Hey, Mega Millions Winner (Maybe). Here Are a Few Ideas for What to Do With the Prize Money.

Article originally posted to Barron’s.

Of all the decisions facing a Mega Millions lottery jackpot winner, the most important might be the first one, which is how to take the money. The two options are as a lump sum or in annual payments over 30 years.

The grand prize for the drawing reached $1.25 billion on Aug 4. The lump sum from that would be $625.3 million, before taxes. The lump sum is equal to the cash in the jackpot prize pool, according to Mega Millions.

The 30-year annuity starts with an inititial payment and is followed by 29 annual payments, each 5% bigger than the previous one. The initial payment in this case would be around $18 million.

Then there’s the question of what to do with the money. Want a new place to live? There’s a $49 million townhouse in New York’s Greenwich Village that just hit the market, according to Mansion Global.

The entertainer Cher’s former Miami beach house also just hit the market, for a cool $42.5 million, according to The Wall Street Journal.

There’s also an ivy-covered English manor house for sale for around $5.8 million. It was once owned by Lord Harlech, aka, David Ormsby-Gore, the British ambassador to the U.S. in the 1960s.

Need a car? The 1963 Ferrari 250 Gran Turismo Omologato goes for $70 million, according to JD Power. Need a plane? The initial cost to own a private aircraft is about $1.1 million to $90 milion, according to Flying Magazine.

For the adventurous, sensory-seeking crowd: a seat on an upcoming space tourism flight by Virgin Galactic (ticker: SPCE) runs from $250,000 to $450,000.

Anyone who finds themselves suddenly wealthy should hire a financial professional who has experience with high net-worth clients, a certified public accountant to help navigate taxes, and a tax attorney or estate tax attorney, said Jonathan Lee, senior portfolio manager with U.S. Bank Private Wealth Management in St. Louis. Ideally, they should all be working together to provide guidance.

The benefit of the lump sum is getting an immediate cash payout, although that will come with higher taxes. Some people might prefer that money right away, believing they can make it work for them, Lee said. Without recommending specific investments, he noted that there are a number of short-term investments offering returns that are higher than the rate of inflation.

“The person who takes the annuity will appreciate having a regular stream of income, and they might appreciate not being able to get into too much trouble” by not getting all the money at once, Lee said.

Valerie Galinskaya, managing director and head of the Merrill Center for Family Wealth at Bank of America, who has advised about 200 ultra net worth families, said more important than choosing between the annuity or lump-sum option is having a clear understanding of financial priorities, which vary by person.

While some people already have this, “for most people, it’s incredibly overwhelming” and hard to navigate. She advises taking a deep breath and developing a concise elevator speech to give to the people who will inevitably reach out for financial help.

Galinskaya warns about the risk of “lifestyle creep,” where someone who’s always dreamed of buying a big house, living on a boat, or having a private plane doesn’t factor in the ancillary costs of maintaining those luxuries.

A bigger house means more furniture, another car, more clothes. Big-ticket purchases like those should be put off until these broader implications are fully understood, she said.

Lee agrees with the sentiment. Suddenly becoming a multimillionaire “can quickly become problematic for individuals who have not clearly defined what their values and goals are.”

“Do not mistake more resources for infinite resources,” Lee said. Above all, don’t make any big decisions with newfound wealth within the first few months of winning. “Create a solid financial plan in alignment with your values. It also keeps you from doing things that you shouldn’t do,” he added.

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