What to do – and not do – if you win the lottery

You’d have to be living under a rock not to know Powerball is offering a $200 million jackpot tonight.

The lines inside my local newsagent have been impressive and the news coverage fulsome. No doubt many households across the country have already thought longingly about how they would spend the money. Holidays? A pool? Telling the boss to shove it … that’s probably top of the list for most.

But if you are one of the winners tonight, your life is about to change, and maybe not for the better.

It doesn’t take too much searching online to find stories of lottery winners who lost the lot, sometimes within years. And their stories have much in common. Mostly they give away a lot of money to friends and family, don’t invest, and spend money on expensive homes, cars and holidays for themselves. Oh, and relatives sue them. 

Winner, winner, lottery chicken dinner

So, what should you do if your numbers come up tonight?

According to the experts, for a short while your next step is to do absolutely nothing.

Don’t quit your job, don’t tell your friends and family, don’t book expensive holidays or buy stupidly expensive cars.

Experts recommend avoiding sudden lifestyle changes for six to 12 months after your win.

Financial planner Brenton Tong told The Age he recommends sticking most of the money in a term deposit for 12 months so you can’t touch it.

“Often my advice is park it – pay off the mortgage and don’t tell anyone,” he said.

Mr Tong says if you keep the news to yourself for a while, friends and family don’t have to know which lottery you have won. 

It could be tonight’s $200 million lottery, or it could be $100,000 from pub Keno.  

Keep expectations low

“If people think you’ve won $5 million, they’ll have a certain expectation. If they think it’s the $200 million, that’s a different set of expectations,” he says.

And it’s not just about keeping friends’ and family’s expectations low. People will quite probably come out of the woodwork to ask for money, or even sue for part of the earnings. 

Your next best step is to pay any outstanding debts such as a car loan. If you are renting, buy a house.

Now it’s time to get some good advice. At the very least you should have an accountant, lawyer and financial planner on your team. Map out your expectations with each of them.

Do you want to bolster your estate? Give money to family? Retire? Give money to charities? Move to another country? 

Ask all the questions and get the advice tailored to your needs. Don’t be afraid to consult another expert. If you want to start investing in real estate, a financial planner who specialises in tax minimalisation for retirement may not be the answer.

Super strategy

Talking about tax, you should explore boosting your super.

“Your superannuation fund will pay a maximum rate of tax of 15 per cent on the earnings,” James Wrigley from First Financial told Yahoo Finance.

“The money that you receive from winning the Powerball is tax free, but any earnings you make on that is taxable income. Superannuation is going to be your lowest tax environment.

“Most people will make it to 60 to benefit from tax-free super,” Mr Wrigley said, adding that “if you’re generous”, you can also help do this for your children, or other lucky loved ones.

So, after you have secured your housing, improved your tax position, given money to friends and family and some charities and maybe enjoyed an indulgence or two your next step is securing your future income.

Charity case

If you are giving to charities, make sure they offer a tax deduction, and consider giving in perpetuity. That way the annual amount you donate will be offset against any tax you pay.

It may be time to consider a family trust. There are tax implications that will protect your loved ones and hopefully provide income for generations. 

Finally, set a budget. It may seem silly now that you are swimming in money, but sticking to a budget, even if it is far beyond your usual budget, will ensure you enjoy your money for years to come, instead of becoming the next tragic news story.

By the way, if you have bought a ticket, the experts have calculated your chances of winning and it’s more than 134 million to one. Good luck.

Have you or anyone you know won the lottery? Did their lives change? Why not let us know in the comments section below?

Also read: What happens to your Age Pension if you win the lotto?

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Jan Fisher
Jan Fisherhttp://www.yourlifechoices.com.au/author/JanFisher
Accomplished journalist, feature writer and sub-editor with impressive knowledge of the retirement landscape, including retirement income, issues that affect Australians planning and living in retirement, and answering YLC members' Age Pension and Centrelink questions. She has also developed a passion for travel and lifestyle writing and is fast becoming a supermarket savings 'guru'.
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