Wednesday, December 18, 2013

Mega Millions Where the Sheep get Sheered!

The Mega Millions gets a ton of media coverage as many people line up to give a few dollars at a chance to win it big. The media interviews a few people as they dream of what they would do if they won and how it would change their life. Most of the people who buy a ticket are buying into this dream. They think that a few dollars doesn't matter for the chance to win. 

At this time I want to recall what I learned reading John D. Rockefeller's biography when he said 5 cents is a years interest on a dollar. So lets look at $5 is a years interest on $100. With today's rates its much more maybe interest on $300. 

Lets look at the Math 

If you read the official Mega Millions Lottery web site you will see that the odds of winning the grand prize jackpot are 1 in 258,890,850.

First is the organizations cut. Of all the money that is wagered the lottery only pays out a percentage. I'm not sure but lets say 50% goes to the businesses and organization and the other 50% goes to the winner or winners.

Second is the cash reward cut. The winner is suppose to get $636 Million if it is one person. We know 2 people won so that is already divided by 2. But the Cash payment of only $341.2 million then divide that by 2. 

Third is the Uncle Sam Federal Government cut. Then the winner has to decide to take a lump sum payment or an annuity. As of 2013 the top Tax bracket is $400,000 for single person and $450,000 for Married couple at 39.6 percent. If someone took that cash payment ($341,200,000 * 39.6) $135,115,200 in federal tax. Leaving the winner with $206,084,800 but remember 2 people won so divide by 2. 

Forth some States and Cities take cuts. Some lucky residents of the 42 states (plus the District of Columbia) participating in Mega Millions, there are five states that don't have state income tax: New Hampshire, Tennessee, Texas, South Dakota and Washington.
Lets say the unlucky winner is from New York State the highest taxing state at 8.82%. The CITY of New York will take another 3.87%. State and local taxes are deductible from federal taxable income but still it does take some off the total. A New York City resident would only get roughly $198 million divide by 2 so $99 million. 

For the last 2 sheep standing they get $99 million or possible a little higher depending on the state. This is 15% of the original $636 million being hyped. Take into account the odds of winning this amount and it doesn't make a lot of sense to put hard earned money into this kind of game or investment. I am free market believer so I don't care that people play but I am tired of hearing people complain that they don't have money when they throw it away all the time. 

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