Monday, May 4, 2009

Advice for Lottery Winners

The book Luck of the Draw: True-Life Tales of Lottery Winners & Losers by Chris Gudgeon and Barbara Stewart is a fun read, but it contains some very bad financial advice.

This book is packed with funny and strange stories about lottery winners, but it may not be very good for the financial health of people inclined to buy lottery tickets. One unavoidable problem with a book like this is that reading about a new lottery winner on each page creates the impression that winning the lottery is common. It is exceedingly rare. You won’t win the lottery.

Many of the stories discussed whether or not the winners would quit their jobs, even with modest-sized wins like a few hundred thousand dollars. This is not enough to retire on. Perhaps $2 million would be enough if the winner invests wisely and lives a middle class lifestyle without excessive spending. But how likely is that? Winners tend to splurge with plenty of help from family and friends.

Page 60 contains advice supposedly from an actual financial planner. Here are some spectacularly bad tips for a lottery winner:

1. Move somewhere like the Bahamas where taxes are lower. So, now that you have a lot of money, you should leave family and friends to save money? I’d rather stick with doing things that make me happy. If you’ve always wanted to move, go for it, but moving just for tax reasons is crazy.

2. Divide your win among family and friends so that investment returns will be taxed in lower tax brackets. So, if you win money, you should give it all away so that you won’t be rich and won’t have to pay so much tax. I can see where your family and friends might like this one.

3. Go crazy and spend all the money fast to avoid paying tax on investment returns. Great idea. You should lick metal poles in the winter, too.

I have my own idea. Take the money you were planning to spend on lottery tickets and put it in a savings account. Each year put the money into a low cost index fund. After 25 years, look at the account balance in the fund. You’ll find that it looks like a modest-sized lottery win.


  1. Wow. It amazes me how people don't see the irony in discarding money just to avoid paying taxes on it.

  2. Hey Patrick,

    I guess it really is ironic, isn't it?


    I especially thought point #3 was absurd. Blow your winnings so you don't have to pay taxes? That one caught me by surprise. What's the point of winning the lottery if you're going to blow it on a bunch of depreciating junk? According to this advice, we wouldn't buy anything that actually appreciates, or else the tax man would take some of the profit.

  3. I have to say that I find the background to lottery winnings - what people did, what advice they got - fascinating. Is the planner someone who actually advises lottery winners or just some guy from the yellow pages?

    The father of a friend of mine keeps his chosen six numbers taped below the TV and checks them every time he sees the lottery results on the news to prove he'd never win. :)

  4. Patrick and Gene:

    I prefer paying less tax, but one good thing about taxes is that they are usually correlated with making more income. I wouldn't mind paying x dollars more in tax if I actually receive 2x dollars in additional income.


    The book wasn't specific about who the financial planner was. I can't tell if the planner gave stupid answers or was asked stupid questions. But, the author chose to print them.

    If I understand you correctly, your friend's father has lottery numbers that he checks, but he doesn't actually buy tickets. I like it.

  5. guinness416 and Michael James,

    Along the same lines, I had a friend who would check the numbers and say "I won a dollar." If informed that you can't win a dollar, he would explain that by not playing, he had won a dollar.

    My parents occasionally buy a few tickets when the pot is especially high. Any time I've bought tickets (maybe $10 in my whole life), I find it a cheap way to dream about huge wealth. That dream fades away when I check the numbers to find that in 5 tickets, I haven't hit a single number.

  6. the lottery commisions must have published this . When you find money shred it that way you don't have to pay taxes or worry about investing it.