I’ve met more than one person, in my time, who has a lotto habit. Now, I’m not going to knock playing the lottery every once in a while, since it’s cheap thrills; but I do want to show what it costs to make playing the lottery a retirement plan. Let’s look at a popular lottery game available in Arkansas: Powerball®.
Powerball® is a multi-state lottery game that is drawn twice a week and costs $2 to play, with the option of increasing non-jackpot winnings by paying an additional dollar. The prize starts at $40 million, with the odds of winning the jackpot at 1 in 175,000,000.* Pretty slim.
So, let’s say you make a habit out of playing the lottery by buying a ticket for every drawing. You do this since from the age of 25 to 65, as if it was your retirement plan. How much money did you “invest” into Powerball®?
Two dollars per drawing, 2 drawings a week, 52 weeks per year for forty years: $8,320.
I can buy a reasonable little car for that money.
Odds are, you may win a tiny prize a couple of times during this period, but nothing to write home about. So you’re out the cost of the tickets, over a lifetime. It’s not that bod, right? Even so, there’s another cost we haven’t looked at – opportunity cost.
You see, when you buy lottery ticket, you not only are buying something that has very little value (a $40,000,000 prize into, say, 175,000,000 tickets brings the value to just shy of $0.23 per ticket), you’re also losing the money that money could’ve made for you. Let’s pretend that, instead of buying a lotto ticket twice a week, you put that same cost into an entirely fictional account that has no costs or taxes and then compound it at, say, 7% over the 40 year period. What would you have? About $45,860. That’s pretty expensive.