4 Things to Know About the Lottery. And what to do if you defy the odds and win.

by Nick on March 3, 2014

lottery1. You’re not going to win it.

Seriously. You’re not. How do I know? Because chances are less than 175 million people will see this post. And the odds that you will win the monster Powerball jackpot are about that, according to the Los Angeles Times.

Basically if everyone in the US bought a ticket, two people would win. To put that in perspective, there are over 700 people who play major league baseball. Put your dollar away and grab a baseball bat. You have 350 times the chance of playing major league baseball this year than winning the lottery.

2. If you win, you’re probably going to be broke 5 years from now.

Nine out of ten lottery winners go through their winnings in five years, according to this post over at the New York Times.

That being said… the last one I saw was $400,000,000. It would be pretty tough to go through that much money in five years, even after lump-sum and tax discounts. But if you’re like 90% of the other folks who have won, it’s going to happen.

3. It won’t make you happy.

It will make you really happy for a few hours, for sure. And then it will be stressful. And it will exacerbate the crap about your life that you hate right now. You’ll have a lot of money to make mistakes with. You’ve seen the stats. You’ve seen the posts. Once you get past a reasonable amount of money, it doesn’t “add happiness” to your life. I won’t bombard you with too many articles about it. But here’s an interesting one from a couple years ago.

4. Finally, given that, if you do win, take the annuity.

I know this is counter-intuitive. The math says the lump sum payment is the best for your wallet.

So why take the annuity? Two reasons.

First, see #2, above. 90% of the people blow through the winnings within five years. If you take the annuity you will have less money overall, but will be guaranteed to be the 1 in 10 to not be broke in five years. I’d rather only have a couple mil a year coming in for the next couple of decades than run through $50 mil in the next five years.

Second, if you commit to (a) not borrowing money for anything – ANYTHING – and (b) not giving away future income streams from your annuity, you’re virtually guaranteed to be fine financially for at least the life of the annuity.

Better yet, stick 20% of your after-tax annuity stream into an index fund and you’ll position yourself for long-term success.

(If you can’t stomach the “math says to take the lump sum,” thing, at least put the lump sum into something you can’t touch, so you can’t mess it up.)

What would you do if you won the lottery? 

{ 9 comments… read them below or add one }

Jon @ Money Smart Guides March 3, 2014 at 8:42 am

The sad part is, it wouldn’t matter if people took the annuity. They know that have a couple million coming to them next year, so they would just overspend and get into debt.

That is a crazy stat about the lottery vs baseball. I knew the odds were long for winning the lottery but when compared to baseball, wow!

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Nick March 4, 2014 at 5:41 am

You’re probably right. It takes a cash-only mentality to guaranty success, for sure.

Yep! I’m getting my cleats ready!

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Heidi @ Thriftytricks March 3, 2014 at 10:53 am

Well, I won’t say that this was a ‘good to know’ sort of post, but I liked the reasoning behind taking the annuity. Ugh, I’m still not sure I’d want to win the lottery though. I bet you stop trusting everyone around you sitting on such a large amount of cash.

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Nick March 4, 2014 at 5:45 am

So true about the stress and trust! I think there’s a lot of value to slowly building up my fortune. 🙂

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Tie the Money Knot March 3, 2014 at 6:19 pm

I think that #1 sums it up: you won’t win it. The something for nothing instinct in some people – actually, in most of us (yes, me too) – sometimes needs to be doused with a glass of ice cold water to get us back to reality. It won’t happen, won’t win it, end of story.

Now, I’d say that perhaps those who win it aren’t happy and lose all of it because they weren’t personal finance enthusiasts to begin with. After all, most PF enthusiast types aren’t too keen on lotteries in the first place and may not be playing them.

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Nick March 4, 2014 at 5:47 am

Totally. It takes a big chunk of my patience to not shart when someone walks out with 20 tickets saying “someone’s gotta win.” Very true about the PF side, too.

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The First Million is the Hardest March 3, 2014 at 10:53 pm

I think I’d be just fine if I won the lottery, not that I play more than once in a blue moon. I think thats the key as to why so many winners end up broke, the people who play the most are the ones who don’t have a handle on their finances in the first place. Then once they have it for the first time they blow through it just as fast as they get it.

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Nick March 4, 2014 at 5:49 am

I think that’s key, too. I’d think if I won I’d be first surprised because I don’t play (although my wife buys a ticket every once in a while…) but would then try and ignore the extra zeros and invest it as if it were 300,000 and not 300,000,000, vowing to live only off the income from it on a cash basis, donating anonymously, and perhaps having a rule to give generously but be very biased against people who come calling/asking. I’d love to keep the fact that I won anonymous, too, but it’s not always possible.

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Jacob March 16, 2014 at 7:15 pm

This is an interesting topic. One of my favorite quotes says something about the lottery being a tax on people who are bad at math. Funny stuff.
More seriously, it’s amazing how quickly lotto winners go broke. If someone were wise with their money, they should take whatever the highest dollar amount they can in present value terms. Of course, most aren’t wise with their money…

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