Have you ever wondered what you would do if you won a Powerball Jackpot? I know that I have, and I was looking at this article by CNBC that came out on January 1st. It's a $237 million Powerball Jackpot. It's talking about what the tax bill would be, and I thought.... if I won $237 million what would I do with that money? I know, because I've thought about this question many times.
Learn how by just using some of the money you could not touch the principal, and generate over $3.8 million a year in income, and that's still leaving well over $20 million to spend and do whatever you want with.
Watch the video below:
The CNBC article starts out talking about how much taxes you would have to pay on that jackpot. Now if you aren't familiar with the way that jackpots work, when you win the lottery the number that gets plastered everywhere is not the amount that you would actually take home. So that $237 million, that's if you choose an annuity. An annuity is when they pay it out over let's say a 20 or 30 year period. (In this case it's 30 years). Most people are going to choose the cash option.
The cash option is actually $160.7 million.
Still a lot of money. I know.
The article talks about how 24% would have to be withheld for your federal taxes. If you aren't familiar with the way withholding works, just because an amount is withheld- meaning taken out of the payment, that doesn't mean that's what you actually owe. By making $160.7 million, and lottery winnings counting as income, you'll be in the top 37% tax bracket.
So what I calculated is that after paying your 37% federal taxes on your $160.7 million dollars in winnings, you'd pay about $59,459,000 million dollars in taxes.
Now that's only federal taxes.
Depending upon what state you live in, you might have to pay state taxes too. Now I live in Florida, so I'm not going to talk about state taxes at all because I won't have to pay any state taxes.
$160.7 million and $59,459,000 million dollars in taxes...leaves us with $101,241,000 million.
So what are we going to do with that money?
1. $25,000,000 into Municipal Bond Fund (VCITX)
Right off the bat to keep things simple I'm going to put $25 million in a municipal bond fund. Why am I going to put it in a municipal bond fund?
If you're not familiar, municipal bonds are federally tax exempt, which means you won't have to pay any federal taxes on the income that is generated from those municipal bonds.
That's a good thing.
If you buy municipal bonds in the state in which you live, then they're also state tax free and possibly local taxes as well. Now given that I live in Florida there are no state income taxes, so I can invest in any state's municipal bond funds and not have to pay state income taxes on it.
I know that California has some pretty solid municipal bond funds, so I'll take $25 million of that money, put it in some California municipal bonds, and target about a 4% income. So I'd be pulling out about one million dollars a year in income from that $25 million portfolio.
Now here's the cool thing: those municipal bond funds are totally accessible. So at any time you could take money out or add more, and it becomes basically a savings account that's invested that you're making $1 million a year in income on.
Assuming that you're making at least that 4% every year you're never touching the principal. So you're making a $1 million a year... tax free, not touching the principal.
Now keep in mind we're talking about investing first, and not spending it. I'm sure there's a ton of things that you would spend the money on, probably a lot of things you would invest the money in too.
Leave a comment below and tell me what would you invest or spend that money in if you won that $160.7 million cash prize.
2. $10,000,000 into 69 Unit Apartment Complex
Next thing we're going to do is put $10 million into a multi-family real estate apartment. I actually found a pretty cool one here right in Orlando. It's a 69 unit apartment building. It's for sale for about $10.35 million. I'm assuming that as a cash deal you would probably negotiate it down to $10 million , so let's say we'd spend $10 million on this deal. It says it's got a 7.92% cap rate. To keep things simple, that's basically the amount of income that you can generate after certain expenses from that property. Let's just call it 8% so that we can keep the numbers simple here. So at a $10 million investment, and a 8% cap rate. We're going to pull another $800,000 a year from this investment.
In this apartment building I would have a property manager that I'm paying a salary to. It's probably already calculated in the cap rate. If not, maybe you'll make a little bit less money. You're not really going to have to do much with managing this property. So you're going to be able to sit back and just collect the checks, which is a very nice thing.
So we still have 65 million dollars left to spend, and we're already going to have $1.8 million dollars a year in income AND we're not even touching the principal yet.
3. $7,500,000 to buy a Shopping Center
The next thing I'm going to do is I'm going to take $7.5 million dollars and I'm going to buy a shopping center.
Yes. I said a shopping center.
I found a retail shopping center that's a cool shopping center here in Orlando where I'm currently living. Now, we want to be strategic about this investment. Amazon is shutting down a lot of businesses, so we want to make sure we're buying a shopping center that is pretty Amazon-proof. (Meaning a store or concept that won't be put out of business by people buying the products on Amazon. This could be food, or service related businesses, ideally.) This shopping center that I found is in Orlando, and it's offered at $7.5