It's often said that the lottery is a tax on people who can't do math. It's virtually guaranteed that you'll lose money playing the lottery regularly, because the more you buy, the closer you'll be statistically to the intended winning probabilities (i.e., losing more than winning). Even casting lottery tickets as an investment is flawed; Powerball tickets generate about am 80% loss, which dwarfs any year-over-year loss of the S&P 500 or the Dow.
Let's throw good financial sense to the breeze
Let's say that for whatever reason, you still buy lottery tickets. It could be ignorance of the above, or because you feel deep down in your heart that this is the week for the big payout. Or, more reasonably, you could buy lottery tickets as an entertainment budget item, because you enjoy it. Whatever the reason, those lottery tickets are in your hands.
Now let's say that lightning strikes and you beat the odds. You win. A lot of money. As in a life-changing lot of money. You turn the ticket in, and get a picture with the state lotto commissioner holding a giant check as a capstone to your fifteen minutes of fame. Congratulations.
Let's say now that you're concerned about having that giant lump sum beckoning you and all of your new-found “friends,” so you instead opt for periodic payments for 10 or 20 years.
Would you expect your lottery payment to bounce?
That would really suck, wouldn't it? Well, that's exactly what happened to dozens of people who won prizes in Illinois over the tail end of the 2011 holiday season. The checks bounced for a brief period of time due to a computer file being sent late. The oversight has since been fixed, and the affected people even got free scratch-off tickets as part of the apology.
This situation taken by itself is probably nothing more than “oops, sorry” and was easily fixed. But let's not forget that this is Illinois — a state that is developing a reputation for not paying its bills. Organizations are going bankrupt due to missed payments from the state, legislators are being evicted by their landlords, and the state Department of Corrections is needing to pay up front for the bullets that help to protect their officers.
When will the deadbeat philosophy creep over to the lottery? Lotteries are sponsored by most state governments, after all. The fact that this mishap occurred in Illinois is merely convenient, though: Illinois is certainly not alone with its fiscal problems. The risk of having promised payments go away presents itself in any state where there is a lottery.
The way around this is to take a lump sum payout if it's offered, but that introduces a whole new set of risks — the biggest one being that the people managing the lump sum are usually ill-equipped to do so. But it's hard to argue that this is better than being stiffed.
I guess if you get enjoyment out of scratching the lottery tickets, so be it. But the promise of “$1,000 a week for life” is little more than that: a promise. A promise that rests on the solvency of the state government that runs the lottery, and its willingness to honor that promise.
Step 1 – Purchase lottery ticket to raise my odds of winning from zero to a whisker-width above zero.
Step 2 – Win!
Step 3 – Take the lump sum payout.
Step 4 – Work with conservative and well-known money managers who will limit my access to my new found wealth.
Step 5 – Live a life consistent with the money available from the interest on my principal.
Step 6 – Not be featured on one of the TV shows where lottery winners end up broke in 2 yeas.
I typically buy lottery tickets maybe once every three months, only when the jackpot gets to some absurd amount. And, when I do purchase the lottery, I buy one ticket. You figure your have an astronomical long shot, even reducing that by 10 or 100 is still a huge number and doesn’t truly ‘help’ your chances. So. one is enough for me.
My retirement plan was to win the lottery. Then I watched the commercials and found out that you have to play to win.
Good thing there is plan B–social security. I don’t have to worry about the federal goverment going broke. Broke is way richer than the federal government will ever be.
I have several relatives who buy the lottery. One even wins sometimes (the smaller prizes), which she thinks puts her ahead (although she has “invested” much more in the lottery than she has won). I don’t buy them.