Why Retirement Is Like Winning the Lottery

Powerball winners
By Tom Sightings

Last week, two lucky ticketholders -- one from Missouri and one from Arizona -- found out they won a huge Powerball lottery. The payout was advertised at $587.5 million. The family from Missouri had their picture splashed across the media, holding a big check for their half of the proceeds, or $293.75 million.

Of course, the lottery is just a fantasy for most people, certainly for the many millions of other players who lost last week. But even for the winners, the check for $293.75 million is not real. Those winners will never see anything close to $293.75 million. Instead, they'll likely opt to receive an annual payment consisting of just a small fraction of that amount, doled out over a period of 30 years. Or, if they really want the money now, the "cash option" is discounted by more than $100 million-and even after that, the government takes out more in income taxes.

It's still a lot of money. So how is winning the lottery like collecting the proverbial gold watch?

You're kind of lucky. The odds of winning last week's Powerball lottery were 1 in 175 million. That's less than the odds of drawing a straight flush in poker twice in a row. But in this day and age, you're also kind of lucky if you can afford to retire. The percentage of American workers in the private sector who enjoy a defined-benefit retirement plan has declined from about 40 percent in the 1970s to 20 percent today. The rest of us who are not so lucky are left to our own devices.

You gotta be in it to win it. If you don't buy a lottery ticket, the odds of winning are zero. Buy a few tickets and your chances are slightly better. At least in one respect, the same goes for retirement. If you don't play, the odds of a comfortable retirement are zero. To enjoy a winning retirement you need to buy some tickets in the form of contributions to your 401(k) plan, your IRA account, or one of the other retirement options sanctioned by the U.S. government.

You suddenly have a lot of money. The day you cash in your lottery ticket, you qualify for the 1 percent. The day you retire you also take responsibility for a substantial sum of money. It's not $293 million. But it could amount to $1 million, which is what many experts recommend you accumulate before you leave your job. The majority of that money is likely invested in one or more retirement accounts. But now you realize, this is not just a bunch of numbers that have been slowly accumulating over the years. It's real money. It really belongs to you, and it's all you have to live on.

You're on your own. Now you've got the money. But what do you do with it? The stories are legion about lottery winners who go broke buying houses, cars, and vacations. One West Virginia man won $315 million, and a decade later blamed the lottery for his divorce, his daughter's drug addiction, several lawsuits, and an absence of any real friends.

Most retirees don't have problems that dramatic. But like lottery winners, if they're going to live successfully for the next 20 or 30 years, they have to be reasonable, disciplined, and careful not to squander their savings on ill-conceived pipe dreams. Retirees, like all people who come into a lump sum, need to develop a financial plan, either on their own or with the help of a trusted adviser, then stick to the plan so it works over an extended period of time.

You can't forget the taxes. Like the lottery winners who think they have a check for $293.75 million, but really have a lot less, retirees might think they have access to all that money in their retirement plan. But a regular IRA is subject to income tax, as are other retirement plans that accumulate pre-tax money. Even Social Security benefits are subject to federal income tax under certain circumstances, and some states tax retirement benefits as well.

You have to adapt to a new lifestyle. Lottery winners typically quit their job, move to a nicer neighborhood, and realize they suddenly have a lot of new "best friends." Retirees also must adapt to a new life without a job, possibly in a new neighborhood where they have to make new friends, and work to keep up relationships with family and old friends.

The new retiree has a lot in common with a lottery winner. But there is at least one major difference. If you buy a lottery ticket, you have a miniscule chance of winning. If you contribute to your retirement account, you're bound to win.

Tom Sightings is a former publishing executive who was eased into early retirement in his mid-50s. He lives in the New York area and blogs at Sightings at 60, where he covers health, finance, retirement, and other concerns of baby boomers who realize that somehow they have grown up.

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Retirement is NOT like winning the lottery. Only a very small number of very lucky people will win the lottery, no matter how many people play. You can buy a ticket and hope, but that is it. ANYONE can retire comfortably if they plan and save properly. The problem is everyone wants to spend every dollar they make in the present, and when they don't have enough to retire they blame it on someone else. It is always someone else's fault. If I don't have enough to retire, it is MY fault. Period.

December 26 2013 at 9:36 AM Report abuse +1 rate up rate down Reply

I suspect he level of negative thinking in these comments, will produce self-fulfilling phophecies...and meager retirements. Two people with combined savings of around $1,000,000 can invest it in a 5% annuity for a guaranteed income of $50,000 a year. Add in a combined $50,000 of Social Securuty a year and you're going to live very well in retirement without worrying about running out of money. Contrary to popular belief, if you pay off frivilous debts, it costs less than you think to live a great retired life.

December 26 2013 at 8:09 AM Report abuse +1 rate up rate down Reply
1 reply to Bob's comment

An Annunity is a waste of money, you're giving them money you do not get back, to get a yearly stipend, if you die young, you lose. Buy dividend earning stocks,, my portfolio earns 6.2% and my money remains mine to leave for my children.

December 26 2013 at 1:21 PM Report abuse +1 rate up rate down Reply
Tom Harrell

But Never mind, retirement. How about the Taxes they take out of the Lottery winnings BEFORE you ever see a CENT ? ??---------------------I'll bet if you had Inherited that money or you were a CEO and got it as a BONUS for Outsourcing a Million of the Companies Workers to China, or received it all as a "BAILOUT" from the FEDS because you were Deemed "TOO BIG TO FAIL", your Take would probably be a HEL of a LOT "MORE" than the Quarter of the "PRIZE" they finally give you.-------------------------And WHERE does all that money (they take out in taxes) actually GO ? ? ?------------------Probably to pay the BONUSES of the people on the Lottery Commission----------YUK YUK

December 26 2013 at 6:56 AM Report abuse +1 rate up rate down Reply
Tom Harrell

Retirement is like winning the Lottery ? ? ?------------------------UNLESS you retire on Social Security after the recession has destroyed your Savings and the value of your House has dropped so low that you'll be Lucky to get Back what you Paid DOWN on it.

December 26 2013 at 6:40 AM Report abuse +1 rate up rate down Reply

If you think a million is enough, you better own a home with low property taxes. And don't ever plan on buying another new car or going on a trip out of state.

December 09 2013 at 10:56 PM Report abuse +1 rate up rate down Reply

People that write a comment in ALL CAPS are ignored by me. Too bad because they just might have something to say. Read the rules on netiquette and stop shouting.

December 09 2013 at 8:07 PM Report abuse -1 rate up rate down Reply
1 reply to David's comment


December 09 2013 at 11:01 PM Report abuse +1 rate up rate down Reply
1 reply to z2rock's comment

You don't have to write in all caps just because you have poor vision. You can easily increase your font size so that you can read it. Personally I zoom all web pages and just leave my browser that way. It takes 2 seconds. Make it as big as you want and it will be easier to read than all caps. BTW, if your vision is so bad you *must* type in all caps, how did you read the post to reply to?

December 26 2013 at 9:27 AM Report abuse rate up rate down

You must mean Government Employees. YES their Pensions are like winning the Lottery. But via another Law, they screwed the Middle Class Taxpayers, as Congress in 1982 passed a law (under Reagan) allowing companies to Cancel Traditional Pensions and replace with 401Ks. 401Ks then get hit with 30 - 40 years of Wall St. and Big Bank Fees of 1 - 2% per year, which adds up to 50% or more of your Pension is GONE (if you work for Private Employers, thanks to the new law the Government passed screwing taxpayers, even as they made their own pensions richer and raise taxes on rest of us to keep them rolling in millions).

December 09 2013 at 7:04 PM Report abuse +1 rate up rate down Reply

If i won that kind of money I'd buy a neighborhood in Detroit and fix it up. Sell houses far below market value and screen all the buyers.

December 09 2013 at 5:48 PM Report abuse rate up rate down Reply

Saving money is one of the most important things to do. If you put 20 dollars a week in your sock drawer you would have over a 1000 dollars in cash at the end of the year. The same idea applies to saving for retirement by putting any amount of money you can away.....it adds up over time. How can you do that ? Live beneath your means if possible. Dont eat out instead cook healthy food at home, dont waste your money on gifts at the holiday (give something inexpensive it is the thought that counts), keep your car for as long as possible, put 20 in your sock drawer every week etc. ....you will be surprised how much you can save if you make it a priority Stop looking to the company you work for or the government to save you. Only you can save yourself..

December 09 2012 at 6:33 AM Report abuse +3 rate up rate down Reply
3 replies to MR NUSSBAUM's comment

Do you live in the twilight zone?

December 08 2012 at 11:48 PM Report abuse rate up rate down Reply