You've probably read the stories of lottery winners who hit the jackpot, winning life-changing sums of money -- only to squander their winnings just as fast as they received it. I've written on the subject myself.
But, as interesting as those stories are, research shows that gambling away a jackpot, or losing it all after spending it on cars and mansions, isn't the norm for lottery winners.
Despite what you've heard, most lottery winners are in better shape with their personal finances than before they won -- even many years after winning.
Here's what the research shows about lottery winners, why there's a common misconception about them, and how to manage your own money even if you never buy a winning ticket.
Most lottery winners don't squander their winnings
There may be one big reason why there's a common misconception that lotto winners blow through their jackpot: An often misstated statistic that 70% of people who get a windfall spent it in a few years has made its rounds for years.
The statistic has been attributed to the National Endowment for Financial Education, but the organization set the record straight in 2018, saying that it never published any research saying that.
So, for the record, most people don't go broke after winning a lottery jackpot.
In actuality, research shows that lottery winners are doing pretty well financially many years after they hit it big. A study from the National Bureau of Economic Research tracked more than 3,000 Swedish lottery winners between five and 22 years after they won. It found that they didn't spend their winnings quickly, and instead slowly spent it over many years.
The jackpots weren't insignificant, either. The winnings ranged from $100,000 to $2 million.
And despite another common misconception that large winnings may make people unhappy, the research found that while they weren't necessarily happier day-to-day, they were generally more satisfied with their lives.
Interestingly, most jackpot winners continued to work, though they worked less than before, and they usually retired earlier than other people.
How to retire with a jackpot-sized sum
Lottery jackpots are tempting to pursue because they take no planning or effort, but have a potentially huge payoff.
Americans spent $108 billion on lottery tickets last year, yet most of us have yet to score a massive jackpot. For that reason, it's worth looking at a few steps you can take to actually retire as a millionaire, no lotto tickets required.
1. Figure out how many years you have left before you retire
The more time you have, the better your chances of building a sizable sum for your retirement. But you'll never get there if you don't have a retirement plan that helps you figure out how much money to set aside every month. And when you're estimating how many more years you have to work, consider that many people are forced to retire earlier than they planned.
2. Invest money regularly
Once you know roughly how many more years of work you have, the next step is to begin contributing to your retirement plan regularly. For example, if we assume a 10% annual rate of return, a 30-year-old who wants to retire at 60 will need to contribute about $525 per month to reach $1 million. Setting up a brokerage account can help you start with investing, or you can sign up for a 401(k) program through your work, if one is available.
3. Some is better than none
Some people may assume it's a lost cause to save for retirement if they can't hit a goal of $1 million. But it's important to remember that putting some money aside regularly is better than nothing. For example, if you're 40 years old right now and don't have any retirement savings, you could still retire at 70 with nearly $395,000 if you invest $200 per month toward retirement and earn a historical annual rate of 10%.
While it's fun to daydream about winning the lottery, setting up a clear plan for retirement offers its own reward by taking advantage of compound interest -- which is a form of hitting the jackpot, considering that you'll likely end up with far more money than you initially put in.
