Playing the Lotto: Risks vs. Rewards

Playing the Lotto: Risks vs. Rewards

July 24, 2023

Playing the Lotto: What to do When You WIN Big

The odds of winning the lottery are slim to none, but that doesn’t deter millions of Americans from spending, on average, about $70 billion a year on lottery tickets approximately $230 per capita, including children.1 In 2022, players across the United States surpassed that average, spending more than $107.8 billion on lotteries, according to the North American Association of State and Provincial Lotteries (NASPL). Florida led the country with $9.3 billion in sales, followed by California with sales of $8.9 billion.2

States benefit from lotteries, but do you?
Occasionally, someone wins big-time, but most people win nothing. The biggest lottery winners may be state governments.3
SmartAsset reported in late 2022 that 11 states received higher revenues from lottery tickets than they did from corporate taxes. Negative returns on our own lottery “investments” aren’t much of an incentive, but hearing stories about huge prizes and the occasional random winner nudges many of us to buy tickets and test our own luck—usually with little or no results. An example is the widely broadcast story in early 2023 about a formerly homeless woman who won $5 million with a scratch off ticket purchased at a California Walmart.

Cautionary steps – and what to do if you win

You may not win, but you can dream. The first step you should take after you buy your ticket is to sign the back. This will help prevent someone else from claiming to be the winner if you lose your ticket (and they find it) or it’s stolen—and then declared a winner. If you’re lucky and win a lottery jackpot, take these precautions:

  • Consider making a tax-deductible gift.
  • Choose anonymity if your state allows it. If your name makes it into the news, you’re likely to be slammed with financial requests from charities, relatives, friends, potential scammers and more.
  • Carefully handpick an attorney, certified public accountant, and investment advisor to work with you (and each other) to help you make legal and financial decisions that support your goals and work in your best interest.
  • Before you cash in your ticket, consult with your accountant or tax professional to help you decide whether to take the prize money all at once, or stretch it out over 20-30 years in annuity payments. If you choose the lump-sum payment, the amount you receive will be lower than the aggregate of the annuity payments.
  • Talk to your attorney to determine if you should consider placing your winnings in a trust or other estate-planning option.
  • Pay off your debts, so you’ll be earning interest, instead of paying it.
  • Invest prudently.
  • Create a budget—and stick to it.
  • Take steps to protect your assets from creditors, ex-spouses, disgruntled family members, and others who might be looking for excuses to sue you now that you’ve won the lottery.
  • Avoid temptations, such as sudden lifestyle changes and purchases. Don’t suddenly quit your job or buy a mansion, for example. There have been a lot of “riches to rags” stories about lottery winners who went bankrupt.4
  • Consider charitable giving options to offset your winnings.
  • Review your estate plan, and talk with your lawyer and financial advisor about any changes you may want to consider.
  • Be cautious.
  • Even if news organizations don’t reveal the names of lottery winners, their identities are often leaked by friends, family members, and neighbors who share their happy story.

Be aware that your winnings could make you a target of scammers or others who want a share of your winnings. Be safe, be smart, and be prepared.