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State Lotto Winners: Beware!
Is It All That They Expected?
If you're ever lucky enough to win the Connecticut Lotto, don't quit your day job yet, or at least until you check the bottom line on your bank account.
When the big prize is advertised at $1 million -- or even $5 million or $8 million -- Lotto officials are well aware of the fact that these figures do not inspire maximum participation (you can read that as heavy betting.)
Really big numbers, like $35 million or $50 million, result in much higher Lotto sales and higher "profits" for the state.
That's why the state uses a bit of legerdemain in its Lotto promotions, and that's why it would be smart for anyone who wins the top prize to find out how much money he really won before making any unusually large expenditures.
Occasionally -- and reluctantly -- the state mentions that the big Lotto prize actually reflects the value of a 20-year annuity, not the amount of cash won, as advertised.
A few people who buy Lotto tickets realize what the difference is between, let's say, a $10 million prize and a $10 million annuity -- but I dare say most people who buy tickets with dreams of becoming a millionaire do not.
The difference is enormous. With an annuity, winners would receive $500,000 a year for 20 years, but this amount turns out to be far less after Uncle Sam and the state of Connecticut take out their taxes on your moderately improved income.
If you truly won $10 million -- that is, you were handed a check for that amount when you won -- you, of course, would have a big tax bill, but you would be free to invest the balance over the next 20 years in a way that could very well earn you double or triple the initial amount.
Even if you similarly invested the meager amount you got from the annuity, you could not do half as well because each year the money you receive has one less year to build capital gains, interest or dividends.
This is not the first time the state has bent the rules. A few years ago when it decided to end the $3 payoff to ticket holders who had three of the six numbers, I personally complained to the governor, attorney general and Lotto officials.
Tickets sold by the state showed odds reflecting the $3 payoff when the state had no intention of making those payments. State officials tried to justify this error by saying they were saving money by using up the old tickets -- and (that) they sent out press releases to Lotto outlets.
Do you suppose the state would allow a private organization to misrepresent the odds -- or interest or dividends, whatever -- under similar circumstances?
The state, however, is not alone in abusing its power for its own convenience and interests. The federal government allowed banks to do virtually the same thing when the tax-deductible Individual Retirement Accounts (IRA's) were created some years ago.
Financial institutions (who knew, or should have known, better) took out big ads saying the annual contributions of $2,000 a year until retirement would grow to more than $1 million for most people.
It's always unwise of government, or anyone, to exert power simply because it has the ability to do so. Such action inevitably leads to the eventual erosion of power. True, lasting power emanates from the consent of the governed; it need never be applied.
I wrote this column as a "My View" for The Hour newspaper of Norwalk, Conn., on April 11, 1998. I now write my views on a wide variety of topics on HubPages.