So you win the lottery. Here's how to invest it

Everyone and her dog is buying tickets for Wednesday night's Powerball drawing, whose jackpot is approaching $1.6 billion.

But how to handle the winnings? Lump sum or annuity?

Take the annuity and pull down a cool $50.5 million a year before taxes. (That's $1.5 billion divided by 30 years, plus interest, currently 1 percent in a savings account).

Take the lump-sum cash award and receive an estimated $868 million before taxes.

The obvious next question: how to invest the winnings?

Unless you're a professional investor, it's way too much money for one person to handle alone, said Phil Gocke, a money manager with Opus Investments in Philadelphia.

"Even $50 million a year to invest means you'll move the market when you start putting that money to work," he says. "If you're a professional, then take the cash. If not, then take the annuity."

Witness professional athletes and heirs who fritter away contract windfalls or inheritances in a few years, he said.

Gocke recommends the following allocation: 30 percent to 50 percent in stocks, depending on your age, in index funds such as those at local fund giant Vanguard; 15 percent to 20 percent in real estate, either directly or in real estate investment trusts; and the remainder in bonds, cash, and commodities.

Gocke's wife bought five Powerball tickets. He hasn't bought any.

Dave Littell, retirement-income program director at American College in Bryn Mawr, is also a fan of taking the annuity.

"You'll never go bankrupt. If you make a mistake, it's only with this year's money. There's more coming next year," Littell said.

He hasn't purchased any Powerball tickets.

All gambling winnings are taxable, whether you roll the dice, play cards, or bet on the ponies. Hitting the Powerball would vault the winner into the highest tax bracket.

Federal taxes will always apply; state and local tax liability may vary from location to location.

For that reason, Jack Vogel, chief investment officer for Broomall robo-adviser Alpha Architect http://www.alphaarchitect.com/robo advised taking the lump sum in cash.

He assumed the following: an $868 million immediate cash payout, taxed at the highest rate of 39.6 percent, plus the 3.8 percent Affordable Care Act tax. Vogel also assumed a realized capital-gains rate of 23.8 percent (20 percent plus 3.8 percent ACA).

The break-even rate is 4.86 percent, Vogel said. If you think you can earn better than 4.86 percent investing the money yourself, rather than taking the annuity, then take the cash, he said.

If an investor has to pay long-term capital gains each year (for example, invested in a mutual-fund structure), "the winner would be better off taking the cash payout if they generated 4.86 percent," he said.

"If the investor can defer capital gains for 30 years and pay the 23.8 percent at the end of the period, the break-even rate is lower, at 4.21 percent. So for any rate of return above 4.21 percent, you are better off taking the cash payout," Vogel said.

"For an investor with a 30-year horizon," he said, "earning a 4.21 percent rate of return seems reasonable."

earvedlund@phillynews.com

215-854-2808@erinarvedlund