Why winning $100 million on Powerball could leave you broke

• Thursday night’s $100 million Powerball jackpot will be the largest prize offered in Australia in the last 16 months.
• The winner will receive a life-changing amount of money, but financial advisors warn that immediate wealth comes with a large amount of risk.
• So what should you do if you win the jackpot? Tell no one and take a breath – otherwise you might lose it all.

Winning $100 million tax-free sounds like all of your dreams come true, but instantly becoming one of the country’s richest people carries its own risks, experts have warned.

When the $100 million Powerball jackpot is drawn on Thursday night, it will be the largest prize offered by an Australian lottery in more than 16 months.

If a single ticket wins the entire Division One prize, the winner will become Australia’s third-biggest lottery winner ever and beat up to half of the Australian adults expected to enter.

For many, such instant wealth instantly conjures up dreams of beach houses, supercars and exotic holidays.

But what would an expert do?

Financial advisor Simon Robinson from RSM Australia told The Money Edition that the first thing he would do is pause – because history tells us that a dramatic number of lottery winners soon find themselves broke.

“The key thing is not to pull the trigger too quickly,” Robinson said.

“Sit back, take a breath, and think: What do I want to achieve with this? Because $100 million is no small amount.

“That’s intergenerational wealth if you work with it properly. With that kind of money, you could set your kids, your grandkids, your great-grandkids up for the future.”

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Robinson said the emotions around winning an amount, and the environment someone grew up in, would play a large role in how the money would be spent.

“The number of people who win lotto and then end up broke is just phenomenal. In some US studies, that figure is as high as 70 per cent,” he said.

“If you haven’t grown up around money, all of a sudden that could become really overwhelming.

“People could go out and buy the boat. Buy all the nice cars. Buy that beachfront property in Sydney that might cost $20 or $30 million.

“And suddenly that $100 million is whittled away very, very quickly. And all of those purchases have ongoing costs.”

Robinson explained that the greatest financial danger might not just lie in the fuel bill for six Lamborghinis, but in the extended family and friends who suddenly all want their cut.

“If they’ve got a hundred million, it’s very easy to ask mum or dad for help to buy a property,” he says.

“But it’s not just mum or dad getting asked that. All of a sudden, it’s your second cousin asking. Family come out of the woodwork, friends come out of the woodwork.”

To protect your lotto jackpot, Robinson advises setting up a formal way of structuring your wealth to put safeguards in place.

“You might want a family trust in place. You might want a company to invest on your behalf to take tax advantages there, or pay off personal debt,” he said.

“You might want to put loans in place for the kids to protect them from themselves and from partners and that kind of thing.

“These steps initially are just so crucial to save yourself pain down the track, and it’s not going to protect you completely.

“Unfortunately, if a relationship breaks down, money does create issues for kids who expect half of that potentially in an inheritance.

“Well, maybe not.”

There’s tax implications too.

Here in Australia, lottery wins are tax-free. The Australian Tax Office (ATO) treats winnings as windfall gains rather than assessable income, and they do not need to be declared on your tax return.

But that money has to go somewhere.

And as Robinson explains, as soon as you start earning anything on the jackpot, suddenly the tax office will want its cut.

“Your earnings on the $100 million, even if you stick it in the bank, are going to be significant,” he said.

“And there’s no PAYG, so the ATO would go, ‘Here’s a tax bill, and now you’ve got to pay a quarterly PAYG.’

“So things like liquidity are going to become really important – which sounds completely ridiculous on $100 million.”

Ultimately, Robinson says the best thing you can do with your newfound wealth is to work out what your values are and stick with them.

“A lot of people would be thinking ‘oh my god, I don’t want to stuff this up’ and the key is to work out what is important for you,” he said.

“Setting up your kids might be the primary goal. Maybe it’s something philanthropic. Maybe it’s just earning 5 per cent per annum and living a really comfortable life off that.”

Once you’ve done that, it’s time for you to assemble a team to put it all together.

“Setting you up for success with this win would not just be for financial advisors,” Robinson said.

“You’ll need a good accountant to make sure you get the tax piece right. You’ll need a good lawyer to make sure that the money is protected in the best way possible.”

Your chances of taking home the jackpot

It’s nice to daydream about taking your jet ski to your waterfront villa, but the chances of you actually winning the entire $100 million are obscenely small.

According to The Lott, the operator that runs Powerball, to win the $100 million, you need to pick all seven winning numbers plus the winning Powerball number on a single game ticket.

The odds are 134,490,400:1. Yes, that is 135 million to one.

To put that in perspective, your odds of being struck by lightning in Australia at least once in your life, assuming you live to 80, are currently 12,000 to one.

The information provided on this website is general in nature only and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information on this website you should consider the appropriateness of the information having regard to your objectives, financial situation and needs.