Powerball in Everyday Life
By now, everyone has heard about the whopping 1.3 billion dollar jackpot that is the current Powerball. The crazy notion of the American dream, getting rich quick, has drawn together a country in disbelief and anticipation, and every Wednesday and Saturday we wait with bated breath wondering just how big the pot can get. However, being the naïve millennial that I am, before a week ago the Powerball was just a billboard on 66 that I scoffed at, and with all the building excitement I needed to google exactly how the Powerball works, to the chagrin of my office.
Essentially there are 6 balls, 5 white and 1 red, the Powerball. One must match the numbers of the white balls in any order and match the red Powerball to win the jackpot. You can also win smaller prizes based on matching the white balls, but that math just got too confusing for me- let’s stay big picture. For example, it’s 11:03 PM on Wednesday and you’ve matched the drawing, Congratulations you’re a millionaire! “Millionaire?” you may say, “I thought the pot was 1.3 billion.” Unfortunately, taxes come into play when gambling, unlike a settlement in a personal injury claim, so the 1.3 billion becomes closer to 804 million; but that’s only if you accept the annuity payout. (Yes, as in all walks of life there is a “but” to winning the lottery.)
When you win the Powerball you have two options, immediate cash payout, or an annuity payout over 29 years. If you choose the cash route, the pot is nearly halved due to the taxes you must pay based on the “income” amount. The annuity route is more akin to a structured settlement. Legally speaking, a structured settlement is an option for those who settle their claim for a large amount of money, usually when they are a minor, or when, due to a debilitating injury, they are unable to work to support themselves. A structured settlement allows a large settlement to be broken down and paid out over a set amount of years. For example, if I am rear ended by someone and win a 2 million dollar settlement, I could opt for a structured settlement where every month I receive $20,000 in the mail over the course of a set amount of years. Furthermore, just like with the Powerball annuity option, my settlement would collect interest and increase. This way, it allows me to enjoy the benefits of my settlement over a longer period of time and stops me from spending it all in one place or at once. (It saves me from myself.)
However, the problem with this method are the loopholes that have been created where someone receiving a structured settlement can sell their structured settlements, for quick cash but for pennies on the dollar. Essentially, using the example above, because it is a structured settlement I cannot tap into my full settlement if an emergency were to happen because the money is tied up in monthly installments. Many people who receive these structured settlements will overstep their financial boundaries, and unable to wait for the next month’s payout, sell portions of their settlements for pittance. A concrete example, Terrence Taylor was a burn victim from a faulty electric heater, and was receiving a structured settlement payment every month. According to Taylor’s bank records and court documents, the burn survivor sold $11 million of his structured settlement — which had a present value of about $8.5 million — for roughly $1.4 million, or 16 cents on the present dollar. Unfortunately, while heinous, this is completely legal. Think of it like a pawn shop: you need money, you have your grandmother’s engagement ring that is worth at least $400,000, but instead you pawn it for $10,000. The fast cash is, in the moment, more necessary than the long term investment.
In some states, a hearing is required before a settlement payment can be sold, yet every day vulnerable people are swindled out of their deserved settlements. Just like the Powerball, if you win your case, you should discuss a structured settlement with your attorney and financial adviser. An annuity or structured settlement allows you to stretch a payment out to make certain you are supported and protected for a substantial amount of time, in case an injury flares up or an emergency happens. However, vigilance is required, as unlike the Powerball, a structured settlement is not a 1 in 292,201,338 chance, but a common occurrence.
