Bottom Line Can Bottom Out for Lottery Winners

Winning a lottery jackpot such as Florida’s $106.5-million bonanza drawing can be a sweet dream, but for the average person the temptations and mysteries of new-found wealth can become a nightmare.

The advice from most financial experts after all the hoopla dies down is simple: Take things real slow.

A middle-aged construction worker who won $4 million in the New York lottery four years ago ran into problems, said Michael Naste, an independent financial planner from Deland, Fla.

After receiving a check for around $148,000--the first of his 20 annual after-tax installments--he quit his $38,000-a-year job, threw a party and put $10,000 down on each of 10 new Cadillacs. But in the next eight months, six of the luxury cars were repossessed and the man had to borrow $200,000 to hold him over between lottery checks, Naste said.

“Preserving your capital is the first thing you’ve got to do. You’ll have plenty of time to invest it,” said David McLaughlin, a financial adviser with Chase Investment Counsel in Charlottesville, Va. “You must make sure your money is safe and earning something.”

Such is the “problem” for at least half a dozen Florida lottery players. Six tickets matched the winning numbers drawn on Saturday in the Florida Lottery estimated at $106.5 million--a state record and the second largest in U.S. history behind Pennsylvania’s $115 million jackpot last year. Each Florida ticket is worth about $17.75 million over 20 years, or $887,500 annually before taxes.

Many investment counselors suggest that for the first couple of years, lottery winners--or anyone with a sudden windfall, for that matter--keep a portion of their loot in liquid assets, such as certificates of deposit or Treasury bills, until they can figure out what they want to do with it.

The rest can go into longer-term bonds, including tax-free municipal issues, or growth stocks, experts say.

For McLaughlin, the mix would be divided equally among Treasury bills, Treasury notes or bonds, and stocks for the first few years. Of course, a very small portion may be splurged, he said.

Among the biggest problems most lottery recipients will face is having to sift through all the solicitations from various financial brokers.

“They’re going to be getting a lot of calls,” said McLaughlin, who recommends winners get an unlisted telephone number for starters.