3 mistakes financial advisors say the $1.2 billion Powerball winner shouldn't make

The Powerball jackpot has once again surpassed the 10-figure mark—that’s the third billion-dollar lottery prize this year—promising potential winners riches beyond their wildest imagination. And while that kind of prize can help winners fulfill many dreams, there are a few grounding rules they should follow.

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The $1.2 billion Powerball jackpot comes just after one ticket holder in California won a $1.08 billion prize in July, and a single winner was drawn for the $1.6 billion Mega Millions pot in August.

For Wednesday’s drawing, the lump sum cash prize is worth $551,700,000 pre-tax, while the average lump sum payment is worth $40 million pre-tax per year for 30 years.

Billion-dollar prizes are becoming more common due to changes in Powerball and Mega Millions rules (and, as of late, the Federal Reserve raising interest rates). Before 2017, no jackpots reached $1 billion.

Such large sums of money present plenty of opportunity—for better and worse. Here are three of the biggest mistakes winners could make, according to financial planners.

1. Quitting your job

One mistake could be to immediately quit your job or make some other life-altering change without taking a few days or weeks to really process your newfound wealth.

Assuming your work is tolerable, it makes sense to keep on keeping on, at least at first, Emily Irwin, managing director of advice and planning at Wells Fargo’s Wealth & Investment Management, told Fortune.

“Don’t make any visible life changes. Don’t quit your job, don’t go out and buy a Ferrari,” says Irwin. “Maybe you have student loans you want to pay off, that makes sense. But try to avoid that mega purchase.”

This is true not just so you don’t rush into anything you might regret (see below), but also to protect yourself. Take time to get a tax attorney and trusted financial advisor in place first.

2. Buying a mansion

Speaking of big purchases: Buying a pricey home is one of the most common mistakes wealthier people can make.

Sure, you might be able to payoff the mortgage now—but you’ll have years of taxes, maintenance, and other costs to cover. If you spend down all of your money quickly, as some lottery winners do, then you won’t be able to afford your home’s upkeep.

Paul Karger, cofounder and managing partner of wealth advisory firm TwinFocus, which manages over $7 billion for ultrahigh-net-worth families, advises his clients to wait six months to a year before making any big purchases when they come into sudden wealth. Give your emotions time to even out.

“I’ve seen clients purchase large homes in faraway locations that they ultimately realize they will not use frequently and end up being a major ongoing financial burden that took several years to sell,” Karger told Fortune.

There’s nothing necessarily wrong with, say, buying the average home on the block. Karger is talking more specifically about mansions, as well as second or third vacation homes. For the latter, there isn’t as big a market as there is for primary residences, which can lead to trouble down the line.

You can broaden fancy homes out to other big, illiquid purchases and investments. Take your time and think through the future implications. Paying off a credit card bill is one thing; investing in a friend’s business now that you have the money is another.

3. Opting for the lump sum payout

Of course, it’s easier to pay for ongoing costs of homes and other necessities if you have an annual income. That’s one reason why some experts advise winners to take the annuity payout, as opposed to the cash lump sum.

Most lottery winners take the prize in cash—and, assuming human nature wasn’t a variable, that does make sense. There is the possibility for growing that money even more via investing.

Of course, humans don’t always do the “right” thing with their money. And receiving half a billion dollars in one fell swoop would be a massive undertaking even for companies with a team of professionals to manage it, let alone one person with, likely, limited money management experience. An annuity—in this case, worth an average payout of $40 million per year pre-tax—can be good protection against losing everything.

That said, there’s no bad option, whether you take the cash or an annuity. What really matters is what you do with it.

Here’s a rundown of billion-dollar lotto prizes.

1. $2.04 billion: Powerball

The largest in lottery prize history was a Powerball jackpot from November 2022, although lottery officials did not reveal the winner’s name until February of this year. It was sold to a single ticket holder in California. It is also the jackpot whose lump sum cash value is the closest to $1 billion, at $997.6 million.

2. $1.602 billion: Mega Millions

Just two months ago, a single ticket holder in Florida won the $1.602 billion Mega Millions prize, the largest in the game’s history. The lump sum was worth $794.2 million pre-tax.

3. $1.586 billion: Powerball

There were three winners for the second-largest jackpot in history, all of whom bought their own tickets from different vendors in California, Florida, and Tennessee. The numbers were drawn in January 2016.