Is the lotto worth it?
- The New Hampshire Sweepstakes, a game based on horse racing results, was the first modern lottery in the US and was launched in 1964.
- The largest jackpot drawn in US history was in 2016 with a $1.586 billion Powerball win split amongst three winners from California, Florida, and Tennessee.
- According to the US Census Bureau, Americans spent over $70 billion on lotto tickets in 2017.
- A 2015 survey found that over half of its respondents would rather win the lottery than become famous or find the love of their life.
People assume that if they play the lotto for long enough, they will eventually win something, and it will pay off the initial investment. However, in real life, the chance of winning a lottery is so small that you are more likely to become a celebrity or write the next New York Times bestseller. Surprisingly, it is estimated that someone will be crushed by a meteorite more often than someone will actually win the lotto.
Research suggests that only one in about 300 million people take home a winning Mega Millions jackpot or Powerball ticket. These statistics obviously increase the risk factor and reduce the return on investment for playing. For example, if you spend $300 per year for 30 years of your life investing in the lotto, you will have wasted nearly $10,000 without any significant gains.
Even if you do win something in those years, you will likely have to split your earnings with other winners. And in the rare instance that you win a solo prize, you would still have to pay huge taxes of up to 39.6%, depending on where you live. In other words, even if you win $100,000, you may only take home about $60,000--or less if having to split with others.
However, if you instead were to invest that $10,000 in real estate, bonds, shares, etc., you would be more likely to bring home the $100,000 and, this time, much faster. In fact, starting your own business brings a greater return on investment than playing the lotto. And even depending on compound interest to increase your wealth pays off better than waiting for luck to strike.
Participation in a financial lottery is voluntary, inexpensive, and fair. Shrewdly, an individual player can justify playing with a scientific, risk/reward strategy. But beyond the worthwhile personal pleasures of playing harmless games of chance, small investments in lottery tickets can, and do, fund commonwealth projects according to state priorities that have positive societal benefits.
Are the odds long? Yes, they are. But smart spending betters the chances. Here’s how: Pick-3 and Pick-4 games at the state level offer lower payouts but higher chances of winning. A little research at the state level also reveals that some states return a much higher percentage of lottery revenue in payouts than other states do. Hint: play in Massachusetts, not West Virginia.
Math doesn’t lie. When every number in a lottery has an equal chance of being selected, a finite amount of possible numerical combinations exist. Lottery pools improve the participant’s odds considerably. Also, don’t sleep on the humble scratch-off game.
But big jackpots mean maximum taxes, right? Not necessarily. If a single winner takes a lump sum payout of over $518,401, then yes, the maximum tax rate would apply. But if that same winner takes an annuity over 20 or 30 years, then the annual payout could be in a lower tax bracket. Same jackpot, fewer taxes. Even if an annuity or lump sum payout puts a winner in the highest tax bracket, by definition, the winner has made it into the top 1%.
A final tip: play the lottery where you are most likely to be struck by lightning.