What To Do If You Win The Lottery: Dos and Don’ts of Unexpected Windfalls

Cole Mayer  | 

Winning the lottery is a huge event. But most winners — about 70 percent — go broke despite winning millions. Let’s look at what you should and shouldn’t do after coming into a large amount of money.

What is a Windfall?

A windfall, in today’s terms, is a sudden piece of good fortune, usually in the form of unexpected money. It could be winning the lottery or some other contest, an inheritance from a long-lost uncle, or winning a lawsuit where you are awarded far more money than you expected (such as the case of Julie Miller being awarded more than $18 million for Equifax’s repeated mistakes on her credit report).

Hire a Financial Advisor

What should you do if you win the lottery? Here’s another way to look at the question: What’s the first thing you should do after realizing you are about to come into a lot of money? The answer is find someone who can manage your money. Hiring a financial advisor can help you come up with a plan for everything from how and when you cash your lotto ticket, to investing, saving, or responsibly spending your winnings. Getting professional help developing your plan means you will not quickly part with your money in short order and become part of that 70 percent statistic of winners who go broke. Having a lot of money with no plan is a recipe for having no money.

We’ll talk about investing later, but advisors can help by being a middleman for any purchases over a certain amount, so you don’t squander your money away. They’ll make sure you don’t burn through all of your money, especially if you go with the lump sum route — more on that in just a second.

You want someone with experience in handling large amounts of money. Hiring cousin Ted who has a higher salary than you is not a smart idea; hiring someone like a certified public accountant is a better use of your money. Do this before cashing in your ticket, but after you have signed the ticket and made a copy of it.

Financial advisors can help navigate the murky waters of surprising challenges the suddenly wealthy face. There are new tax problems you might never have considered. Think of it this way: The person who wins a car on The Price is Right might have to pay taxes on that car, which they might not expect in the excitement of winning the car. Winning the lottery is very similar. You are now in a totally new tax bracket. A financial advisor knows this, and will help you with the unexpected.

Plus, there’s odd legal surprises waiting for you. You want to build a mansion with your newfound millions? Too bad that contractor “slipped on the pavement” while building your new house and wants you to settle out of court for a tidy sum of money. You suddenly become a target, and someone with financial experience (as well as a lawyer) can help you with unexpected occurrences.

Keep a Budget

This may seem like an odd idea if you’ve just won millions of dollars, but you will want to keep to a budget. Remember, millionaires and billionaires didn’t get to where they are by wantonly spending money. Again, having a plan is key to keeping yourself in the black. Winning the lottery gives you extra money, but not the willpower to spend it deliberately and responsibly. Just because you can spend it all in one place doesn’t mean you should. This is part of why those who have lived lives of financial wealth often have poor credit. Sticking to a rational budget will help.

Aside from which financial advisor you should hire, another early question you should ask yourself after winning the Powerball: Lump sum or annuity? This question can have an important influence on your budget, because it impacts how you receive your windfall.

While a lump sum can seem like a desirable option, despite losing money to taxes, it’s still millions of dollars suddenly in your bank account. How could you spend all that? Ask those 70 percent of broke winners. Or, even better, ask your financial advisor. An annuity pays out yearly for 30 years. But, it will help you not spend it all suddenly, dropping thousand of dollars on a whim. Your situation is likely what will influence your decision on which to take. Again, this is something you should discuss with a financial advisor based on your situation.

Consider this: When the Powerball was at more than $700 million in Aug. 2017, taking a lump sum would result in only winning a gross of $443 million, but after taxes it’s only $308.8 million. Taxes differ by state, as well, so a Californian would receive more than a New Yorker, as California doesn’t tax lottery winnings while New York imposes a more than 8 percent tax. Meanwhile, the annuity option would mean payments of more than $17 million average per year. Note that’s an average — the annuity payments will go up to combat inflation.

This might help when the inevitable Lost Cousin Johnny pops out of the woodwork with an awesome business idea you just have to invest in, you can say you honestly don’t have the money right now — although your financial advisor can also put a stop to this, as well as helping you stay anonymous if your windfall is a lottery and not inheritance. This can do wonders in keeping random people from asking you for a handout.

It might also be family members who you’ve known your entire life who suddenly seem to want to be your best friend in order to get a slice of the lottery pie. You can take this two ways: either a blanket “no” or telling them you have budgeted a limited amount for anyone who asks. Investing in the wrong people, or giving in to a relative’s emotional blackmail, will not help you with your long-term financial goals of not losing your windfall.

A Change in Lifestyle

While paying off all of your debt may not be a bad idea, suddenly spending mountains of money simply because it’s there is not wise. That company you want to start will cost many more millions than you thought. Buying expensive cars is fun, but quickly adds up, and there’s taxes, maintenance, security, and more to consider. You will want to celebrate, and that’s fine — but remember your budget. As unexpected as the windfall might be, there are also unexpected costs to a windfall.

Set aside a specific amount, in total or each month, depending on whether you did a lump sum or installments, and only spend that. Wait six months to spend it, if possible, so your head cools off from the sudden rush of having a windfall. Living the big life can and will go to your head, and then your bank account will be in the red. Gambling it all away in Las Vegas may seem like a great idea to get more money, but remember the house always wins.

You will be targeted for your money. You will need to be careful. You will need lawyers to combat frivolous lawsuits from people trying to take advantage of your winnings. Security can help protect you from burglaries (we’ll see why in a moment with a real-world example). Greed and jealousy are powerful motivators, and you have a lottery-sized bullseye painted on you now.


Let’s look at the story of Michael Larson, who famously won $110,000 on Press Your Luck in 1984. He memorized how the game worked, got few Whammies, and won a huge windfall (accounting for inflation, in 2017 it would be around a quarter of a million dollars). His method of investing was playing another contest that required him to withdraw his winnings as $1 bills to match a serial number. While he deposited half the bills after checking their numbers, burglars caught wind of his win. Remember that bullseye? While he attended a Christmas party, those burglars broke in and stole the second half of his winnings.

While other tragedies befell Larson, the main moral of this story is that, if you want to make money off of your winnings, your best bet is to invest and to mostly live off the dividends. This prevents you from spending too much, while keeping a reserve in case of emergencies. With the help of a financial advisor and good investing decisions, you can live quite comfortably without having to touch your winnings, making passive income instead.

While you should be cautious about business proposals, due diligence can also pay dividends. After all, the TV show Shark Tank has proven that the right mix of a good idea, good marketing, and enough capital can make investors plenty of money while mitigating their risks. Smart investing is the name of the game, however; don’t invest for emotional reasons or because the idea “sounds good” on its face.

Leaving an Inheritance

Why else should you just invest and live off dividends? To leave an inheritance for the next generation — or your spouse. Be it a trust fund or a full, one-time inheritance, leaving something for your children or other loved ones may be important to you. This requires long-term planning for your windfall, hence the need to invest. It also means keeping spending sprees in check. Again, careful planning is the key to not going broke despite a large windfall.

Set aside money for your children or family. It does not have to be strictly inheritance. Consider opening college accounts, similar to investing, that will also earn money over time. The goal here is to provide for future generations, to make a lasting impact on your family and loved ones.

An unexpected windfall can do wonders for your mental state, but without careful spending, you could find yourself broke within just a few years — even if you made millions, more than you thought you could ever spend. Don’t fall into that trap. Instead, hire a professional, spend only a modest amount, invest, and save some for your children or other loved ones.

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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42