Remember the cartoons here and here posted by the TaxGuru not too long ago on the topic of “what a retirement plan is not”? A recent survey co-sponsored by the Consumer Federation of America (CFA) and the Financial Planning Association (FPA) reports:
A surprisingly high percentage of Americans think that the most practical way for them to accumulate several hundred thousand dollars is to win the lottery. When asked about the most practical way for them personally to accumulate several hundred thousand dollars, over half (55%) said “save something each month for many years.” Yet, more than one-fifth (21%) said “win the lottery,” and among the least affluent and those over 55 years of age, these percentages were much higher — 38% and 31% respectively. When asked about very important wealth-building strategies for all Americans, 16% said “win the lottery.” Those without high school degrees were much more likely to select this option than were those with college degrees — 30% vs. 8%.
The Tax Foundation is attempting to put that myth to rest in this article: “Lottery Taxes Divert Income from Retirement Savings“:
[A] person who spends $100 per month on the lottery—slightly less than the average resident of Rhode Island spends on the lottery (see Table 2)—over a forty-year period would be $144,000 richer if he instead invested that money. A lottery player who spends $50 per month—slightly less than the average resident of Massachusetts—would have an additional $72,201 if he instead invested his money, and the average New Yorker, who spends about $25 a month on the lottery, could be over $36,000 richer by retirement age if he instead invested in the stock market.For the highest-spending lottery players, the difference is even more dramatic. A person who spends $300 a month on the lottery could instead earn nearly half a million dollars in the stock market—$433,208 more than he would win playing the lottery.
The article goes on to report that “there are five states where per capita annual lottery spending exceeds $500 (Rhode island, South Dakota, Delaware, West Virginia and Massachusetts).”
(I guess that is one more reason for Congress to pass the “automatic enrollment” legislation which both the House and the Senate have agreed to in different bills, i.e. take it out of the paycheck before it is spent on the lottery!)
(Hat Tip: TaxProf Blog)