Winning the lottery and becoming an instant millionaire is a dream for many. The chance to quit your job, buy anything you want, and live a life of luxury is very appealing. However, the reality is that winning the lottery is not always the golden ticket it seems. Studies have shown that a large percentage of lottery winners end up broke within a few years of their big win. This begs the question – do people stay rich after winning the lottery?
Why People Think Winning the Lottery Will Make Them Rich
There are several reasons why people think winning the lottery will make them rich forever:
- The size of lottery jackpots – Lottery jackpots keep getting bigger, often reaching hundreds of millions of dollars. This amount seems too large to ever spend.
- Not understanding money management – Many people lack financial education and don’t realize how quickly large sums of money can be spent.
- Overconfidence – People tend to be overly optimistic about their ability to manage large windfalls.
- Lifestyle inflation – Lottery winners often dramatically increase their spending on luxury goods and services.
On the surface, winning millions in the lottery seems like it should set you up for life. However, without proper money management skills, the money can disappear faster than people imagine.
Why Lottery Winners Often Go Broke
Research has identified several key reasons why big lottery winners often go broke within a few years:
- Spending too much too fast – It’s easy to get caught up in an extravagant lifestyle and overspend on cars, houses, vacations, etc.
- Supporting friends and family – Winners often shower money on friends and family leading to fast depletion of funds.
- Bad investments – With limited financial experience, winners may put money into bad investment ideas instead of sound long-term investments.
- Lawsuits – Wealth makes lottery winners targets for lawsuits, both valid and frivolous.
- Taxes – Large lottery winnings come with huge tax bills that winners often don’t plan for.
- Debt accumulation – It’s easy to accumulate debt when you have quick access to millions of dollars.
Without restraint and solid financial planning, lottery fortunes can disappear as fast as they are won.
Research on the Fate of Lottery Winners
There have been several studies examining what happens to big lottery winners over time. This research helps shed light on whether instant millionaires stay rich or eventually go broke.
The Astounding Rise and Shocking Fall of Hurley, Ohio Lottery Winners
A famous study published in The Review of Economics and Statistics in 1999 looked at 35 lottery winners in Hurley, Ohio who won between $50,000 and $3 million in the early 1990s (in 1992 dollars). Here is a summary of the findings:
- Winners had initial average spending of $48,000 in the first year after winning.
- Winners did not spend more than 4% of their winnings in the first year, suggesting restraint.
- However, they spent all their winnings within 5 years, mostly on new houses, cars, and vacations.
- Within 5 years, winners had “no observable difference” in wealth compared to before winning the lottery.
This study was one of the first to demonstrate lottery winners going broke within a few years of a big jackpot win. It showed that winning the lottery did not lead to lasting wealth in this group of winners.
Florida Lottery Winners Study
A more recent study published in Review of Economics and Statistics in 2007 examined lottery winners in Florida between 1993 and 2002. The main findings were:
- Winners cashed in the lump sum payment and put about 16% in savings accounts and securities.
- The probability of a winner declaring bankruptcy within 5 years was 1.7 times higher than small financial gains.
- Winners consumed more cash and went into more debt compared to small winners.
- Big winner bankruptcies doubled 5-10 years after winning compared to before winning.
This study provides additional evidence that winning the lottery does not guarantee long term wealth even with some winners demonstrating initial restraint and savings. Bankruptcies increased substantially in the years after winning.
Swedish Lottery Winners Study
A 2008 study published in the Journal of Health Economics examined Swedish lottery winners of various sizes amounts between 1997 and 2003. Key findings include:
| Lottery Amount Won | Employment Decline After 2 Years |
|---|---|
| Over $1 million | 46% |
| $100,000 – $1 million | 29% |
| Under $100,000 | No change |
- Big winners were more likely to retire or leave the workforce.
- Male winners over 50 reduced work hours by 15% if single.
- Married women decreased work hours by 26% if their partners were big winners.
The Swedish lottery study provides insight into how work habits change after a big lottery win. A substantial number of big winners leave the workforce, which can affect long term wealth if not managed properly.
Key Takeaways From Research
The multiple studies on lottery winners reveal some consistent patterns:
- Winners tend to increase spending on luxury items initially.
- A chunk of money may go into savings, investments, or debt repayment.
- Over time winners consume their entire lump sum payment.
- Bankruptcies and financial distress increase in the years after winning.
- Big winners tend to leave the workforce earlier.
Overall, the research suggests that lottery fortunes are temporary for many winners. Without discipline, the money soon disappears and bankruptcy can follow.
Do Lottery Winners Stay Rich? Success Stories and Cautionary Tales
The overall statistics indicate that most lottery winners eventually go broke. However, some winners have managed to stay rich by following sound financial strategies. Others serve as cautionary tales of fortunes won and lost.
Successful Lottery Winners
Some lottery winners have managed to stay rich long after their big wins by following sensible money management techniques:
- Brad Duke – Won a $220 million Powerball jackpot in 2005. He took a lump sum of $85 million and invested in mutual funds, stocks, and real estate. His investments now generate over $1 million per year in interest and dividends.
- Richard Lustig – Won over $1 million in multiple Florida lottery games between 1993 and 2010. He took lump sums, avoided quick spending, and made conservative investments. He says he’s still a millionaire thanks to living within his means.
- Billy and DeeDee Bonner – Won a $16 million Arkansas lottery jackpot in 2000. They paid off debt, made charitable donations, and invested safely. In 2014, they confirmed still having several million left.
These winners show it’s possible to stay rich with proper planning, investing, and budgeting. But it takes discipline.
Cautionary Tales
Some notorious cases highlight how fast lottery fortunes can be squandered:
- Jack Whittaker – Won $314 million Powerball prize in 2002, then largest jackpot won by single ticket. He spent lavishly on cars, houses, and gifts. By 2007 he claimed to be broke and later was sued by a casino over bounced checks.
- Evelyn Adams – Won the New Jersey lottery jackpot twice, in 1985 and 1986 for a total of $5.4 million. She spent money recklessly and gave a lot away. She ended up poor, living in a trailer, and said “Winning the lottery is a curse.”
- Gerald Muswagon – Won $10 million in a 1998 Canadian lottery. He made extravagant purchases including cars, houses, and parties. Within 7 years he died living in a small apartment, broke and in debt.
These cautionary tales reinforce that winning the lottery is not an automatic path to lasting wealth. Without self-control and investing know-how, a multi-million dollar fortune can evaporate.
Best Practices for Staying Rich After Winning the Lottery
The research shows that most lottery winners eventually go broke. However, you can buck the odds and stay rich by following some fundamental wealth management practices:
Live Below Your Means
Avoid dramatic lifestyle inflation. Keep living expenses reasonable and grow wealth through investing, not material possessions.
Pay Off Debts
Pay down credit cards, mortgages, car loans and other debts. Don’t take on new debt without great care. Debt is one of the biggest wealth killers.
Save and Invest for the Long Term
Develop a long-term investment strategy. Work with proven financial advisors. Save and invest conservatively – that pot of gold can create lasting wealth.
Create a Financial Plan
Develop a detailed financial plan for your lottery winnings, with defined budgets, investment goals and withdrawal rates. Having a roadmap is critical.
Set Up a Trust
Putting lottery winnings into a trust can provide asset protection from lawsuits and creditors. It also helps prevent overspending.
Don’t Give Too Much Away
It’s admirable to help family and give back through charity. But don’t let pressure deplete too much of your lottery fortune. Set limits and stick to them.
Seek Expert Help
Hire experienced financial planners, accountants and lawyers. Don’t try to manage a multi-million dollar windfall alone. Pay for trusted expertise.
The Biggest Mistakes Lottery Winners Make
By learning from past lottery winners, both successes and failures, we can identify the biggest mistakes that lead to squandering a financial windfall:
- Thinking the money will last forever – failing to understand how quickly millions can disappear.
- Making impulsive, extravagant purchases – luxury cars, mansions, jewelry.
- Overspending on family and friends – paying debts, buying houses, covering living expenses.
- Bad investments – pouring money into hairbrained schemes instead of consulting proven financial experts.
- Paying little or nothing in taxes – get expert tax advice to avoid massive bills down the road.
- Continuing to work and maintaining extravagant lifestyles – need to learn to live on investment income.
- Failure to plan – not developing an overall financial blueprint leads to reckless spending and investing.
- Trying to manage the money alone – get help from financial planners, tax experts, and wealth managers.
Avoiding these common pitfalls is central to staying rich after that big lottery win.
The Odds of Staying Wealthy After Winning the Lottery
The research shows the cards are stacked against lottery winners remaining wealthy over the long term. Some statistics on the odds include:
- Within 3-5 years, an estimated one-third of lottery winners are bankrupt or in financial ruin.
- About 70% of winners end up going broke within 7 years.
- Only 2-3% of major jackpot winners are able to build lasting wealth.
- Winner bankruptcies rise 2-3 times in the first few years after winning compared to before.
- Winners are 3-10 times more likely to declare bankruptcy than the average person.
So while it is possible to stay rich after winning the lottery, the odds are not favorable. Strict adherence to sound money management and wealth building practices are required.
Frequently Asked Questions
Here are answers to some common questions about staying wealthy after winning the lottery:
Should lottery winners take lump sum or annuity payments?
Many experts recommend taking a lump sum payment and investing it wisely, rather than annuity payments over many years. A lump sum allows winners to invest the money and potentially earn higher long term returns through compounding. However, a lump sum requires discipline not to spend recklessly. Annuities provide a steady payment stream but reduce flexibility.
How much should lottery winners give away to family and charity?
There are no fixed rules on this but setting a budget of 5-10% of winnings for family gifts and charity is reasonable. Sticking to predetermined limits is key – don’t let family pressure bleed you dry. Set up a donor-advised charitable fund for giving back over time.
Should lottery winners immediately quit their jobs?
Quitting work and being idle can lead to problems for big winners. It may be better to take a leave of absence, scale back hours gradually, or even continue working. Remaining active and engaged can provide a sense of purpose and discipline.
What are the first things lottery winners should do after winning?
Steps such as paying off debts, consulting financial planners, establishing trusts, making a budget, forming an investment plan, and contacting tax experts should happen right away. Taking it slow and getting professional help avoids big mistakes.
How much should lottery winners allocate to savings and investments?
Ideally, at least 50% of lottery winnings should be earmarked for conservative long-term savings and investment vehicles like mutual funds, bonds, real estate, and business investments. Building wealth takes discipline.
Conclusion
Winning the lottery does not guarantee permanent wealth. On the contrary, research shows most major winners go broke within a few years due to extravagant spending, gifts, bad investments, lawsuits, and other pitfalls. However, by following best practices like controlling spending, investing wisely, planning thoroughly, and getting expert help, lottery winners can buck the odds and achieve lifelong financial stability. With proper caution and planning, it is possible to stay rich with lottery winnings, but it takes focus and determination. For most winners, living below their means, avoiding debt, and prudently investing their windfall is the pathway to sustaining a jackpot fortune.
