What to Do if You Win the Lottery: Five Steps to Take When You Hit the Jackpot

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Over the course of a few hours, you’ve gone from regular middle-class schmuck to millionaire. How? Despite shark-attack odds, you purchased a winning lottery ticket worth millions of dollars.

Step one to not mucking this up is to sign the back of your lottery ticket, like now. If you should drop it or lose it without your name slapped on the back, it would be far too easy for someone else to claim your jackpot as their own.

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What goes down next depends on you. With the right moves, your lottery win could boost your lifestyle across the board. But, with the wrong moves, your winnings could easily cause your life to fall apart.

That’s right: Winning millions of dollars overnight isn’t always the dream it’s made out to be. For every lottery happy ending, there’s at least one person who lets their newly-won millions destroy them.

In this article

    Five Steps to Take When You Win the Lottery

    If you don’t want to be a statistic, it’s wise to read up on the best ways to handle your lottery winnings before the unthinkable happens. That way, you’ll know exactly what to do if you actually win.

    To learn the next best steps for any lottery winner, we reached out to several financial advisors to hear their advice. Here’s what they said:

    Step 1: Keep your mouth closed while you hatch a plan.

    While winning the lottery might make you want to scream from the rooftops, telling everyone of your good fortune is probably the last thing you should do.

    “Keep the big win quiet and to yourself,” says financial advisor David G. Niggel of Key Wealth Partners in Lancaster, Pa. “The news will spread quickly and you’ll be attacked by some unscrupulous characters asking for a handout.”

    Trust us, you don’t want to hear from all 367 of your extended family members while mapping out your lottery winnings. By keeping the story secret, you can have some time to think.

    Furthermore, staying mum on the topic will give you time to bring in professional help.

    Step 2: Hire a team of professionals.

    Speaking of professional help, you need some… and quick. Before you cash in your lottery winnings or tell anyone outside of your immediate family, you need to make sure you’ve got your ducks in a row.

    But, who should you hire? According to Niggel, your team should include a “fee-only financial advisor to handle investments and planning” for starters.

    Notice he suggests a fee-only advisor. Where some financial advisors earn huge commissions from selling certain investment products, fee-only advisors are paid a flat fee for their advice and are obligated to act in your best interest, not their own. Since you have millions of dollars at stake here, the last thing you need is a financial advisor who earns a percentage of what they sell.

    Other professionals you need include a CPA to handle your taxes, and a lawyer to set up family trusts and help you avoid scams, notes Niggel. Make sure you’re hiring individuals who have clear-cut fee schedules that show exactly how much you’ll pay.

    Step 3: Get ready to pay up.

    While winning the lottery can mean pocketing millions in cash, it also means paying out… you guessed it, millions in cash. Not only will you lose more than half of your winnings if you take the cash up front — the advertised jackpot is usually based on the long-term payout schedule — but you’ll need to pay taxes, too.

    Let’s say you win a cool $60 million playing Powerball. If you take the full $60 million over 30 years, you’d 30 average annual payments of around $2,000,000. Out of that money, however, you’d have to pay federal and state income taxes. With most of that money falling in the top tax bracket of 39.6%, you’d owe almost $800,000 in federal taxes alone every year.

    If you chose to take a lump sum up front, on the other hand, your $60 million jackpot would immediately fizzle to $35.9 million. That year, you would owe more than $15 million in federal taxes alone.

    State taxes obviously vary based on where you live, so you’ll need to figure out that part quickly. While winning the lottery can be a load of fun, it can also be a case of “mo’ money, mo’ problems.” The more you make each year, the more money you’ll need to pay out.

    Step 4: Have some fun, but also save up for a rainy day.

    When you win millions of dollars, it can be tempting to splash some cash around right away. If you want a new Cadillac Escalade, for example, you can just go buy one. Want a mansion? You can afford that, too. Want to take your kids to Disney World? Load the kids in the van and you’re off.

    While all of this is great, you’ll want to be smart with your money, too. And this is where your team of professionals will come in handy. They may tell you some of what you want to hear, but it’s their job to help you stay rich, remember?

    While the advice you get from your financial advisor may vary, Seattle-based financial advisor Josh Brein says the best thing you can do is diversify your investments.

    In other words, don’t bet the farm on anything – no matter what anyone says.

    “The best way to protect yourself against losing that money as fast as you made it is to not put it all in the same spot,” says Brein. “You may be tempted to go heavy on real estate or buy a ton of company stock from just one company because you think it’s a smart investment. However, you should resist the urge to risk too much of that money at one time and in one place.”

    As Niggel notes, you should also try to avoid rushing into any big financial decisions. While spending and investing can be exciting – especially at first – you don’t want your enthusiasm to cloud your judgment.

    “Take some time to let the winning sink in before you quit your job or go out and make some large purchases, such as the gated mansion or luxury vehicles.” Says Niggel. “Be patient and cautious and listen to your gut about decisions that need to made.”

    Step 5: Watch out for pitfalls and predators.

    While winning the lottery may seem like a dream come true from a distance, the reality of winning doesn’t always pan out the way you think. A quick google search of “curse of the lottery” will turn up countless stories of lottery winners whose lives fell apart, for example. Try as they might, many people just cannot handle having a large sum of money at their disposal.

    Take Jack Whittaker of West Virginia, for example. It was 2002 when Whittaker won the $315 million Powerball jackpot on Christmas day. As ABC news notes, Whittaker’s initial lottery plans were golden; he planned to build churches in the area and give back to his community, all while creating the perfect life for his family.

    Within a few years though, the money had reshaped his life in ways he never wanted. Constantly inundated with requests for cash, Whittaker was afraid and alone. His granddaughter, who had once been the light of his life, was found dead behind a dumpster – the victim of both drugs and crime. Years later, Whittaker wishes he would have ripped up the lottery ticket the day he won.

    “More than 70% of people who win the lottery end up being broke within a few years,” says wealth advisor Kirk Chisholm of Innovative Advisory Group, adding that professional athletes who suddenly earn millions have a similar failure rate.

    “The problem is human psychology,” says Chisholm. “Most people are not disciplined with their money. They spend what they have and save the rest. Ideally, they should save first and spend the rest. Saving should always come first, otherwise you will rarely have enough to save at the end of the year.”

    This is yet another reason you should keep quiet about your winnings and hire a team of professionals first. With professional help on your side, you can set yourself up for life while setting limits on the “fun money” you can spend.

    Stock investment FAQs

    Investing in stocks can be a sound financial decision depending on your needs and circumstances. If you’re looking to grow your savings over the long term (10+ years,) investing in stocks is a good option. If you think you’ll need the money sooner, investing in stocks may not be your best option.

    The typical advice when it comes to stocks is to buy low and sell high. In practice, however, it can be difficult to predict exactly what the market will do. If you’re investing for the long term, it makes sense to continue to add to your investments regardless of what the market is like at any given time.

    You don’t need a lot of money to invest in stocks. Depending on what you’re investing in and how much shares cost, you can dabble in investing with beer money or pocket change. Apps like Acorn and Robinhood make it even easier for you to invest a little extra spare cash in the stock market. You can also invest larger amounts, of course – although we don’t recommend investing the entirety of your savings in stocks.

    In addition to investing in the stock market, it’s often good financial sense to pursue a diverse array of other investments. These can include stashing money in high yield savings accounts, bonds and certificates of deposit. Investing your money in things besides the stock market can help to reduce your risk and protect your investment.

    What would you do if you won the lottery? Would you add any tips to this list?

    We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

    Holly Johnson

    Contributing Writer

    Holly Johnson is a frugality expert and award-winning writer who is obsessed with personal finance and getting the most out of life. A lifelong resident of Indiana, she enjoys gardening, reading, and traveling the world with her husband and two children. In addition to The Simple Dollar, Holly writes for well-known publications such as U.S. News & World Report Travel, PolicyGenius, Travel Pulse, and Frugal Travel Guy. Holly also owns Club Thrifty.