Life After Full-time Work Blog

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#201 Lottery Tickets Are Not An Investment

Nevertheless, you can get emotional value from buying them


A few months ago I was watching a webcast and suddenly was presented with some startling information about the extent to which buying lottery tickets is popular in the US. So, inevitably, I did a lot of googling and discovered the following:

  • The Motley Fool website says that, in 2022, Americans bought $108 billion (yes billion, not million) of lottery tickets. That’s roughly $350 in a year, for every person. And “every person” includes counting children as people. The adults obviously buy more than $350 each, on average.
  • The state for which the average per person is highest is Massachusetts, at over $800 per person.
  • The chance of winning the Powerball jackpot is 1 chance in 292 million. The cost of a ticket is $2. Recent Powerball jackpots have been a bit more than $200 million, each jackpot giving you payments spread over 30 years. Some jackpots have been over $1 billion. As an alternative to the 30-year payments, you can elect a lump sum, typically less than 50% of the total of the 30-year payments.
  • The chance of winning is about the same as being struck at random by lightning in 300 different storms – assuming you have no more than the average propensity to be struck by lightning in a storm.

Of course those numbers set off all kinds of thoughts in my head.

The obvious one is that, until the draw is made, you have as much chance (even if it’s infinitesimal) of winning as the holder of any other ticket. And that’s emotionally exciting. It’s why we buy lottery tickets. (And when I say “we,” yes, I do include myself. More on that later.)

The other obvious one is that you’ve almost certainly lost the amount you’ve “invested” in your tickets.

And that’s what comes through eventually: because the loss is virtually certain to be 100% of what you have paid, this is not an investment. It’s a gamble, which isn’t quite the same thing. With a gamble, once it’s over, you own nothing; and you (should) expect to lose. With an investment you do own the right to something (even if, sometimes, that something is an uncertain amount), and it’s a reasonable (though not certain) expectation that you’ll get back more than you invested.

I also note that 57% of Americans can’t afford a $1,000 emergency expense. Simple arithmetic tells me that, if the $350 a year spent on lottery tickets were saved as an emergency fund, within 3 years those 57% of Americans would all be able to afford that hypothetical $1,000 emergency expense.

Either they never think of the two things (lottery tickets versus emergency fund) together, or their gambler’s instinct is so powerful that their emotional payoff (while they still hold the ticket and the draw hasn’t yet been made) exceeds the huge pain they’ll feel if and when they need to dip into that non-existent emergency fund.

In fact, it’s quite possible to be the beneficiary of both: the existence of an emergency fund as well as the emotional high of winning the lottery. And it’s possible to get a much better “high” than the typical vague “that would be fantastic!” emotion that imagining a lottery win brings.

I say this because (yes, you can laugh at me) I went through this sort of thinking – in fact, I even led a group of colleagues through this kind of thinking – some 15 years ago, when I was still in full-time work. We formed a syndicate to combine our money and share any winnings. Here’s the story, as I wrote it up in my Happiness book. As you look at the numbers, remember that I was writing about the 2000s, and money is worth much less today. But that doesn’t change the message, regardless of the numbers.


The yearning for freedom, particularly financial freedom, is enormous. That’s why so many of us play the lottery. In fact, many people, when asked about financial planning, say (quite sincerely) that they play the lottery. Given the tightness of their situation, setting aside serious money for the future is impossible, so they might as well give themselves a small chance of a big hit – that’s their explanation.

If they win, with no notion at all of what to do with a fortune, they may well blow it. It has happened. It has even happened twice to the same person! And in one case a two- time winner is broke today. The change in circumstances and in psychology can sweep away the underpinnings and security of an accustomed lifestyle. The danger is that the freedom takes away security, in fact. Not realizing this is what causes such sad stories to be reported.

In general, lottery winners do not want their winnings to change them – meaning that they don’t want an upscale life. A study performed at the University of Gothenberg, in Sweden, reported on 420 actual lottery winners (not just hopefuls!) surveyed, of whom 14 had in-depth interviews. They would rather save the money as security for the future, and keep working, and keep their social contacts, than blow it all on consumption.

Most of us will never experience a big win. The chance is infinitesimal. When we buy the ticket, or contribute to our syndicate (many groups, particularly at work, form a syndicate to buy multiple tickets), we know our money is really gone. What is does, though, is buy us a dream, until we know we’ve lost. And it’s a shame not to flesh out that dream, because it’s the main value of the ticket.

I have been part of a syndicate at work in the US, with a number of bright young people who knew perfectly well (we worked in the investment field, and were familiar with thinking in terms of probabilities) that the ticket money was gone. What would you do with the winnings, I asked? Oh, was one reply, I could find a way to spend $30 million! But you won’t actually get $30 million, I pointed out. That’s just the nominal amount.

Huh? And so I set the group an exercise: let’s get together next week and find out exactly how much you would actually get.

The exercise was an eye-opener for the group. The nominal $30 million would be paid over a large number of years, amounting to a generation. If you want a lump sum, you have to accept much less. And then the lump sum is subject to tax. In New York, you’d have to pay federal, state and city income tax on it. The result, we concluded as a rough rule of thumb, was that you’d actually get $1 to spend, right now, after tax, for every $3 of nominal prize money. [It’s almost certainly much less, today – remember, I was writing about the 2000s.]

OK, that’s still a lot! What’s your dream? Answer: what do you mean, a dream? Well, even if you don’t win, you can dream about what you’d do – it’s a shame not to have a dream, because it’s the biggest part of what your ticket entitles you to. So we agreed to take another week to decide what we’d do with the first $1 million each (lump sum, after tax, of course).

Most said they’d buy themselves an apartment, and help their parents and siblings. And with the rest: retire? Oh no; New York is an expensive place, and even with an owned apartment and no more rental payments, there wouldn’t be nearly enough to retire on. Maybe fulfill a longing or two, but that’s it.

OK, then, what about the second million? We met again the following week. Well, that would provide great freedom to do a number of things – but still not enough to retire on, not in New York. Really, even with no more rental payments? Yes, even then; because although there might be enough to live on today (those were the days of relatively high interest rates, ha ha), there wouldn’t be enough to cope with the effects of inflation in their later years. (And I thought: well done! All those investment policy statements you’ve looked at in your day-to-day work have built inflation right into the heart of your thinking, and you won’t be surprised by it.)

As you might guess, the next exercise was to dream about what would happen with $5 million in after-tax cash. Having thought through the first $2 million, $5 million became scary. Life-changing. Not just eliminating the need to work, but bringing on unforeseeable things. Yes, what they were imagining, one step at a time, was the discombobulation that comes from abandoning the security of a familiar lifestyle. No matter how much you yearn for it, if you’re not prepared for it, it can be a shock. That’s why so many have blown through their winnings. They knew the lifestyle they were coming from, but they didn’t know what they were going to, and it turned out to be a strange land.

So our little group made two sets of tentative plans (despite the feeling of disbelief that they would ever be called into action). One was that, with any win in excess of $2 million, we would be in serious need of a financial planner. The other was that, if we won more than $5 million, we would give the rest away. We knew enough to say that we would form personal foundations with the excess, and would pool the money for investment purposes. And there was one colleague in particular whom we wanted as our investment consultant.

So we told her about this, and it was so touching to see her reaction. Because, in turn, she was so touched that her colleagues respected her that much. You don’t often get to exchange those kinds of feelings at work.

This dreaming exercise had all sorts of good effects. It virtually guaranteed that none of the group would hit the headlines for the wrong reasons, in the way unfortunate past winners had. We would preserve both freedom and security. And it engendered good feelings and good plans. Not bad for just a few bucks. And the dream is renewable every time we buy a new set of tickets. In fact, we even decided to cut our inevitable losses and play the game only when the after-tax cash lump sum amounted to at least $1 million each.


That’s what I wrote. And my point is this. We win the benefit of dreaming, even when we don’t win the lottery. And that, in turn, goes to show that, the more you flesh out your dream, the more detailed you make it, the more you think about helping others with your potential winnings – the more you imagine any of those things, the more you’ll benefit simply from having the dream. Not a bad return, for the expenditure of a lottery ticket! And we even saved money, relative to what we were originally spending on lottery tickets, because we didn’t always buy tickets every week, if the prospective winnings weren’t large enough to satisfy the basic $1 million dream!

So … don’t cut out lottery tickets. But only buy the minimum required to participate. That way you get the benefit of dreaming, even when you don’t win. And use the rest of what you’d otherwise have spent on lottery tickets to create your emergency fund. And, once you’ve created your emergency fund – let’s say it’s more than $1,000; let’s say it’s one month’s worth of net pay after tax – invest that “rest of what you’d otherwise have spent” to create your own paycheck once you leave full-time work; in other words, save it towards retirement. You’ll still have the lottery dream, as well as an emergency fund and increased retirement savings. “Win – win”? Hell, no: this is “win-win-win”!



It’s OK to buy lottery tickets. Just buy the minimum to support your dream (don’t forget to flesh out your dream!) and invest the rest you would otherwise have spent.

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I have written about retirement planning before and some of that material also relates to topics or issues that are being discussed here. Where relevant I draw on material from three sources: The Retirement Plan Solution (co-authored with Bob Collie and Matt Smith, published by John Wiley & Sons, Inc., 2009), my foreword to Someday Rich (by Timothy Noonan and Matt Smith, also published by Wiley, 2012), and my occasional column The Art of Investment in the FT Money supplement of The Financial Times, published in the UK. I am grateful to the other authors and to The Financial Times for permission to use the material here.

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