In case you haven’t heard, the Mega-Millions jackpot has topped $540M. Yes, you could win just over a half billion dollars (before taxes of course) for the low, low price of one dollar. So… Are you going to buy a ticket?
If you’re not interested in paying for the privilege of playing the lottery, you can check out this lottery simulator from GetRichSlowly, instead. But if you do decide to buy a ticket and play along…
Be aware that your odds of winning are 1 in 176 million. Also, if you do win, you’ll have to choose between an annuity worth the full amount or a lump sum payment. Decisions, decisions.
According to an ABC news report, given the current interest rate landscape, a $500M jackpot win would equate to a lump sum payment of around $359M. Conversely, if you annuitized, you would get $19.25M/year for the next 26 years — with payments going to a designated beneficiary in the even that you die.
Why the connection with interest rates? Because the good folks behind the lottery will by a zero coupon bond to cover the annuity payments. The lump sum payment is equal to the size of the required bond and with low interest rates, that bond needs to be larger. In a high rate environment, the lump sum would be lower.
While musing with my kids about what they’d do if they won the lottery, our 14 year old said “I know what you’d do, dad. You’d buy mutual funds.” Does he know me, or what?
Actually, with that kind of cash laying around, I wouldn’t have much need to take risk, so I’d probably invest it quite conservatively.
Our twelve year old chimed in saying that he’d build a full court basketball court in the backyard. When asked why he wouldn’t just buy a huge house with an indoor court, he said that he likes our house and doesn’t want to move. Good kid.
What about you? If you won the Mega-Millions jackpot, what would you do?
Full disclosure: My wife bought six tickets last night — one for each of us — as a bit of fun. Yes, we’re fully aware that the lottery is little more than a tax on people who are bad at math, but that doesn’t mean we can’t have a bit of fun with it.