Couple nickel-and-dime it after their lottery windfall
Posted on 05/08/2002 7:52:14 AM PDT by MeekOneGOP
Couple nickel-and-dime it after their lottery windfall
Financial security a foremost concern, despite win of millions
05/08/2002
NEW ORLEANS - Since winning the $48.1 million Powerball jackpot last month, Jerry Berggren of Kenner, La., has come to know the upside and some of the downside of becoming an instant millionaire.
There's the new fishing boat he'll soon have at his back door and the wedding cruise he and fiancee Cathy DeMuynck will take to Alaska with friends and family. Mr. Berggren immediately gave up his business as an appliance repairman. Ms. DeMuynck, a customer service representative with an international transportation company, left her job and has traded up to a luxury SUV.
But Mr. Berggren is fast learning the downside of his newfound wealth. Total strangers approach him with hard-luck stories. And he has been offered ludicrous investment offers, like the Gulf of Mexico oil and gas well someone wants him to finance.
Mr. Berggren and Ms. DeMuynck are trying to manage the money the largest Powerball jackpot won in Louisiana carefully. They know how easy it can be to get caught up in the excitement of winning.
There have been enough instant millionaires as a result of lottery winnings during the last few years to cause television programs and authors to pounce on the subject of how winners manage or don't manage their riches. Ms. DeMuynck remembers hearing that a haunting 90 percent of lottery winners have gone through their money in seven to 10 years.
Psychologists have even weighed in on the subject. Psychotherapist Olivia Mellan of Washington said: "It's like being shot through with too much energy. It makes them ungrounded."
Sudden wealth makes fantasies go wild, and some people come to believe money equals freedom and power, Ms. Mellan said.
Her advice: Don't make any decisions quickly.
Winners need to sort out what money can do for them then set goals, short and long term, she said. And they need to take things slowly, perhaps reviewing goals more than once before deciding to stick with them, said Ms. Mellan, who is the author of Money Harmony.
That's exactly what Mr. Berggren and Ms. DeMuynck are doing. One of their first calls after learning of their win was to their financial planner, James Ewing, who is in the process of deciding how to invest the couple's jackpot.
Mr. Ewing's first piece of advice was to take the millions they had won as a lump sum of $17.9 million instead of in annual payments.
If they had taken the annual payments they would have gotten about $1.2 million a year, after taxes, for 25 years. Mr. Ewing did a series of calculations and figured they would do better having the lump sum and investing it. They could earn interest and see that interest compound year after year, he said, and the interest earned would make up the difference in the payment amounts.
The stream of annual payments over more than two decades would not produce such an opportunity to accumulate wealth.
Also, if the recipient dies before the payouts have concluded, the estate owes taxes on the remaining portion in a matter of months after the estate is settled, which would produce a huge burden for heirs.
Another reason they wanted to take a lump sum payment was so that they could make gifts to friends and family members.
Taking all of the money up front gave Mr. Berggren and Ms. DeMuynck an all-too-close look at just how much goes to Uncle Sam.
Because of the huge income they will report this year, they have been thrust into a higher tax bracket, which will cost them an additional $2.9 million in federal taxes.
"We ended up with less than a third, and they want more money," Mr. Berggren said. "It's deceiving how much you take home."
Mr. Ewing favors investing in tax-exempt bonds because of the couple's tax situation and their desire not to select risky investment. He has also gotten involved in such decisions as the best way to handle the auto purchases they have made.
Mr. Ewing earns his keep 0.75 percent to 1.5 percent on what the couple has invested, with the rate going down for larger portfolios.
The Kenner couple has been generous with family and friends. But the gifts come with a string attached. They know that not everyone knows how to manage money, and they want their beneficiaries to enjoy their gift for many years.
Ms. DeMuynck is no stranger to financial planning. Several years ago when her father died, she was left to manage a business and an inheritance and she had no family to turn to. She was trying to run the business long distance, had inherited investments she did not understand and had mutual funds that she did not know whether to keep or sell.
Ms. DeMuynck said she thought, "This has to last me the rest of my life." So she got help and now relies on the assistance of Mr. Ewing and an accountant.
For now, the couple are doing much of what they used to do. There are lots of phone calls to return, and they're finishing up old business. At one time they had mounds of laundry to do after the busy but exhilarating first days after their win.
As someone who grew up in a tough New Orleans neighborhood, Mr. Berggren is proud of his street smarts and doesn't plan to let down his guard now that he's a Powerball winner.
They're still using two-for-one dinner coupons and shopping at Big Lots and the Dollar Store.
A couple of weeks ago, when Ms. DeMuynck turned in a car obtained through a lease-purchase agreement to trade up to the SUV, she called to find out how much it would cost to terminate the lease and was ready to pay. When the dealer added another $250, she argued that she had an agreed-upon price and had been a good customer. The firm backed down.
The couple has been gambling on the Gulf Coast and recently traveled to a crawfish boil cook-off in Kiln, Miss.
Just for fun, though, they called Mr. Ewing after a recent fishing trip to find out how much they had made on the stock market while out catching red fish. It amounted to more than most people earn in a week.
Distributed by The Associated Press
Actually, I don't think so, given that they were both working and that they quickly hired themselves a financial planner.
A person called one of the money advisory talk shows and the advice given seemed sound. Hire an attorney, hire a CPA, hire a private cop to watch the door to your house. Do that first. Don't just do the first thing that pops into your head. Have a plan when you buy the ticket. It could happen.
Most people don't plan to fail, they just fail to plan!
From the firm of Dewey Cheatem & Howe?
My wife is a CPA, and it's amazing the stories I hear of (generic, not-identified) people with mega-$ incomes not being able to meet their obligations due to extravagant lifestyles. "Well, yes, I may be making $500,000 a year, but there's the mortgage on the $2.7m mansion, the two Mercedes and the Porsche, the kids' private school tuitions, the ski vacation, the beach vacation, the full-time housekeeper, . . . ."
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