What do Retirement, Debt and Winning the Lottery have in Common?

Quite frankly, very little.  A lottery winner from Nebraska  hit the largest lottery jackpot in the United States up to that point.  A common question posed to the lottery winners (and this was no exception) is “what do you plan to do with your winnings”?  When asked this question, this winner replied “I’ve been retired for about four days now”. That’s not an unusual answer and, sadly, there are a lot of people hoping to “win big” in the lottery to fund their retirement (or some other big goal that they may have). 

There are a great many states, Arkansas being one of the most recent, have some type of lottery with some type of huge payoff.  The news reporters are still offering regular coverage about the lines at the convenience stores (and other venues selling tickets), or stories about how many places are selling out of tickets on a regular basis.  Honestly, it’s not that I’m adamantly opposed to the lottery but I have to admit that I’m a lot less than thrilled with it.  The biggest reason is due to the number of times I’ve watched at the person in front of me spent their last dollar to purchase a ticket just to move to the side, slowly scratch the ticket off and then see the last of what resembled “hope” wilt from their face. 

Again, I don’t want to belabor the point, but you don’t see the affluent standing in those lines, with hopes of adding to their wealth.  If you look at the demographics on who purchases lottery tickets, you’ll find some startling statistics:

–       The vast majority of the per capita lottery sales fall into family with a household income of less than $10,000 per year.

–       The second highest per capita lottery sales fall within families with household incomes ranging from $10,000 – $24,999 per year.

–       This trend of purchasing lottery tickets continue to decrease as the annual household income increases.

(These numbers were reported “Squaring the Boston Globe” On Feb. 6, 2007)

At this point, I’m not here to berate the lottery.  I do, on the other hand, want to redirect my readers to a better retirement plan.  It’s much easier than you think and will put money into YOUR pockets rather than let the state figure out how they want to spend your hard earned money.  Here are some suggestions:

1. Start early! If you started saving $100 a month beginning at age 18, you would have over $1,200,000 by age 65 (at an average 10% interest rate). The power of compounding is great, and the earlier you start saving, the greater the benefit.  Seriously, we’re talking about $25 per week.

2. Have a plan. The best way to ensure that you will have a comfortable retirement is to plan how much you will need to retire. I’ve got to tell you… it’s hard to know when you get there, if you don’t know where you’re aiming.   

3. Participate in company sponsored retirement plans. There are several companies that offer matching contributions to the 401K retirement plans.  It’s free money, don’t miss out on that.

4. Think diversity!  A diversified portfolio of stocks and bonds, especially with the advice of a professional may fit nicely into your long term plans and mitigate risks.  Studies have shown that your investment return is determined primarily by the allocation of your assets, not the individual investment selections you make.

5. Get out of Debt!  This is a big on (a REALLY BIG one).  With credit card companies increasing interest rates, even on those with good credit ratings and current on their bills, it’s not uncommon to find that you will be paying 30% (or more) on the items you purchase using the credit card.  As an example, if you have purchase a single item that costs $1000 and you are paying 34.2% annual interest rate and you pay the minimum of $35 per month on that payment.  When all is said and done, you’ll have paid more than double for that item and it will take you 5 years to pay if off.  Think about it, you will have paid $1097 in interest (more than the original item cost) and you’ll be paying for that item for 5 years.  Depending upon what you purchased, you may be paying for something that’s long gone.

Although winning a large lottery certainly can’t hurt, following the steps above should send you well on your way to a comfortable retirement and save a bundle in the process.

Roger G. Best

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