are subject to a change in the tax rate. You know what the tax consequences are now, but you don't know how it will change. The value of your money decreases over time. I wouldn't take that bet."

"Take the lump sum. That's definitely the way to go. You're better off investing the money and taking charge of your own destiny."

Just as important as how you gather your winnings is how you choose to spend it.

"The lifestyle you choose to lead is very important. Overspend your money foolishly today and your future could be bleak," says Phil Friedland, a CPA, CFP and PFS (personal financial specialist) in Delray Beach, Fla.

"More lottery winners have financial difficulties because they fail to budget, they fail to have a plan. Without a solid written plan, prepared by a professional, your odds of failure are greatly increased."

Most experts agree on the importance of finding a financial adviser, be it a certified public accountant, a certified financial planner or an attorney.

To help you find a financial adviser who is right for you, Friedland offers the following guidelines:

  • Interview at least two to three financial planners, preferably a CPA or CFP, before deciding who to work with.
  • Ask a lot of questions of the person you are about to entrust with your assets. (How many financial plans have they prepared, how are they paid, etc.)
  • Get a list of three professionals who have worked with the planner. Call the professionals and ask about the planner.
  • Once you make your choice, spend time getting to know your planner. Be certain he or she has committed both orally and in writing to what you have asked of him or her. CPAs and attorneys call this an "engagement letter." If the planner is too busy to spend much time with you or doesn't use a formal questionnaire to gather information from you, walk out of the office.
  • Don't rely totally on the planner. Learn how to budget your money. One good tool is the groundbreaking book, "The Millionaire Next Door," by Thomas J. Stanley and William D. Danko.

"Winning the lottery is a once-in-a-lifetime opportunity. Make the most of it. Don't let yourself become one of the statistics," says Friedland.

Bankrate.com's corrections policy
-- Posted: Nov. 8, 2004
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