How big does the lottery jackpot need to be to let you quit your job?
Hoping to fund your retirement by winning the lottery is a ridiculous idea.
Sure, someone has to win, but banking your future well-being on a cheap ticket, a handful of carefully chosen numbers and near-impossible odds isn't financial planning – it's wishful thinking.
But if you're fond of daydreaming about winning the big jackpot, how much would you actually need to win to quit your job for good?
June 16, 2015 By Craig Wong The Canadian Press
That depends on an array of factors, including how you plan to live your
life going forward, how old you are and what kind of financial legacy
you want to leave, says investment adviser Kathryn Del Greco at TD
While some may be happy to putter in their gardens,
others may have a bucket list that includes playing the great golf
courses of the world and indulging their love of rare wines and fine
“There isn’t a magic number that you could apply to everyone,” Del Greco said.
you begin your fantasy session, keep in mind that lottery winnings
aren’t taxed in Canada, so the amount on the oversized novelty cheque
you’ll be handed in your dreams will be the very same sum you’ll deposit
in the bank.
But once that money starts earning interest and investment income, those amounts will be taxed.
Moser of BMO InvestorLine estimates a risk-free portfolio of GICs will
yield close to one per cent, while you may be able to earn four to five
per cent a year by taking some risk in a conservative portfolio.
longer the time horizon for needing the income, the greater the pool of
money you’re going to need at the beginning to make sure that money
lasts,” he said.
A five per cent return means that for every $1
million in lottery winnings, you could generate about $50,000 in annual
income before any fees and taxes. Put another way, a five per cent
annual return on $5 million could generate about $250,000 a year.
many forms of investment income are taxed at a lower rate than money
earned by working, so compared with your salary, you may not need to
make quite as much from your investments to have the same amount in your
pocket after taxes.
Del Greco also cautioned inflation can erode the value of your nest egg without at least some investment growth.
why we encourage a balanced portfolio that would incorporate
high-quality, dividend-paying stocks, because dividends are taxed at a
lower tax rate, and also blue-chip equity stocks provide a natural hedge
to inflation pressures,” she said.
If you do hit the jackpot,
both Del Greco and Moser recommend putting the money aside for a time
before doing anything with it to give yourself time to formulate a plan
once the initial thrill of the win passes.
“Before you make any
rash decisions, before you start spending any money, before you start
giving away all the money, you really want to sit down and figure out
what the purpose of this money is,” Moser said.
In your dreams, at least.
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