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1 Alicia Hansen & Gerald Prante, Lottery Taxes Divert Income from Retirement Savings 1 (2006)

handle is hein.taxfoundation/ffefxz0001 and id is 1 raw text is: FOUNDATION January 19, 2006 Lottery Taxes Divert Income from Retirement Savings by Alicia Hansen and Gerald Prante Saving for retirement is a daunting prospect for many people, one that can make get-rich- quick options seem more attractive than slow and steady saving, investing, and planning. A recent survey conducted by Opinion Research Corporation for the Consumer Federation of America and the Financial Planning Association, reported in a MarketWatch article, found that Americans are, for the most part, pessimistic about their ability to save for retirement-so pessimistic, in fact, that 21 percent of respondents said playing the lottery is the most practical strategy for accumulating several hundred thousand dollars for retirement. The results of this study are not surprising, given that in Fiscal Year 2002, the average American spent more on lotteries than on reading materials or attending movies, and in Fiscal Year 2004, the average American spent $184 on the lottery (this figure includes video lottery terminals). If lottery players instead invested this money, they would have a head start on preparing for retirement. Few lottery players beat the long odds (less than one in 146 million for the Powerball grand prize') and win enough money for retirement, and lotteries, on average, return only 53 cents on the dollar2. For the average investor, over a forty-year period, the stock market returns 8110% more than the lottery. As Table 1 shows, 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. According to the National Gambling Impact Study Commission, in 1998 the top 5 percent of players spent $3,870 or more annually, and the top 10 percent spent 2,593 or more3. There are five states where per capita annual lottery spending exceeds $500 (Rhode island, South