NOTE: This post is part of an ongoing education series. This information is for educational purposes only. This information does not constitute investment advice. Please consult with your financial advisor before taking any action. For planning advice contact Polaris Financial Planning. Are you worried about saving enough for retirement? Do you think that buying a lottery ticket is a good way to get to retirement? Think again! The lottery should never ever be thought of as a way to save for retirement.
If you want to have a little fun by spending a few dollars on a couple of tickets - go ahead. But, most people have a hard time understanding the odds of winning.
I see the lottery is a regressive tax that is put in place by lazy politician that don't want to make the needed effort to solve fiscal problems. A regressive tax places a higher burden on those that can least afford it and in many cases least likely to understand it.
I am going to look at the Mega Millions lottery.
According their website it costs just $1.00 and here are the odds of winning.
The odds of winning "any prize" is 1 in 14.7! So if you play 15 times ($15) you have a good chance of winning $1 and about 1 in 4 chance of winning an extra $2. I would guess that most people don't play the lottery to win $1 but, it can be enough of a reward to get you to keep "Playing". So, we will need to look at the odds of winning the big prizes.
The jackpot is tricky to analyze because the amount changes from week to week. Today the prize is $91 Million if you are willing to wait 30 years for all of the money to be paid out and $56 million if you take it all today. So if you bought every possible number combination or 258,890,850 tickets you would win $56,000,000. A payback of about 21.6%.
Your odds of being hit by lightning in your life is about 1 in 12,000. You are 21,574 times more likely to get hit by lightning then winning the Mega Millions with one ticket. Well, people who don't know the odds don't just buy one ticket!
What happens if you buy more tickets? I love to make extreme examples to show how ridiculous things are. If you spend $100 per day from the age of 18 to the age of 67 in Mega Millions tickets. That would be around 1.788 million tickets (or $1,788,000). Your odds of winning would be about 0.69%. There is a 99.31% chance you get nothing (remember we are only talking about the jackpot).
If you invested that money each and every year and made 10% a year you would have over $40,000,000. So you could have over $40 million or you could have a less than 1% chance to win $56 million.