How to win at winning the Lottery
What if we win?!?! It’s the question everyone asks themselves either silently or out loud every time they contemplate gambling either at a casino or the gas station. Some data has shown that the state lotteries prey upon lower income individuals as they are the likely audience to be seduced by the elusive promise of winning it big. In addition, many folks who do win, have no foundation of personal finance acumen and end up right back where they started. I can tell you from my personal experience from the handful of times I have played the jackpot that the others in the gas station buying tickets appeared to be serial players of the game. They had folders of tickets from the past drawings they missed. They definitely appeared to treat the lottery as their golden ticket… that probably won’t come.
I have only played the lottery about 5 times. I only play if the jackpot is over $1 Billion. While that threshold is completely arbitrary, it is a control factor that keeps me from being seduced every week while also allows me and the Mrs. to have some fun every couple years and put on our daydreaming hats. To be clear, the odds of winning the lottery are astronomically long. One in ~250 million for the powerball. I can hear Han Solo’s voice on my shoulder now! (Never tell me the odds!)
This week the jackpot for the Powerball is expected to top $1.5 Billion. A ticket costs $2. We typically buy 10 tickets for $20 on these rare occasions we play. We take it out of our already existing “Entertainment” pile of money. We figure, what the hell! $20 for a little fun of the dream and an outside chance at 3 commas? So here’s our little dreams for if we make it big tomorrow!
First, we would hire a lawyer, and an accountant. Even with our foundation of personal finance, these sums of money are beyond our own contemplation. What even are the options?! Living in North Carolina, unfortunately we can’t stay anonymous but we can procrastinate with that up to 270 days (180 days to claim the winnings, and 90 to disclose our identity). That gives us roughly 9 months to figure out the most discreet way possible to disclose the identity, thanks to the lawyer up above. Anyone know Saul Goodman’s number? If you are lucky enough to live in one of the few anonymous states, well done!
Now to the actual money and the fun. After the lawyer and accountant help us with the logistics of protecting ourselves, it’s time to get down to brass tax. When you claim the lottery you generally have two options: lump sum payment (the whole kit and kaboodle at once) or an annuity payout for 30 years. The lump sum payment for $1.5Billion would actually end up being ~$600 Million or so after Uncle Sam takes his cut. The annual payment will be roughly $50 Million for 30. Quick math says that’s actually closer to the promised $1.5 Billion.
We would probably go with the annual installments. Fifty million dollars is still an astronomical amount and if by some wild chance we get through it, there’s another $50Mil in the chamber. We would be really bad at being billionaires. Here’s what we came up with.
Year 1 $50 Million:
Pay off the mortgage ($180,000)
Buy a house at a fancy neighborhood up the street right on the water ($2-5Million)
Sell the first house to some friends at cost ($200,000). They would never allow a gift.
Payoff the developers currently destroying our neighborhood for more sardine houses (est $10+Million)
An acreage homestead out in the mountains (~$3-5 Million)
New electric pickup truck ($100,000)
New Tesla SUV for the Mrs. ($100,000)
Gas SUV just in case ($75,000)
Clunker car for fun and shenanigans ($20,000)
Flying Lessons and an Airplane ($10,000 + $1 Million)
Using the maximums of the ranges, that’s a total of $20.5 Million, not even half of the first payment! Let’s continue!
Open up a trust for Junior with the help of our hired professionals, put $2Million in it and let it grow for him. Do the same for subsequent children.
Put The remaining $25 Million into a HYSA and live off the interest. $25Million at Ally currently would give us roughly $2 Million of interest income if we set up a 5-year CD Ladder
The subsequent years would be spent setting up a philanthropy foundation and searching for the most efficient ways to help the world. Our top 3 causes would involve climate change, healthcare, and child-related issues.
The moral of the story is that $1.5 Billion is a LOT of money. The vast majority of regular lottery players have little to no personal finance skills or knowledge. They can’t manage their $50,000/year salaries responsibly as evident by the frequency with which they play the lottery. How you manage $50,000 is a mirror of how you will spend $500,000 or $5 Million. It doesn’t matter how many zeroes there are in the number.
People with personal finance knowledge will be able to spend windfalls more responsibly, we hope. However, $1.5 Billion is a different level of wealth than what most people are striving for. Most people aiming for financial independence are aiming for something under $10 Million. (most can be independent with $5 Million or less). To get to those numbers the general advice is to put as much as possible into a broad market, low fee index fund or ETF and just let it accumulate over a decade or more. This is the sort of thing we do at the Minerva house.
Notice that I said I was simply going to use a liquid savings account, or a CD ladder. That’s because with a windfall like that, living off the interest is more than plenty. Sure, putting all of that into an ETF like FI advice says, would let me challenge the Forbes superlatives lists, but that has less than zero value to us. Having a passive income of $2 Million per year off of just savings account interest is a crazy amount. That’s $16,000 per month. I promise we will be struggling to spend that much even if we went full luxury (first class flights, ocean view suites, limo service, etc.)
The prospect of winning the lottery is a fun thought experiment, and it’s worth pointing out that what fantastical ideas you come up with can in some ways be a reflection of how you spend your peasant salary of less than $200,000.
