Lessons From Powerball
With the Powerball jackpot eclipsing one billion dollars, unprecedented lottery fever is sweeping the nation. Around water coolers, in person and virtually, the entire country is consumed with conversations about how to spend a possible windfall. While you didn’t win, it’s been fun to think and fantasize about it. But, there are some must-know and lessons from Powerball that we should all know. Some observations from listening to our members talk about the jackpot:
1. Never take the annuity.
The average return on the annuity comes out to less than a 2 percent annual yield. Historically, that’s less than inflation, meaning you’re better off stuffing cash in your mattress than taking the annuity. Side note: Do not stuff several hundred million dollars in a bed; aside from the financial and security concerns, your mattress will be incredibly uncomfortable and scrape the ceiling.
If you were to put your money into one of our savings products, you would get a much better return. Again, we wouldn’t recommend putting a few hundred million dollars into your savings account and calling it a day, but spreading your money around in a variety of financial products could yield much better results. For example, our money market accounts, savings certificates, IRAs, and similar savings products all offer returns with low risk, much better than leaving your money in an annuity provided by the lottery commission.
2. No one seems to understand what a billion dollars are.
One billion dollars is not a lot of money. It’s an incredible amount of money. It’s easy to forget that one million dollars are one thousand times larger than one thousand dollars; it’s even easier to forget that one billion dollars are one thousand times larger than one million dollars. In other words, if you currently owe $250,000 on your house, one billion dollars would pay your mortgage. It will also pay the mortgage of every family in your neighborhood (100 homes at $250,000 is $25 million). And the whole neighborhood’s car notes (200 cars at $40,000 is $8 million). And put everyone’s kids through college (200 children at $250,000 is $50 million). And you would still have enough money left to do the same for ten more neighborhoods just like yours.
3. One billion dollars is so much money; it’s enough to rethink our happiness.
As long as we’re all having trouble pretending to spend the jackpot, it’s a reminder that joining the one percent doesn’t have to be the goal. If you can’t think of a way to spend one billion dollars, you probably don’t need to make one billion dollars. If you were to hit the jackpot big enough to pay off your debt, fund your retirement, and set up a fund to take care of your family for the next century, would that be enough to satisfy you financially? If so, you could probably do so for a fraction of the Powerball jackpot. Each individual’s experience will vary, but for most of our members, a few million would be enough to hit all of those goals.
So what would you do with the rest of the money? Who cares? Everything after that point would be fun, but meaningless. We’d all love to own an NBA team, but most of us would be almost as happy with season tickets. A lot of us would rather watch the game at home, anyway. Would you like to drive a nicer car? That’s great, but how much time would you spend in your Bentley if you weren’t commuting to work every day?
Not just sunshine and rainbows
The other side of the coin is right, too. The horror stories about lottery winners who ended up alone broke and miserable have given a lot of people reason to pause. It seems like every conversation about the Powerball jackpot has to bring up the curse of the lottery. Whenever that happens, people talk about putting aside enough to make sure they’re happy, but instead it seems like having so much money is what causes the curse. With one billion dollars, you could give away 99 percent of your winnings and still have enough money for everything in the last paragraph, so why not just give it all away at the outset? Then, no one is coming around with their hands out, you never have to wonder if people are after your money, and you’ll still be set up well forever.
4. Figure out your retirement number.
One of the most interesting things underlying these conversations is that people don’t seem to know how much they’d need for the rest of their lives. While it’s not likely to ever come up because of lottery winnings, knowing how much money you need to live on for the rest of your life is important. It lets you plan your savings, investments, and schedule your retirement. If you don’t know your number, it’s time to make serious plans. Stop waiting on a lottery windfall.
So are you ready to learn the lessons from Powerball? I think we would all like the chance to win 1 billion dollars to learn those lessons. What would you do with the winnings? It is always fun to imagine. No matter, if you win or lose, we are here to help you with all of your financial needs. How can we help you today?
