I still read the news from the upstate New York town where I grew up. I was struck by a news item this week that a winning lottery ticket sold at a local gas station “had made the buyer a millionaire.” The article stated that the second-place prize-winning Mega Millions ticket was worth $1 million.
But wait–that’s $1 million gross, which, if received in a lump-sum, would only put around $550,000 in your bank account after all taxes are taken into account. Not exactly becoming a millionaire.
Still, worth it for the cost of a lotto ticket, right? Not exactly.
First of all, the odds of winning are stacked against you. After all, what’s the lotto but a fundraiser for state and local budgets? Think about that: it raises money by selling tickets–lots of money. For instance, New Jersey raised over 3 billion dollars in fiscal 2018–a record amount.
And what most people spend on lotto tickets isn’t just a dollar here or ten dollars there. Lotto spending per capita hit a record $233 in 2018 (the latest data available). And that’s just dividing total spending on lottery tickets by the population. Other surveys have found that people who are actually buying lotto tickets spend over $1,000 a year!
Worse, people who do win the lotto don’t end up happier or healthier, and in fact, are more likely to declare bankruptcy than the average American.
Guess what? There’s a better, easier way to build wealth. Let’s say you just put $10 a week–roughly what someone might spend on lotto tickets–into retirement savings account like a Roth IRA. Invest it in the stock market where you’re making around 7% a year on average, do this for 40 years, and don’t touch it. Voila, you’ve got $113,000 tax-free at age 65 (equal to roughly $250,000 pre-tax! Think about hitting that kind of Jackpot).
My advice is to do the “boring” thing and tune-out the press releases and articles that inevitably come out when someone wins the lottery. Rather, take the money and put it in a Roth IRA. This way, you’re always the winner versus the lottery industry.