West Sussex County Council said the man was told to pay administration costs before the money was released.
The pensioner was also asked for money for Spanish tax, European tax, a money laundering certificate, Spanish surtax, security clearance and stamp duty.
Councillor Lionel Barnard warned people to "ignore any claims from abroad that say you are a winner".
WARNING SIGNS TO WATCH FOR
The council said the letter, claiming to be from a firm of attorneys in Madrid, said he had won more than 850,000 Euros.
After he contacted them, he was given 14 different reasons to part with his life savings before he could receive the "winnings", the council said.
The pensioner, who has not been named, was told not to tell anyone.
But he sought advice from Consumer Direct after his funds were exhausted.
Brian Stone, the council's head of consumer services, said: "The pensioner accepts he has lost his money but wants his experiences to be passed on to warn others not to fall prey."
He said the pensioner was now providing valuable information to trading standards officers and the Office of Fair Trading.
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