Ohio Woman Wins $15M Lottery But Only Receives $5.4 Million - Are Cash Payouts Worth It?

Jeanne, a resident of Sandusky, Ohio, recently won $15 million through an Ohio Lottery 50th Anniversary scratch-off ticket. However, she ultimately took home only $5.4 million after taxes and her chosen payout option.

Jeanne had a choice: receive $600,000 annually for 25 years, totalling $15 million, or opt for an immediate cash payout of $7.5 million. She chose the latter. After accounting for 28% in state and federal taxes, her winnings were reduced to $5.4 million.

"I was speechless," Jeanne told WHIO staff. "What I kept thinking is I'm just going to wake up. It's not real."

Earlier this year, Jeanne also won the grand prize for the Ohio Lottery's Fun Turns 50 Second Chance Promotion in February. All grand prize winners received $3,500 and an invitation to the Ohio Lottery's exclusive celebratory event at Cleveland's Rock & Roll Hall of Fame in September.

Challenges of Managing Large Winnings

Jeanne plans to use her winnings to pay off her closest friend's mortgage, whom she has been staying with for the last few years, and to purchase a home in Florida. While her net lottery winnings are substantial, managing newfound wealth can be challenging for lottery winners.

Questions like how to make the money work for you and how much you can spend without going broke in a few years start to come up. Finding the correct answers becomes critical during such life events.

"Lottery winners who are not wealthy don't inherently know how to keep it," said Derek Sall, founder of Life And My Finances. "It's kind of like taking a person off the manufacturing floor, putting them in the CEO spot and telling them to run the company," he said. "They just don't have the proper training to do it."

Meanwhile, Robert R. Johnson, a professor of finance at Heider College of Business, Creighton University, believes lottery winners often overestimate their winnings. "One could win a $5 million lottery award and have about half of that after taxes, depending on one's state of residence," he said.

Risks of Poor Financial Management

Many winners invest in assets they believe will yield returns, such as cryptocurrencies or video-game startups, but these decisions rarely succeed without professional advice. Poor financial management can lead to reckless spending, as Morris Armstrong, founder of Morris Armstrong EA, explains. "Losers impulsively buy houses, cars, vacations, and other possessions in excess," he said. "The reality is, how many cars or houses do you need? Losers tend to forget that."

Helping close friends and family after winning the lottery, as Jeanne plans to do, is common. However, there have been cases where providing financial support strained relationships.

Many friends, relatives, and acquaintances who have been out of touch may also come forward asking for their fair share upon learning about lottery winnings. Saying "no" to such requests can be emotionally and financially draining, leading to undesirable conflicts.

Examples of Lottery Winners Losing Everything

Consider the case of Suzanne Mullins, who won $4.2 million in the Virginia Lottery in 1993. Opting for annual payments of $47,778, she eventually used her winnings as collateral for a loan. When she switched to a lump sum payout to clear the debt, she still found herself deeply in debt, ultimately unable to repay the loan.

Similarly, Willie Hurt won $3.1 million in 1989, only to lose it all within two years due to drug addiction and legal troubles. Another example is Jeffrey Dampier, who won $20 million and was murdered by his sister-in-law for his fortune.

Strategies to Preserve Wealth

To avoid losing her wealth, Jeanne should consider hiring a fiduciary financial advisor who understands her life goals and risk appetite. Such advisors are legally obligated to work in their client's best interests, guiding investment decisions, assisting with taxes, and creating budgets to prevent overspending.

Winning millions can significantly upgrade one's living standards, making it tempting to indulge in luxury purchases. Impulsive spending by individuals in the US averaged $150 monthly in 2023, a notable drop from over $300 the previous year. However, consumer spending will likely increase with cooling inflation, a steady job market, and decent consumer health.

Sticking to a budget where discretionary expenses are moderated can help control spending. Additionally, learning to set boundaries and say "no" when necessary can save relationships and preserve wealth. Winners can also consult an attorney about cashing out privately, as many states require winners' names to be made public.

Evaluating Jeanne's Cash Out Decision

If Jeanne had chosen the $600,000 annual payments for 25 years, she would have received a much more significant portion of the $15 million jackpot. However, many winners prefer the immediate financial relief the cash-out option provides.

Choosing the cash payout subjects winnings to immediate federal taxes and moves the recipient into a higher income tax bracket for the year, potentially tripling the tax rate. Additional state and local income taxes vary depending on the state of residence. The primary reason lottery winners opt for a cash payout is the certainty of receiving a lump sum of cash, which can instantly alleviate liabilities such as high debt or medical bills.

In contrast, the annuity option allows winners to defer income taxes until payouts are received, spreading taxes over decades rather than paying a significant amount upfront. This approach creates a steady, long-term income source beneficial for those prone to impulsive spending.

While several factors may have influenced Jeanne's decision, consulting a financial advisor before cashing out can help one understand the best payout method for the long term.