The Mega Millions jackpot earlier this week hit $648 million, once again drawing attention from enthusiastic players seeking to make their fortunes. Predictably, most financial planners came out saying how bad a move it is to play the lottery. But does it ever make sense to spent $1 in the hopes of turning into millions?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the question of when playing Mega Millions actually makes sense from a financial perspective. Dan runs through the numbers, explaining how you have to consider the odds of winning, the size of the prize, and the likelihood that you'll have to split the pot with multiple winners, as this week's winning players did. Moreover, Dan points out that the lump-sum amount winners get is much less than the headline jackpot figure, which assumes an annuity paid out over 20 years or more in most lotteries. With taxes reducing the effective payout even more, Dan concludes that it would take an unprecedented jackpot of $1 billion or more to make playing the lottery make sense -- and even then, the number of multiple winners could make it unprofitable.
Neither Fool contributor Dan Caplinger nor The Motley Fool has any position in any stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.