"The real chances of winning [the lottery are] akin to getting struck by lightning at the same time you're getting eaten by a shark."
-- John Oliver on Last Week Tonight, HBO
Actually, Mr. Oliver is exaggerating. According to widely cited statistics, the odds of getting struck by lightning in any given year are 1 in 700,000. The odds of getting eaten by a shark, meanwhile, are an even less likely: 1 in 11.5 million. Two such incidents occurring simultaneously, while likely hilarious, seems unlikely, at just one chance in 8.05 trillion.
Figuring out how to win the lottery, in contrast, should be a much simpler task.
Two ways to win...
The "easy" way to win the lottery, of course, is to simply buy the one ticket out of 258,890,850 that contains the winning combination of digits. That's what one lucky customer at a New York state Valero (VLO 0.81%) did recently, plucking the winning numbers 09-15-24-39-41 and "Mega Ball" 01, and becoming the sole winner of the Mega Millions $326 million jackpot.
The trick, though, is to quit playing the lottery immediately upon winning. Because if you keep it up, you'll lose it all. Guaranteed.
Don't believe me? I'll show you the math.
...are really only one
According to research conducted by Bloomberg, the average lottery player in America collects $0.60 in winnings for every $1 worth of lottery tickets they buy. (In New York State, where the Mega Millions winner bought her ticket, the returns are even worse -- just $0.58 "won" for each $1 "invested" in lottery tickets).
Now, swallowing a $0.40 or $0.42 loss each time you play the lottery may not sound like much -- especially if you think you've got an angle for how to win the lottery, and expect to beat the odds every now and again. Over long periods of time, however, losses are baked into the system -- and they add up.
Let's consider, for example, the lucky winner of last week's Mega Millions jackpot. Upon winning the big prize, and electing to receive his or her winnings in the form of a one-time cash payout of $194 million, said winner will immediately be hit with a 35% tax on those winnings from the IRS. Add a further bite from New York's top tax rate of 8.82%, and the $326 million will be reduced to approximately $109 million.
Now, let's take that $109 million and put it back into the lottery system, and see what happens.
On Day 1, the winner takes his or her winnings, and buys $109 million worth of lottery tickets with them -- hoping lightning will strike twice. (Hey, at just 1 chance in 700,000, lightning strikes are a relative certainty)!
Problem is, at a 40% loss rate, that initial $109 million stake drops to just $65.4 million by Day 2.
You know where we're going with this, right?
Reinvested in lottery tickets on Day 3, this sum falls to $39.2 million 24 hours later. And it's all downhill from there.
Day 4: $23.5 million.
Day 5: $14.1 million.
Day 6: $8.5 million...
You see where we're going with this? After 10 days of lottery-playing, America's newest-minted hundred millionaire is no longer even a one millionaire. Four days later, this "winner" drops below $100,000 in net worth. And by Day 38 -- a little over a month after being crowned America's newest $100 millionaire -- the Mega Millions winner will be reduced to just $0.67 in cash.
As in -- too poor to afford another lottery ticket.
Which is why I'm saying that it's really easy to figure out how to win the lottery: Since losing everything you spend on lotteries (even when you win) is a statistical certainty, the only real way to "win" the lottery is to refuse to play.
Time to beat the odds
But here's the good news. Even without a lottery, there are multiple avenues to retiring rich. Here are just three ways you can be 100% certain of retiring a millionaire, no lotteries, lightning strikes, or shark attacks required. According to The Motley Fool's "What will it take to become a millionaire?" calculator, if you:
- Invest $10,000 in the stock market at age 25, and then add $300 more to that investment every month, then by age 65, you will retire with $1 million in the bank.
- Want to "set it and forget it?" Simply invest $50,000 in the stock market at age 25, and you can retire at age 67 with $1 million.
- Like the idea of guaranteed millionaire-hood, but don't have $50,000 -- or even $10,000 -- to invest right now? That could be even better. Start with nothing, but commit to making monthly investments of $400 from age 25 to retirement, and you can retire at age... 64.
Mind you, every individual's situation is different. For the above scenarios, for example, I fed into our calculator assumptions that you're in the 25% tax bracket, in a state with 3% income tax, and earning only the market's long-term average of 10% annual returns. In fact, it's possible that you can make even more money from the stock market -- and retire even earlier.