7 Smart Things To Do If You Win The Lottery Jackpot

By Mark Di Vincenzo. May 7th 2016

Callie Rogers, who won a $3 million lottery jackpot in 2003, was working as a maid just two years later after spending and giving away all of her winnings. William Post won $16 million in a Pennsylvania lottery in 1988 but spent that and more. He ended up going to jail for trying to shoot a bill collector after his money ran out.

Economists who study the spending habits of lottery winners almost always come to the same conclusion: Winning a lot of money doesn't reduce the likelihood of bankruptcy. Of the 35,000 winners of Florida’s Fantasy 5 lottery game from 1993 to 2002, more than 1,900 filed for bankruptcy within five years.

Researchers offer these theories about why this happens: 1) The most frequent lottery players tend to be poorer and less educated than average and may be less financially literate. 2) Winners are more willing to spend their winnings than their earnings. 3) Winners realize they like expensive things, and that causes them to run out of money sooner or later.

So if you are fortunate enough to win a multi-million-dollar lottery jackpot, how can you ensure that you keep a lot of it?

Here are seven pieces of advice, gleaned from financial advisers, accountants and estate lawyers.

Decide If You Want Your Winnings In A Lump Sum Or In Annual Payments

To make a good decision, you have to understand how the lottery in your state works. Some lotteries will make annual payments for a set period – say, 30 years – until you die. But if you die before the period ends, the payments can stop, and some states will not pay survivors. In any event, taking the lump sum can make sense if you invest it wisely, using the winnings as seed money to make even more.

Change Your Phone Numbers And Email Addresses

And only give the new contact information to close friends and family members. This won’t stop all of the people out there who want to separate you from your money, but it’s worth your while to try.

Find Smart Professionals

While you should want to stay away from money grubbers, you should seek out a good estate attorney, financial adviser and accountant. The attorney can help you set up an estate plan, including trust accounts for your children or others. The accountant can educate you about the tax consequences of your good fortune. And the financial adviser can craft a comprehensive plan to invest the money. If you take the money in a lump sum, consider investing in a life-time annuity, so no matter what happens to you afterward – whether you make bad financial decisions or you get a divorce and have to give your former spouse lots of money – at least you’ll get a check every month for as long as you live. It’s important that you make investment decisions that will benefit you for as long as you live. (For help with choosing a financial adviser, see A Helpful Guide For How To Choose A Financial Adviser.)

Set Aside Money For Taxes

An accountant will fill you in on this, but so many people don’t give this enough thought. They assume the state will automatically take out taxes, and that usually is not the case. If you live in New York City, for example, you will have to pay 3.87 percent to the city, 8.82 percent to the state and 35 percent to Uncle Sam. Things can get even more confusing because some multi-state lotteries withhold only 25 percent for federal taxes, but you owe the federal government 35 percent. And if you give away some of your winnings, 22 states and Washington, D.C., impose inheritance or estate taxes. Yes, the tax bill from a large lottery jackpot can be staggering. (For more information on federal estate taxes, see A Guide To Federal Estate Taxes.)

Pay Off All Of Your Debts

This is a smart thing to do whenever you come into money. Financial advisers often advise clients who receive a large tax refund to pay off debt first. Someone who wins a lottery jackpot may have the ability to pay off the mortgage on his house. Doing so means you won’t have to pay any more of that interest you thought you would have to pay. The only reason not to do it is if your mortgage has an interest rate that is lower than the rate you can reasonably expect to make from investments. But what can you reasonably expect to make? The stock market hasn’t produced large gains in recent years.

Don’t Go Crazy

As one financial adviser said, “Protect yourself from yourself. You are your worst enemy.” Wait a few months – after you’ve spoken with an accountant and a financial adviser and an estate attorney – before you buy a mansion or a private plane. And resist the urge to start a business or give money to children and other relatives who want to give it a try. Why do so many lottery winners automatically think they would be successful business men and women? Some might be, but many of them end up throwing away hundreds of thousands of dollars or more in ill-conceived businesses ventures.

Decide How Much Of Your Money You Are Willing To Give Away

The smartest way to do this, estate attorneys and financial advisers say, is to create a charitable foundation and require people who want money to apply for it. Hire a trusted lawyer to sort through the applications and have him present recommendations to an advisory board of smart people you know and trust. So if a long-lost cousin asks you for some money, simply say, “Hey, Long-Lost Cousin, you’ll have to petition Mr. Smith, the lawyer who’s running my foundation.” You’ll come off looking like a good guy for setting up a charitable foundation, and at the same time, you’ll take the pressure off yourself to make these difficult decisions. (For more information about the tax benefits of giving money to charity, see The Tax Value Of Charitable Donations.)

You don’t have to be one of those lottery winners who you read about who wishes they never won. If you’re smart with your money – or find smart people to help you make good decisions – then you can enjoy it, not just for a few years but for the rest of your life.


  • Interviews conducted on March 29 and 30, 2012

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