Experts say cash windfall no path to easy life

Imagine finding out you had just won $958,000.

That’s the estimated cut each of the 100 employees of Sargento in Plymouth will receive if they decide to go with the lump-sum payment of $95.8 million for winning Saturday’s Powerball jackpot, said Jessica Iverson, Wisconsin lottery spokeswoman. The jackpot was $208.6 million, but the jackpot is reduced if winners take it in one payment instead of annual installments over 30 years.

“Since we’ve been offering the lump sum option, a majority of winners have opted for the big payment,” Iverson said. She said the agency knows a winning ticket exists, but it had not yet been validated by the state Monday afternoon.

Whatever the winners decide to do, right off the bat each can expect to pay between 35 percent and 40 percent in state and federal taxes on their winnings, said Ross Mueller, a wealth advisor with CitizensFirst Credit Union in Oshkosh, which also operates a branch in Fond du Lac.

There are also additional taxes that will have to be paid later since the winnings also are considered income.

Mueller said he would advise the winners to set aside money to cover any additional taxes.

Kevin Eismann, an attorney with Epiphany Law in Appleton, says groups that win large cash prizes should have an attorney draw up a document of understanding that determines the exact share each person will receive.

Iverson said state law requires that only one person can be awarded a lottery prize unless the state receives a court order stating a cash award should be divided equally. This is why she isn’t surprised the holder of the winning ticket hasn’t stepped forward yet.

“They’re probably taking care of what they need to,” Iverson said. “We’ve had situations like this before.” The winning ticket must be validated by the state within 180 days of the drawing.

Mueller said people in their 30s or early 40s cannot expect to retire now with just a few hundred thousand dollars in the bank.

“It would be tough to quit working unless you had very little debt and had a really simple lifestyle,” he said, though people with no debt in their 50s or 60s, living a modest lifestyle, may be able to retire now.

“If you took $400,000, invested it and only drew about 5 percent or $20,000 annually, and were nearing retirement age, you might be able to quit working now,” he said.

Mueller said each person’s financial situations are different. Paying taxes also is unavoidable, although there are ways to reduce the burden.

“If someone were to continue working, even after claiming their prize, I’d suggest maximizing their deductions into their retirement plans and starting trust accounts,” he said.

Troy Keesling, a partner with Thrivent Financial Northeast Wisconsin Region, said anyone who receives a cash windfall, should think long and hard before they spend.

“I would first suggest to them to put together a strong team of advisors (in areas of) legal, taxes and financial planning,” Keesling said. “The lawyer would be for estate planning, while a tax advisor could guide you in areas of tax implications and a financial advisor could help you assess your long- and short-term financial goals.” Keesling said having a little fun should be part of the mix, too, but not at the expense of smart planning.

“There’s plenty of opportunity,” he said. “Set aside some money for fun, but also think about your future. You also have an opportunity to set aside dollars for philanthropy that can really impact a lot of lives in a positive way.”

What are people saying about mortgages today:

Rates on 30-year mortgages edged down last week to a seven-month low. Mortgage-giant Freddie Mac reported Thursday that 30-year, fixed-rate mortgages fell to 6.3 percent, down slightly from 6.31 percent two weeks ago. It put rates at the lowest level since they were at 6.24 percent the first week of March.

Bank of Hawaii, Central Pacific Bank, Territorial Savings Bank and Wells Fargo Home Mortgages all cut their 30-year mortgage rates to 5.75 percent this week.

Most people think of a mortgage as a means to an end. After all, you buy a house, not a home loan. But a mortgage is much more than the path to homeownership. It is a financial instrument that must be managed, just like any other financial investment.