KNUST wins Research and Innovation Challenge organised by Royal Crown Packaging Limited

There are several global lottery games (including those in Australia and the UK) that claim to make their lucky winners “set for life”. In this setup, a winner receives a fixed — and very ample — sum of money directly into their bank account every month over a number of years. In the Australian version, for instance, a jackpot winner receives a $20,000 windfall every month for 20 years, with the promise of never having to work to earn a living again (providing you’re smart with the money, of course).

But do the sums offered by these lotteries really make it possible to live in financial comfort for the rest of your days? What does being set for life really mean? And how much (in theory) would you need in order to be truly set for life?

How much do you need to be set for life?

Of course, a lot will depend on what you plan to do with the money. The lifestyle choices you make will go a long way to determining whether your bank balance can sustain early retirement and stretch well into your golden years. If your mantra is to bottom out your balance every month (‘cause you can’t take it with you!) then your funds won’t last long after the well runs dry; if you’re more frugal with the funds (or you invest them in something like a startup business) your wealth will endure as long as you do.

It’ll also depend on one’s age. If you were to hit the jackpot in your 20s, say, you’d need a longer term plan to ensure you’ve still got ample cash in the bank when you reach middle-age. Conversely, if you were to secure a win in your 50s or 60s, such long-term planning probably wouldn’t be necessary (again, all depending on how sensibly you use the money).

Of course, not all lottery games offer this kind of gradual accumulation of wealth; with most, jackpot winners can expect a hefty, one-off lump sum. The US state lottery Mega Millions, for example (which you can play online through Lotto247), has a minimum advertised jackpot of $40 million. Other lottery games come with the promise of similarly life-altering sums:

 

A one-off jackpot offers the prospect of overnight affluence, but requires a different way of thinking when it comes to planning an early retirement. How much do you spend up-front on abundantly-bedroomed mansions, idyllic vacations and supercar fleets? How much do you invest in the hope of growing your riches? Do you put most of it away in savings and watch the interest accumulate?

In truth, there’s no definitive answer to the question of how much money you’d need to be set for life, but the so-called “25 times rule” is a good enough rule of thumb (although, it must be noted that this is by no means a failsafe system). The concept of the rule is fairly simple: you calculate your average annual spending and multiply that figure by 25. In theory, that’s the minimum you’d need invested to fund your life without working for a living.

To put that into context, say you calculate your annual outgoings at around $40,000. To be theoretically set for life, you’d need at the very least to hit millionaire status (25 x $40,000 = $1,000,000). In that scenario, a fairly modest lottery win (if you can call a million dollars modest) would be enough to set you up for early retirement, but of course, that’s completely dependent on some of the factors touched upon already (age and financial prudence, for example).

In a set for life model (where wealth is built up over time) you should (again, in theory) be able to live without working, as the cumulative sums offered would cover an above average annual spend for 25 years and beyond. For instance, if you’re a UK resident and you scoop the National Lottery’s Set For Life jackpot, the £10,000 offered over 30 years would amount to a cool £3.6 million (around $4.4 million in US dollars). Even if your average annual outgoings were in excess of £100k (or $120k) you’d be well set for at least 25 years.

So while there’s no clear-cut answer, the 25 times rule is a good place to start. And if you’re lucky enough to scoop a jackpot on any one of the 180-odd lotteries offered around the world, you’re likely to have more than enough in the bank to sustain a comfortable life without the need to work. It’s important to plan ahead, however, and use your newly-acquired wealth smartly to ensure the best long-term payoff.