Winners Find Lottery Cash an Unexpected Challenge, Responsibility

Times were so tough for Monika Bogguess when she and her husband relocated to Tucson, Ariz., that she got a paper route and once sold blood to pay the bills.

Since winning the state’s $1.35 million lottery jackpot last spring Bogguess, 38, doesn’t worry about making ends meet. Now she has a new set of financial problems: how to invest a windfall when you don’t know the difference between a stock certificate and a gift certificate.

“I find it all very complicated,” said Bogguess, who has since quit working as a newspaper carrier. “Even though I used to deliver the Wall Street Journal I don’t know how to read it.”

Winning the lottery jackpot can be sweet dream but the temptations and mysteries of new-found wealth often become overwhelming.

Many prize recipients such as Bogguess are plunged into the investment world blind. They are inundated with offers from financial brokers and a few fall prey to peddlers of bogus investments.

State lottery officials don’t provide financial advice after all the hoopla dies down, except to sometimes explain tax liabilities and urge winners to hire a good accountant.

“The pressures of winning can be enormous,” said Michael Naste, an independent financial planner from Baldwin, N.Y., and a $2.5-million lottery winner himself.

“People label you a millionaire and expect you to live a certain way,” he said. “If you’re not careful, you can overextend yourself and end up in debt.”

That’s what happened to a construction worker who won $4 million in the New York lottery 3 years ago and became one of Naste’s three dozen jackpot-winning clients.

After receiving a check for around $148,000--the first of 20 annual after-tax installments-- the middle-aged man quit his $38,000-a-year job, threw a party and put $10,000 down on each of 10 new Cadillacs.

“The only problem was he didn’t realize he also needed money to live on for the year,” Naste said.

In the next 8 months, six of the luxury cars were repossessed and the New York man had to borrow $200,000 to hold him over in between lottery checks.

“A lot of people who play the lottery are not used to having money, so some of them do crazy things,” said Naste, 37, who puts most of his winnings in real estate. “You’ve got to remember you’re not really a millionaire when you first win. The money comes in over 20 years.

“People say, ‘If I win the lottery I’ll buy a baseball team.’ They’ve got to be kidding. Banks won’t even loan you money based on (future) lottery winnings.”

Most big-lottery winners, though, are fairly conservative, according to interviews with winners, financial advisers and officials among the 32 state lotteries nationwide.

Michigan found in a survey 2 years ago that nearly three quarters of its $1-million-plus lottery winners had sought expert financial advice. The majority used their first check to pay bills or splurge on a new home or car, but later, most made long-term investments, saved for retirement, or established trust funds, the survey showed.

Bogguess and her husband, David, 42, are among those whom accountants might call conservative. While she quit her job, he kept working as a municipal sewage-management official in Tucson, where they moved 3 years ago from Kansas.

The Bogguesses’ first $54,000 lottery check--nearly double their pre-lottery annual income--was partly used to pay off some credit-card debts, the $12,000 family Jeep and buy a new pickup truck. Monika Bogguess put the rest in a 2-year certificate of deposit and says she will commit at least $20,000 a year to still-undetermined long-term investments.

“I’m trying to invest it wisely. I never had that much before and a couple of times I was down on hard times,” she said, recalling the time she sold blood plasma to a local clinic for $30 a week.

John D. Flowers, an assistant high school principal from Barboursville, W.Va., has followed a similar play-it-safe pattern after winning $2 million in the West Virginia lottery in the spring of 1986.

Flowers, 40, who continues working but whose wife quit her job, said most of his first lottery check went toward buying a new house. On his accountant’s advice, 10% was placed in a tax-deferred retirement annuity and another 10% was reserved for his three children’s college education.

A small amount was invested in mutual funds and short-term tax-free municipal bonds. Flowers, like some other lottery winners interviewed, has avoided stocks.

“This has raised our overall standard of living and lowered our overall worry level,” Flowers said.

Most prize recipients say their main goal is maintaining a higher living standard, long after the lottery checks cease.

Tax expert Jane Feola Scaccetti, who has counseled lottery winners, says that can easily be done through diversified investments. But her first advice is that clients take things slow.

“It’s the same thing as with someone who inherits a lot of money,” said Scaccetti, a tax partner with the Philadelphia accounting firm Laventhol & Horwath. “You usually try to slow the pace down, apply all the sound financial decision process . . . as you would a wealthy individual who has earned money over a period of time.”

For the first 2 years most lottery winners might want to keep the money in high-yielding CDs or Treasury bills, Scaccetti said. Some banks, such as Northern Trust Co. in Chicago, offer special accounts for clients who suddenly have $1 million or more and need a place to park it.

Of course, lottery winners also should be looking for ways to shelter themselves from taxes, such as tax-free municipal bonds or annuities, Scaccetti said.

Later on, “they need to ask themselves: ‘Do I need to have a fixed return because I want to give up working, or do I want to continue working and put a fixed income amount set aside,” she said.

Dick Zimmermann, 39, a former ABC News producer from the San Francisco Bay area, fell in both categories after winning $9.76 million in the California lottery a year ago.

Although his annual net income of $500,000 has kept himself and his wife out of the work force, they have been cautious.

Zimmermann opted for investments most likely to appreciate, like a new $425,000, 3-bedroom house and a 1964 Rolls Royce Silver Cloud III. For tax reasons Zimmermann obtained a 15-year home mortgage rather than paying cash.

“We’re trying to be good stewards of this money,” he said. “After all, this sort of thing doesn’t even come once in a lifetime. Your chances of being struck by lightning are four times better.”