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For a lucky lottery player, planning for retirement just got a whole lot easier.
Last Monday’s $ 699.8 million Powerball jackpot, the seventh largest in US lottery history, according to Powerball.com, went to a single winner, who bought the ticket in California. Even if the holder takes the cash prize of $ 496 million out of the total jackpot amount spread over 29 years in an annuity, he or she should have sufficient income for a potentially long retirement.
A chance to win that kind of money can be hard to pass up, even though the odds of winning a Powerball jackpot are 1 in 292.2 million. For Mega Millions, another multi-state lottery that often has jackpots in the hundreds of millions, the odds are even worse at 1 in 302.5 million. Yet, as Monday’s drawing proves, someone has to win eventually.
“We actually have a client who won the lottery, so it happens,” said Kevin Barlow, managing director of Miracle Mile Advisors. “But in general, the value of the lottery is in dreaming of winning, not in having a high probability of winning. And unfortunately, it is often the people with the least money to lose who play the lottery.
With lottery jackpots having skyrocketed in recent years, even the most disciplined savers can be tempted to give it a shot. In addition, lottery games are developing and becoming more expensive to play. In August, Powerball added a Monday draw to its weekly Wednesday and Saturday schedule. Mega Millions, which has raffles on Tuesdays and Fridays, could follow suit.
But players need to remember that every $ 2 bill is almost guaranteed to lose, and over time they could build up a small fortune by redirecting that money to retirement savings accounts, according to financial advisers. Before Monday, Powerball players had achieved a record 40 consecutive draws without a big winner.
Barlow said the seemingly small expenses that are a part of everyday life, like playing the lottery, smoking cigarettes or visiting a cafe each morning, add up to large sums over time. By regularly investing that money in an S&P 500 index fund, for example, savers could enjoy large gains over 30 to 40 years, which would translate into a higher standard of living in retirement, he said.
A lottery player who buys a ticket for each of the five major draws for the week spends $ 520 per year, or $ 15,600 over 30 years. If these funds were invested instead, after 30 years the investor would have approximately $ 90,000, based on the average annualized return of the S&P 500 of almost 10%.
Likewise, smokers who give up their habit and invest the money can be richly rewarded. The average price of a pack of cigarettes in the United States in March was $ 7.22, according to the Campaign for Tobacco-Free Kids. Smoking a pack a day represents about $ 2,635 per year in average expenditure, or $ 79,000 over 30 years. If that money were instead invested in the S&P 500, it would rise to around $ 459,000, based on historical returns.
“For people who are really addicted to things like the lottery or cigarettes, that adds up to a pretty big number over time,” Barlow said. “It’s very difficult to visualize how a small amount of spending in your twenties, be it vices or other property and experiences, actually amounts to a large amount of money in your fifties and sixties, because compound interest can create a lot of wealth over time. . ”
Barlow said it was okay for people to play the lottery “within reason,” buying a ticket occasionally when the jackpots are high, as long as they are also meeting their financial priorities, including saving for retirement. .
Charles Rotblut, vice president of the American Association of Individual Investors, said the only time it mathematically makes sense to play the lottery is when the Powerball jackpot hits $ 490.7 million or the Mega jackpot. Million reached $ 530.5 million. At these levels and above, the expected return per ticket exceeds the cost by $ 2, according to Rotblut’s calculations, so the “expected value” per ticket warrants a purchase.
“Even though the expected value is positive, what really drives it is the huge jackpot,” Rotblut said. “So even though, from an odds perspective, you get more potential value from that ticket than you pay for, at the end of the day you’re still faced with very extreme odds.”
Despite those long odds, when reached before Monday’s big draw, Rotblut said he plans to put in two dollars in pursuit of the big prize.
“I’m probably going to buy just one ticket, and that’s it,” he said.
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