Picture this: You scratch off a lottery ticket, the numbers match, and boom – you’re holding a check for $20 million. Your heart races. Your dreams flash before your eyes. Early retirement, beachfront property, matching jet skis, and… oh yeah, paying off Granny’s medical bills. You’ve made it!
But here’s the twist: Within five years, a whopping 70% of lottery winners go broke.
That’s right. The financial dream quickly turns into a nightmare for many – a phenomenon known as Lottery Winner Syndrome.
What is Lottery Winner Syndrome?
Lottery Winner Syndrome refers to the all-too-common phenomenon where individuals who come into sudden wealth (especially through the lottery) end up squandering it within a few short years. It’s a mix of psychological overwhelm, financial inexperience, poor investment decisions, and unchecked spending habits. It defies logic that coming into unimaginable sums of wealth would lead people to financial ruin but it happens often enough that we’ve had to figure out a name for it! As any personal finance expert will tell you, the problem isn’t the money – it’s the lack of financial planning that comes with it.
Does it Lottery Winner Syndrome Only Affect Lottery Winners?
NO. While this phenomenon was first named after a pattern that was observed amongst lottery winners finding themselves financially destitute just a few short years later, Lottery Winner Syndrome has since been observed to be an occurrence that seems to psychologically affect people who come into large sums of money regardless of the source. Whether it’s lottery winnings, family inheritance, buried treasure, or a lucky day for your crypto wallet, any financial windfall has the potential to trigger Lottery Winner Syndrome in a person. Even a large raise or bonus can have a negative psychological impact on some individuals that causes them to make irrational financial decisions. That is why it is important to be prepared ahead of time, even if you don’t play the numbers.
Why Do Lottery Winners Lose It All?
Winning the lottery should be a ticket to lifelong financial security. So why do so many winners end up broke (or worse)? The short answer: money doesn’t come with instructions.
Here are a few of the main culprits:
1. Lack of Financial Literacy
Most lottery winners haven’t had formal education in personal finance. Terms like “diversified investments,” “tax liability,” and “compound interest” might as well be written in Latin. Take into consideration that the majority of people who purchase lottery tickets already primarily hail from low-income households and you can see why lottery winners are where we first noticed the syndrome.
2. Lifestyle Inflation
Suddenly rich people often feel the need to upgrade everything – homes, cars, vacations, friends. It becomes expensive to keep up with their new selves. Some people feel like they can’t merely be rich, they must act the part as well as if their bank balance isn’t real if it isn’t reflected in their lifestyle. Oftentimes people even end up buying things they don’t want because they feel as if they are things they should have at their new level of wealth. Remember folks, no one needs a private jet or superyacht.
“You can afford anything – but not everything.”
– A personal finance rule that lottery winners frequently forget.
3. Poor Investments
From “can’t-miss” startups to shady business deals, many winners get sucked into bad investments. Without proper vetting, their money disappears faster than you can say “Ponzi scheme”. Especially when lottery winnings have been made public or the individual themselves have made their newfound wealth known, the newly rich will find themselves swarmed with individuals hoping to piggyback off their recent success. Thorough and vigorous vetting of any and all new investments is a must!
4. Giving Away Too Much, Too Fast
It’s natural to want to help friends and family. But many winners report being overwhelmed by requests – from close relatives to distant acquaintances suddenly in need of a kidney… and $50,000. Many people will also feel entitled to assistance and it can be hard to say no – especially if someone doesn’t feel like they earned or deserved the good fortune they received. One lottery winner, Marie Holmes, was even sued by her church to the tune of $10 million dollars after her pastor alleged she reneged on a verbal promise of donating $1.5 million to the church and instead donating just shy of $700,000 instead. Be careful who you give your money to!
5. Taxes, Baby!
A $10 million jackpot doesn’t mean $10 million in your bank account. Federal and state taxes can eat up to 40% or more. If you spend like you got the full prize, you’ll burn out fast.
Real-Life Lottery Winners: The Good, the Bad, and the Broke
❌ The Tragedy: William “Bud” Post
In 1988, Bud Post won $16.2 million in the Pennsylvania Lottery. Within a year, he was $1 million in debt. He bought mansions, planes, and a car lot. He was sued by a former girlfriend, his brother hired a hitman to try and inherit the fortune, and Bud declared bankruptcy.
He once said, “I wish it never happened. It was totally a nightmare.”
❌ The Downfall: Evelyn Adams
Adams won the lottery twice – once in 1985 and again in 1986 – totaling $5.4 million. But after years of gambling and poor financial decisions, she lost it all.
She ended up living in a trailer park. No judgment, merely a cautionary tale of how no amount of luck can overcome poor financial decisions.
✅ The Success: Brad Duke
Brad won $220 million in 2005. Instead of quitting his job and going on a spending spree, he assembled a team of financial advisors, created a diversified investment strategy, and gave modestly to charity.
His goal? Turn his winnings into $1 billion in long-term investments. For over a year after winning the lottery he continued teaching a spin class at Gold’s Gym, his place of employment prior to winning. Instead of spending like there was no tomorrow he made smart decisions, lived frugally, and, as of 2022, he was still on track for his goals and doing financially very well almost two decades later.
What To Do If You Come Into a Lot of Money
Whether it’s the lottery, inheritance, or a surprise stock boom, here’s how to keep sudden wealth from slipping through your fingers.
Step 1: Don’t Do Anything (Right Away)
Seriously. Put the check down. Take a deep breath. Your first move should be… no moves at all.
As Warren Buffett likes to say: “The most important quality for an investor is temperament, not intellect.”
Let your emotions cool down before making major decisions.
Step 2: Hire a Financial Dream Team
You’ll want:
- A CPA or tax attorney to help you understand your tax obligations.
- A fiduciary financial advisor to help you invest wisely.
- An estate planner to structure your assets for long-term protection.
If they’re not talking to you about diversification, taxes, and savings – run. Make sure to bring in people you trust and don’t let anyone sell you on risky investments or get-rich-quick schemes; remember, you’re already rich.
Step 3: Decide Between Lump Sum and Annuity
Most lotteries give you a choice: lump sum or annual payments (annuity). The lump sum gives you immediate access to your money but often comes with higher tax implications.
An annuity pays you over time, which can be helpful if you need help with financial discipline.
Each option has pros and cons, so consult your dream team.
Step 4: Pay Off Debt (But Not Everything at Once)
Start with high-interest debt, like credit cards or personal loans. You don’t need to eliminate every mortgage or student loan overnight if it’s low-interest. Be strategic about where you start and go forward from there.
Step 5: Set a Budget and Stick to It
Yes, even millionaires need budgets. Don’t spend more just because you can. Create a long-term spending plan that includes:
- Essentials
- Savings
- Investments
- Discretionary spending
- Giving (if you choose)
How to Avoid Lottery Winner Syndrome: The Long-Term Game Plan
Let’s say you’ve taken a pause, hired a team, and put a plan together. Great! Now it’s time to protect and grow that wealth. Here’s your step-by-step guide:
✅ 1. Build an Emergency Fund
Even millionaires need rainy-day money. Aim for 6–12 months of expenses in a high-yield savings account.
✅ 2. Invest Wisely
Diversify across stocks, bonds, real estate, and perhaps index funds or ETFs. Avoid putting all your eggs in one “next big thing” basket.
And remember: if it sounds too good to be true—it probably is.
✅ 3. Use the 4% Rule
Want to live off your investments? The 4% rule suggests you can safely withdraw 4% of your portfolio each year without running out of money.
On a $5 million portfolio, that’s $200,000 per year. Not a bad little lump sum to live off of given the median salary in the US is just under $60,000 a year.
✅ 4. Give Strategically
If you want to help friends or family, set boundaries. Create a charitable giving plan or set up a trust to control how money is distributed.
Emotional generosity is great – financial recklessness is not.
✅ 5. Keep Working (If You Want To)
Many financially successful people continue to work – not because they have to, but because purpose matters. It can keep you grounded and help maintain structure in your life. But, this may be an opportunity to pursue the career you’ve truly wanted. No longer relegated to a crappy job necessary to pay the bills, you have the freedom to truly chase after your passions and make a difference in whatever way you see fit.
Money Doesn’t Fix Everything, But It Can Make Life Easier
Lottery Winner Syndrome is a cautionary tale, but it’s not inevitable. With the right mindset, team, and financial plan, sudden wealth can be a gift, not a curse.
Whether you hit the jackpot or stumble into a financial windfall through other means, the principles are the same:
- Stay calm
- Plan wisely
- Invest smart
- Spend with purpose
- Save like a pro
And maybe, just maybe, take one of those matching jet skis for a spin. Just don’t forget to insure it.