Lotto stuff to consider

Enlarge Image

(KRT)

If ever there were a person to ask whether money can buy happiness, a past lottery winner would be a good candidate. That is, if you can find one. They're tough to track down.

That's partly because many winners change their phone number to an unlisted one even before showing up to claim the prize, says Andrea Marantz, director of corporate affairs and communications with the Western Canada Lottery Corp.

But they can't sneak in and collect without at least a little fanfare. Big winners must agree to have their names made public and be photographed to collect the money.

"It's to prove that, yes, someone is winning the lotto," Marantz says.

And if they win big -- such as the new Lotto Max prize of $10 million or more -- the WCLC encourages them to hold a news conference to deal with the media all at once.

Many anticipate this with as much enthusiasm as a root canal, but Marantz says they're often pleasantly surprised at how painless the experience really is.

"It's a good news story, but a lot of people are really nervous because they imagine they're going to end up on one of those horrible American talk shows."

But a lotto winner is a "one-day news story," she adds, and they're generally forgotten by the following day.

H. Roy Kaplan, a sociologist at the University of South Florida who interviewed hundreds of lottery winners in Canada and the United States in the 1970s and '80s, says most winners are never seen in the spotlight again.

"I can tell you that there are thousands of people who have won, and the reason you don't hear about them is because they're doing OK," he says.

"I think the media often seem to accentuate the negative: People can't be happy if they get this money, or they squander it and have all kinds of horrible problems."

In those rare instances, money obviously isn't a cure-all. In fact, the windfall can even exasperate our personal problems -- at least those that have nothing to do with finances.

"If people were shy and suspicious before, then they tend to become more introverted and paranoid," Kaplan says. "If people were outgoing and loquacious, then they just take it in stride."

But Kaplan found that most winners were unprepared to deal with the financial decisions associated with becoming instantly wealthy.

Most of us who buy lotto tickets dream of what we'd do if we won, but few people are lucky enough to have to put them into action.

But just in case you're that fortunate, there are a few things to consider.

First and foremost, take the time to think and write down some general ideas of what you would like to do.

"That's our main advice," Marantz says, adding the WCLC provides winners with a small folder that doesn't offer recommendations so much as "subject areas that they might want to think about."

The brochure includes information about how to handle requests for money, interest rates, deposit insurance, paying off debt and estate planning, to name a few.

Sunday Opaleke, a financial adviser with Edward Jones, says winners may want to leave town to do their thinking, using a bit of money to pay for a two week or longer vacation while putting the remainder into a secure, easily cashable and short-term investment.

"Let's take that money and pack it into a cashable GIC or something like that for the time being until you can calm down and let that excitement and euphoria subside," says Opaleke, who has never advised a winner.

Although it may be tempting to go on a shopping spree or march into your workplace and tell your manager what you really think, you're best advised not to -- for the time being.

"Don't do any sharp breaks with your traditions," Kaplan says.

"Take some time off, and if they don't give you a leave from your job, then maybe it's time to leave because obviously they want you around."

He adds winners with post-secondary education and careers often want to keep working.

"There were those cases where people wanted to keep working and their co-workers or managers viewed them very differently."

But if you win enough money, you may not need to work again, providing you have a good plan.

"You would need to put a portfolio together that would include three levels of investment," Opaleke says.

"One level will provide a steady income; another level will provide a variable income, and then they need something that will provide a rising income."

Ideally, you would want to create an investment plan that offers steady, reliable returns, which provide a comfortable annual income while at the same time growing the principal to keep ahead of inflation.

But inflation isn't the only enemy. Now that you're rich, you will understand why the wealthy often whine about being over-taxed. Unlike in the U.S, lottery winnings here aren't taxed, but the Canada Revenue Agency wants a cut of the money you make off the winnings.

"When you win a huge amount of money like that, part of your objective should be minimizing taxes," Opaleke says.

"It's not how much we make, but it's how much we can put in our pockets."

Although winners must make a number of tough financial decisions, they're in an enviable position nonetheless.

"What we hear through our research is that the most common thing that people tell us is that it made them feel more secure and they didn't have to worry," Marantz says.

"It tends to be more of a sense of a really nice and warm security blanket."

giganticsmile@gmail.com

A few facts about lotteries in Western Canada

The Western Canada Lottery Corp. does a lot of research about its winners that the rest of us might find interesting.

"ö 2008 was a record year for winning. Among the western provinces and the territories, winners collected $524.5 million.

"ö Top three concerns among winners are: being asked for money, dealing with the media and personal security, all of which WCLC spokeswoman Andrea Morantz says often do not turn out to be problematic.

"ö 83 per cent of those who win more than $10,000 have never been asked for money.

Get a team together

Most people don't have the financial acumen to handle large sums of money on their own. The WCLC suggests people consult a number of experts before making any big decisions. Here are some professionals you might want to hire for your team.

A financial adviser/planner: Many people will offer you financial advice, but it's important to find an adviser you can trust. Ask for references and sit down with a few of them before deciding. Be sure to understand their credentials. Anyone can call himself an adviser. A bachelor of commerce, master of business and administration (MBA) are good indications of some expertise, but you might also want someone with a planning designation. Planners, whether certified or registered, can help you develop a detailed road map to wealth preservation and income-generating investments. Be sure to ask about licences. Most advisers and some planners are licensed to sell securities of some kind. The more licences they hold, the more options they likely can offer for investments.

Accountant: Tax software will likely not cut it for your tax returns anymore. Find an accountant, preferably a chartered one, who can provide you with options to reduce your taxes on returns from your investments. Again, get references and talk to more than one.

Lawyer: Hopefully, you won't find yourself in court. Sociologist H. Roy Kaplan found few lottery winners end up in divorce court, but you still need a lawyer all the same. Estate planning is now much more complex, particularly if you want to leave a legacy for your family and the community.

Real estate agent: You might not want to move to a bigger and better home, but now that you've got hundreds of thousands of dollars -- or millions -- at your disposal, you might want to look at buying property as an investment.

Portfolio management 101: While you should find a trusted adviser, a little prior knowledge about what you want out of a portfolio doesn't hurt. Edward Jones adviser Sunday Opaleke says your portfolio should do three things:

"ö Provide steady income: Fixed-income securities, such as bonds, provide a regular interest payment, which can serve as a source of steady income. Keep in mind you want to invest in a diversified portfolio of fixed-income investments rather than putting a lump sum in one investment.

"ö Variable income: This would still involve some fixed-income instruments, but they would be shorter term with a lower yield (interest payment) in most cases. These investments mature earlier, providing access to capital for additional expenses if needed, or afford the opportunity to seek out better investments as they come along.

"ö Rising income: This segment of the portfolio provides higher returns, albeit with higher risk, but the idea is to provide returns that outpace inflation. If inflation is three per cent, you'll want something that provides at least double that in returns. Equities (stock) are the focus here, but you're best bet is to look for investments that also pay dividends. Preferred shares are a good option because they provide more secure dividend revenue than common stock. The downside is they do not have the capital appreciation potential of common shares.

Republished from the Winnipeg Free Press print edition October 4, 2009 C6