As the Powerball jackpot reaches a record $800 million, millions of Americans have filled their heads with Champagne wishes and caviar dreams, even though the odds are better of getting struck in a given year by lightning (1 in 280,000) than striking it rich (1 in 300 million).
How rich will the lucky person be if he or she is the sole winner? It depends on how you look at it. A lump sum payment would probably be about $496 million. Then you’d need to account for the 39.6 percent federal tax hit, bringing your after-tax take to about $300 million. (Don’t forget any state and local taxes.)
Obviously, winning the largest lottery jackpot in U.S. history will make someone richer beyond his or her wildest dreams. They will probably be the wealthiest person that their friends and family know. In theory, they should be able to quit their jobs and never have to work another day in their lives. And for the most part, they can have anything they want.
Looking at it objectively, the Powerball winner will be as rich as some Hollywood celebrities such as actor/producer Tom Hanks, whose fortune is estimated at $390 million, though they won’t be in the same league as Microsoft (MSFT) founder Bill Gates, the richest person in the world with a nest egg estimated by Bloomberg at $81.7 billion.
Given that the lottery winner is probably unfamiliar with the world of the rich and famous, here’s a quick guide to the mind-numbing ways the winner can spend this new-found fortune. Keep in mind that spending money is more fun than saving — and the world is full of stories of lottery winners who lost their fortunes through bad luck and poor decision-making.
Let’s take a look at housing. Usually most financial planners argue that people should spend no more than 30 percent of their annual income on housing. For the record Powerball winner, that’s about $5 million a year, when dividing the estimated $300 million payout over a 30-year period for argument’s sake. Someone in that league could easily afford both a home in Beverly Hills, California, where according to Trulia the median home price is $2.95 million, and New York City’s Manhattan borough, where the average price for an apartment is about $1.9 million, according to Douglas Elliman Real Estate. (Of course, maintaining multiple residences may require staff such as butlers, who according to International Butler Academy can earn between$50,000 and $150,000 annually.)
Or with a $5 million-a-year housing budget, the Powerball winner could cover the theoretical mortgage on the most expensive apartment recently sold in New York, an 11,000-square foot penthouse duplex on the 89th and 90th floors of a midtown condominium tower that fetched $100.5 million in early 2015. Such sky-high property transactions don’t typically involve mortgages, of course, but here’s the rough math just for giggles: After a 20% down payment ($20 million), the monthly payment to your lender for an $80 million mortgage would be around $416,600, or $5 million a year.
Rich people can indulge their whims both large and small. The winner would also easily afford, for instance, a vacation getaway like a private island in Panama being offered for $380,000. That excludes taxes.
Want to meet celebrities? Why not bid on a red carpet package and backstage tour for four for this month’s Screen Actors Guild Awards that’s being auctioned at CharityBuzz.com? Bids are currently at $950 for the experience which is valued by the site at $5,000. Those with a desire for more celebrity contact can also fund movie and theater productions, which more often than not are tax losses.
To travel in style consider buying a Ferrari, which sell for $180,000 to $400,000 new and holds its value very well. Nine of the 10 most expensive cars ever sold were made by the Italian carmaker.
Wealthy people hate dealing with the bedlam at airports as much as anybody else, but they can do something about it thanks to ultra-luxurious private aircraft. A private jet like a Gulfstream G650 costs about $65 million new. Many rich folks, though, don’t want to be bothered with the expense of fuel and hiring a pilot, and use lower cost alternatives such as Warren Buffett’s NetJets, which sells access to luxury air travel through fractional ownership.
A Powerball-winning sports fans can’t afford to spend the billions needed to afford a professional team. A minor-league or semi-pro team, though, might be in their budget. A Single A baseball team in the Midwest is being listed by the Sports Advisory Group for $14.5 million, though minority interests can be had for as little as $90,000. Wannabe musicians can spend six figures on a guitar owned by their favorite rock star. Celebrities will even come to a child’s birthday party if the price is right.
Like other issues confronting wannabe multi-millionaires, choices like these are nice problems to have.