Photo by Jakub Żerdzicki on Unsplash
If you have been around my blog any length of time, you know that every now and again, I do thought experiments. Recently I imagined an ordinary individual winning a million dollars and them thinking all their problems are solved. First things first, get the house of their dreams. Sure it is just an average house, but they are an average American, at last. How much does a house actually cost? This is the results of the experiment:
Putting housing costs into prospective. Say you have worked hard your whole life in retail and food service as a single person, and someone gave you a lottery ticket as a tip (on top of the normal 20%, tip, so they were not a total jerk).
Amazingly, you won a million dollars!!! Now you finally are going to own your own home. You are going to buy a “typical” middle class house – $410,000 (the medium cost of buying a house in the US the second quarter of 2025). Brand new!!! No, run down rental for you at last.
From the $1 million, all the taxes need to be paid first, then the house can be bought with the rest. So many plans to furnish the home of your dreams! A great mattress, room for a guest. All so wonderful. The lottery ticket was a tip – so you owe social security, medicare, federal and state (New Jersey – 10%) taxes on it. Obviously nothing was withheld on your paycheck. Your boss doesn’t even know you won yet; you will quit once you close on the house and see how much you have leftover. (The city and county you live in don’t have income taxes, so yay!)
The lottery office helps you calculate and withhold the taxes, and gives you a check for the balance. They are being so helpful.
Fed tax $328,187.75; FICA tax $153,000; State tax $100,000. Take home on the million dollar win after taxes: $418,812.25
Wait … what?
Well, that is more than enough to close on the house at least. The selling agent is being super helpful; you don’t even need your own agent.
Closing costs for a home runs between 2% and 5% if buying – let’s say since you are buying this for cash, it is only 2% for the closing costs. Costs added to the home sale: $8,200.
Well … okay. Everyone says the closing costs are amazingly cheap.
After winning a million dollars, to get in a typical middle-class house, you will have $612.25 left in your pocket. Time to start saving for property tax and insurance – in your case, they are going to be about the same annual cost: $4,100 or $8,200 for both. And you have no leftover money. Yeah, you are not paying a mortgage or rent anymore, but you are paying all utilities, the property tax, and the insurance. Not including house upkeep. You can’t quit your day job; the different between rent and home ownership costs is barely break even. You guess the mattress you have is enough, and you can wait on getting the house furnished.
The core of this thought experiment: winning a million dollars is only enough to pay for typical house in the United States (as of 2025 second quarter) … just barely. $612.25 leftover