Kick Your Lottery Ticket Habit
I recently found myself standing in line at a local convenience store behind a guy who was in the process of redeeming his winning $2 scratch-off lottery ticket for another chance to uncover his fortune. My mind started to wander and it wasn’t long before I starting wondering how much the Ohio lottery takes in every year and how a person’s lottery habit could be transformed into a pretty substantial retirement plan.
According to the annual report from the Ohio Lottery Commission, about $2.8 billion was collected by the Ohio Lottery between July 1, 2014 and June 30, 2015. Perhaps even more shocking is that more than half of these funds, or $1.55 billion, was a direct result of instant ticket sales – the scratch-offs! Since we know that Ohio has about 9 million residents who are 18-years-old and legally permitted to play the lottery, we can conclude that the average Ohioan is spending $323 annually on the lottery. (And since I know that I spend $0, I can only assume that there are men and women out there spending $600 or more on lottery tickets every year!)
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For Fun or For Money?
Whether you view the lottery as a form of inexpensive entertainment or “a convenient and accessible tool for radically altering [your] standard of living,” if your objective is to obtain financial security … there’s a better way.
Countless studies have been conducted in order to explain why those with lower incomes tend to spend more of their income on the lottery. Some of the reports are simply astounding. Just a decade ago 21 percent of those who played believed that the lottery was the most practical path to wealth. It’s this skewed thought process that continues to drive lower income residents in particular to spend a significant portion of their income on these tactics rather than invest in more effective wealth enhancement solutions.
- The odds of winning Powerball are 1 in 292 million.
- The odds of winning Mega Millions are 1 in 259 million.
- The odds of winning Ohio’s Classic Lotto are 1 in 14 million.
- The odds of winning Ohio Rolling Cash 5 are 1 in 575,757.
- And if you want to know how many prizes are left for the popular scratch-off games in Ohio on any given day you can find that out here.
- But if you were to invest the money you would normally spend the lottery into a 401(k) plan, your chances of winning big are all but guaranteed!
Your Money Multiplied
Let’s assume a 30-year-old who normally spends $25 a week on the lottery (or $100 a month) decides to invest these funds into a 401(k). What would happen to the investment if we were to assume the following conditions?
- The employer matches 50 cents on each dollar, bringing the total monthly investment to $150.
- We assume an 8% average annual return on the investment.
In 35 years, the $100 he previously spent on the lottery plus the $50 his employer is kicking in would come to around $344,000 when you factor in the 8% average annual return. What’s incredible to consider is that over the course of 35 years, this individual will have only invested $1,200 per year of personal income (or $42,000 total).
Now, what if the employee decided to kick their monthly $100 lottery habit earlier at the age of 21? If we were to apply the same conditions outlined above, in 44 years (when the employee reaches age 65), the same investment and company match would result in a 401(k) plan worth $1,457,677. Over the course of this 44-year career only $52,800 in personal funds would be contributed to the plan, but with the company match and 8% average annual return, the funds would continue to multiply – 27 times to be exact!
Don’t pass up on an opportunity to facilitate a discussion about retirement savings and the big impact even a few dollars can make over time. Email the retirement plan services team at Rea & Associates for tips to help you start the conversation and keep it going.
By Steve Renner, QKA (New Philadelphia office)