Lottery winnings investment income calculator
See how much annual income your after-tax prize can generate and how long it lasts at different spending rates. Enter your after-tax investable amount to start — use the lottery tax calculator to estimate it first.
Tax rate default: 23.8% = 20% long-term capital gains + 3.8% NIIT for high earners.1 Use a lower rate if a large portion of returns will be tax-exempt or Roth.
How to read the results
Sustainable vs. depleting
If annual spending is less than the portfolio's after-tax annual returns, the principal is never touched and the money outlives you. If spending exceeds returns, the portfolio is drawn down and will eventually run out — the calculator shows when.
The 4% withdrawal guideline
Research suggests that withdrawing roughly 4% of a diversified portfolio annually has historically sustained a 30-year spending horizon.2 Below 4% is generally more conservative; above 5% adds meaningful longevity risk with large portfolios.
Return and tax assumptions
A broadly diversified portfolio of stocks and bonds has historically returned 5–7% gross. At the 37% federal bracket, most lottery winners will owe 20% LTCG + 3.8% NIIT on qualified investment gains. Interest income is taxed as ordinary income.
What the calculator doesn't include
Inflation, sequence-of-returns risk, spending changes over time, Roth conversions, or Social Security. A fee-only advisor can model all of these for your actual portfolio mix and tax situation.
Why lottery winners often under-plan income
The challenge with a large one-time payout is that $3 million sounds like a lot until annual spending exceeds the portfolio's after-tax earnings — at which point the money begins to shrink every year. A $3 million portfolio at a 5.5% gross return with a 23.8% investment tax rate produces roughly $125,000 in after-tax annual income. Spending $200,000 per year draws down the principal by $75,000 annually, independent of market movement.
The most common mistake is treating the lump sum as a savings account. A $5 million after-tax portfolio earning 5.5% gross generates approximately $210,000 in after-tax income per year at a 23.8% investment tax rate — enough to support a comfortable lifestyle, but not unlimited spending. At $400,000 in annual expenses, the same portfolio depletes in about 18 years.
What a fee-only advisor adds to this analysis
The calculator uses simplified math: a fixed return, flat tax rate, and constant spending. In practice, returns vary year to year, tax rates change based on what types of gains are recognized, and spending tends to grow with inflation. A fee-only investment advisor can model Monte Carlo scenarios, adjust withdrawal rates dynamically, integrate Roth conversion planning, and help you set a spending policy that is defensible through bad market years — not just average ones.
Common scenarios
| After-tax prize | Annual spending | Gross return | After-tax return | Longevity |
|---|---|---|---|---|
| $1,000,000 | $40,000 | 5.5% | 4.19% | Self-sustaining |
| $1,000,000 | $80,000 | 5.5% | 4.19% | ~18 years |
| $3,000,000 | $120,000 | 5.5% | 4.19% | Self-sustaining |
| $3,000,000 | $250,000 | 5.5% | 4.19% | ~19 years |
| $10,000,000 | $400,000 | 5.5% | 4.19% | Self-sustaining |
| $10,000,000 | $750,000 | 5.5% | 4.19% | ~27 years |
Assumes 23.8% tax on investment income (20% LTCG + 3.8% NIIT). "Self-sustaining" means annual spending is below estimated after-tax returns; principal is not touched. Scenarios are illustrative and not personalized advice.
Model your actual portfolio with a fee-only advisor
The calculator gives you the math. A fee-only advisor can give you a plan: asset allocation, tax-efficient withdrawal sequencing, Roth conversion opportunities, estate planning integration, and a spending policy that holds up through volatile markets.
Sources
- IRS Topic 559, Net Investment Income Tax. Rate is 3.8% on net investment income above $200,000 (single) / $250,000 (MFJ). Combined with the 20% top LTCG rate, the effective rate on qualified gains for high earners is 23.8%.
- Bengen, W. (1994). "Determining withdrawal rates using historical data." Journal of Financial Planning. Established the widely cited 4% guideline for 30-year portfolio longevity. Updated research suggests 3.3–4.5% depending on allocation and time horizon.
- IRS Publication 550, Investment Income and Expenses. Covers the tax treatment of dividends, capital gains, and interest from invested lottery proceeds.
- IRS Topic 409, Capital Gains and Losses. Long-term capital gains rates for 2026: 0%, 15%, or 20% depending on taxable income bracket.
Tax values verified for 2026. NIIT rate (3.8%) and top LTCG rate (20%) are unchanged from prior year. The OBBBA (July 2025) did not modify NIIT or capital gains rates.