Congratulations. You've just won pounds 1m on the National Lottery. You may think you'll never have to work again. Well, you're wrong

In the afterglow of a recent City lunch, the conversation turned to the National Lottery. Or, to be more precise, to the question of how big a win you needed to allow retirement from the rat race. Figures flew around the table like a demonic squash ball. After much cheerful and speculative discussion the debate was brought to an abrupt halt by three quiet words from our host: "Three million pounds."

The statement carried such authority that I had to ask: why such a precise figure?

"Because," said the host, "pounds 3m invested in index-linked gilts will bring in an income of pounds 100,000 a year, which will rise in line with inflation at no risk. I suggest that even the most profligate of families could survive somehow on a six figure income and never work again."

It beached the topic but set me thinking. The host was middle aged and successful and probably had higher expectations than most. Yet the reality is that any windfall is likely to push higher the financial requirements of the recipient. It has long been an axiom of mine that expenditure rises to meet the income generated. Tora's first law of financial management says that the more you earn, the more you spend. Sadly, the reverse seldom applies.

But there are other considerations to be taken into account when endeavouring to calculate whether your lottery win is sufficient to deliver a lifetime of idle luxury.

Remember, you cannot contribute to a pension from investment income, so if you decide to give up work, your nest egg may have to be your pension fund as well. This means that spending capital may not be too wise a decision. Of course, it all depends on how much capital you have.

Let us take pounds 1m as an example. It sounds a lot of money. For some - the prudent, the undemanding and probably the retired - it is enough to buy lifelong security. But for others?

Imagine a 30- or 40-something, married with two children. What are the first things that this lucky lottery winner is likely to do. An initial reaction is probably to book the holiday of a lifetime. And why not? You will probably never feel richer than when you first receive the winner's cheque.

Then there is paying down your debts, which is both natural and prudent. Circumstances will vary, but for many they will not be insignificant. Credit cards, bank loans and hire purchase may all feature, but it is most likely to be the mortgage that makes the biggest dent in your newly acquired cash pile.

And if you are someone who is renting, rather than a home owner, perhaps you will want to purchase your own house.

Either way there is a fairly strong likelihood that you will want a home that reflects more your newly acquired status in life.That will mean moving, which may not come too cheap.

It would not be surprising, therefore, if a quarter of your winnings went on clearing debts, moving house and taking a holiday - pounds 250,000 gone already. So what do you do with the other pounds 750,000?

Imagine placing it all on deposit in a building society. You would probably receive pounds 50,000 of gross interest a year. But that would only be around pounds 3,000 a month net into the bank, even if you were nifty enough to split the winnings between yourself and your spouse to save tax.

The pounds 3,000 a month should be enough to keep you in gin and tonics, but you would not be taking too many Caribbean cruises each year.

It would not cover the school fees either, if they were a consideration. And, more important, the value of your investment would not keep pace with inflation and the income would fluctuate according to interest rates.

You could put it all into ordinary shares. But that would only yield you around pounds 30,000 before tax, less than a measly pounds 2,000 a month once the taxman has had his slice.

Of course, the income should rise as dividends increased and you would stand a reasonable chance of protecting your capital against inflation. But would you really be able to survive on that sort of income, feeling as rich as you do?

Or you could go for high fixed income, like that achievable from gilts. You should get a more worthwhile pounds 60,000, but again tax would be payable and the income would not go up even if inflation started to take its toll. What is more, the value of your investment would fluctuate as interest rates moved up and down, which they surely will over the years.

The reality is you need some sort of balanced investment strategy which encompasses all these different types of investment. And others too, as likely as not.

But at the end of the day you will probably find that the money you have is only enough for you not to work again if you live modestly, and have no unexpected calls on your capital.

Still, let's face it, you are hardly likely to return the cheque to the lottery company saying that it is not enough. But at least you may realise that being a millionaire is not necessarily all it's cracked up to be.

Entrepreneurs will tell you that making the first million is the difficult part. But not everyone has the ability - or even the inclination - to use a windfall to create a business that could make you seriously wealthy.

Don't let me stop you dreaming about what to do with your winnings, though. For the 90 per cent of British adults who buy tickets, this has become a major leisure activity. Just don't blame me when you do your sums and come to the unhappy conclusion that pounds 1m is really not enough.

The author is chairman of the investment strategy committee at the stockbrokers Grieg Middleton

WHEN YOU WIN THE LOTTERY:

do Seek professional advice before you spend your money. It is easy to get carried away with any windfall, including a modest inheritance, and a few reckless moments could result in a significant drop in your future standard of living. Unless you really do hit the big time, the reality is that you will need a balanced investment strategy to make the most of your good fortune.

Remain anonymous. If you cannot, pray that you have a blameless sex life once the tabloids newspapers get hold of you.

don't Put all your eggs in one basket, especially if you are tempted by advertisements offering amazing rates of return. Remember the old adage - the higher the rate of return, the higher the risk.

Answer begging letters. If you want to give to charity, work out how much you can afford and make a list of your favourite causes. But don't just start writing out cheques.There are tax-efficient ways of donating money which can benefit the charity.