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Wisconsin factory workers win $208M Powerball lottery

Topic closed. 74 replies. Last post 10 years ago by Just6ntlc.

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justxploring's avatar - villiarna
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Posted: August 10, 2006, 2:29 am - IP Logged

Psykomo - sorry I spelled your name incorrectly.  Just noticed. I can't edit my post...too late! LOL 

Coin Toss  - I think you and I are saying the same thing, right?  No group can claim a prize as both an annuity and a cash payment unless that state has an exception (some do) where more than one winner can receive a prize for one ticket. Let's forget the graduated annuity for a minute. If a group in GA bought a MM ticket and won $150M and 10 people won, each person would be entitled to receive $15M. The people choosing a lump sum would get $7.5M (assuming 50% cv) and the others would get $577,000 a year for 26 years.  I've never seen this happen, but I suppose in a state where they offer to pay multiple winners of one prize, it is entirely possible!  So this way the state is looking at the one ticket as 10 separate wins. I think this is the reason so many FAQs on sites say the lottery will only pay one winner. Nobody ever imagined that 100 people would win one jackpot, but if WI has that "one winner only" rule, it'll sure save the state lots of red tape. One check will be written and the burden of equitable distribution will be passed onto the winners. 

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    Posted: August 10, 2006, 9:41 am - IP Logged


    justxploring

    It seems it's being assumed that if people all agree on a cash option (cv as you say), then some can get paid annually, thus annuity - but it sounds like this is being paid based on the amount of the cash value prize.

    My poinst is, if someone is going to go for an annuity, why are they settling for cash value? This thread now has me thinking this might have actually happened to some poor slob!

    I'm still pretty sure that when it comes down to which payoff a group wants from the lottery, it has to be declared advertised jackpot amount, or cash option amount, one way or the other.

    Or esle, we have this:

    Hey Clancy, we hear you hit the jackpot!

    Yup, sure did!

    How much if we can ask?

    $5,000,000!

    We thought the jackpot was $10,000,000.

    Well yeah, it was, but I asked for the cash option.

    Well that's a lot of money to get all at once.

    Well, I asked for annual payments.

    An annuity? Then why didn't you get the $10,000,000 and not $5,000,000?

    Clancy: Oh no! DUH!

     


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      Posted: August 10, 2006, 9:54 am - IP Logged

      In Texas, it's called "cash value option", or CVO. There the wrong choice is AP.

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        Posted: August 10, 2006, 10:19 am - IP Logged

        "Sorry I come off as confusing.  I'll try again using your example. 

        Two people win.  Two winning tickets.  The prize if $20 million - I assume you mean $20 million annuity here.  Let's call the cash $9 million - the amount that the lottery actually has on the day of the win." chuck32

        Chuck, that wasn't the subject at all.  I can't speak for Coin Toss or anyone else here, but from my point of view we were all talking about the Wisconsin winners, right? There was only ONE winning ticket. It is an entirely different situation which is why I asked you to please provide a link to any case where a state paid a single claim in a variety of ways, i.e., 3 people lump sum, 4 people annuity.  I'm not saying it never happens, just that I've never heard of it and now we are talking about 100 people and one jackpot. Anyway, if WI has a rule that only one winner is paid, then a Trust will have to claim the money and payout the winners. I would be very surprised if a Lottery Commission would open up that can of worm and do so much paperwork. 

        "Of course these folks can retire.  If they take the GUARANTEED ANNUITY, they will get a guaranteed income stream that will keep up with inflation and is likely to be slightly better than they are currently making.  These second shift workers reportedly have incomes of $30,000 to $40,000." 

        Chuck, I hope I don't sound too argumentative. I don't mean to be. It's just that the above comment sounds a bit judgmental. You are assuming that these people were happy as pigs in mud making $30K a year. Perhaps they were, but maybe they also want a better lifestyle. If they continue working, they can now get it without working double shifts or budgeting every dollar. Also, what are the married workers going to tell their spouses? "Honey, get up. I'm staying in bed from now on!" For me that kind of money would be enough to retire, but I don't have a growing family. (I'd still take the cash.)

        There are other important things to consider when you have a good job. First, if someone has a family he has the responsibility of providing them with protection. What I mean is that a plant like Sargento probably offers wonderful group benefits. We really don't know the personal stories of the winners, so this is all conjecture. But out of 100 people, I will bet there's somebody with a pre-existing condition like heart disease that would keep him from getting good, private medical coverage at a reasonable rate, if at all. Do you know what a family plan costs? Plus private plans don't have to follow the group laws and can be cancelled. If you have a child with a disability, or a wife with cervical or breast cancer, those benefits are priceless.

        Maybe some time to take a fun job - one you don't really care about losing"

        Depends if you're talking about a carefree single guy or a family man (or woman.) I guess everyone's different, but I don't understand why a person wouldn't want to provide his/her family with a nicer home, a good college education and straight teeth!! There's nothing wrong with goofing off a little, taking a nice vacation or buying a really sharp car, and I relate 100% to what you're saying about taking a fun job.  In fact, your above statement is my goal! But I think winning the money and saying "I think I'll have fun" is a bit irresponsible when you have others to think about because the future is so unpredictable and it would be important to make sure that in 30 years, when the checks stop coming, you've put away enough to retire comfortably. Just my opinion.

        NOTE to Psychomo - nobody gave you an attaboy for your "Whey to go" comment.  So let me do it now. 

         Green laugh

        Whoa!  You read far too much into my small comments about how a person might chose to live.  I am not so judgmental as to begin preaching about how a person has a duty to provide for college educations, straight teeth, a nice house, etc.  As long as they don't ask my to support them, folks can live how they please, I say.

         I am not aware of any press article that talks about how the NE lottery winners split their prizes.  The press just does not cover that kind of detail.  You could check it out at the NE Lottery. 

        The WI Lottery has already announced that it will split cash and annuity by individuals in this group.  It is common for groups in WI to get the court order.  Just a matter of filing some forms.  Here is a newspaper article on that:

        Boston Globe, By Emily Fredrix, Associated Press Writer, August 7, 2006

        State law requires that payment be made to a single winner unless a court order is obtained, Iverson said. Then multiple winners could choose individually whether to receive a lump sum or get the larger amount spread over 30 payments, the lottery spokeswoman said.

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          Posted: August 10, 2006, 10:39 am - IP Logged


          Not trying to 'out' anybody. I'm just wondering why we'd never heard of one of these 'split' payoffs before. 

          This is what I was getting at: in your example above:

          The two winners want different options.  The $9 million cash is split.  The cash guy takes $4.5 million in cash.  The annuity guy gets $4.5 million plus interest (for maybe $10 million annuity).

           

          OK- so the annuity guy - the annuity is based on the casah option value, even though it is an annuity -  meaning that had he convinced the other guy to also go for the annuity, the prize wopuld have been $11,000,000 more.

          So I'm still a little foggy on why someone would want annuity based on the cash value prize - the lottery commission gets the best of both worlds.

          So in essence, what has happened here is that they both get the cash option value dollar amount, and the annuity guy decided to take that in the form of an annuity. Why would anyone do that?

          I'm sure anyone reading this thread that would be involved in setting up a charter for a trust for pool group play beofre a hit (just in case of a hit) would make sure to have everyone involved specify annuity or cash option - one or the other for everyone, and that would be that.

          In other words, "if we hit do we want annuity or cash option - oneway or the other, has to be unanimous." 

          I guess I'm not doing a very good job of explaining this.  No, it does not have to be unanimous.  One person can take the cash, one person can take the annuity.  I'm guessing that you might think that the lottery already has all of the money in the annuity amount.  It does not.  The annuity is created with future interest earnings.  The only thing that the lottery has is the cash amount.

          The cash amount is first split among all of the winners (just in the lottery's head at this point, not actually handing out money).  A winner can choose to receive the prize as either cash or annuity.  If one of the winners wants the annuity method then the lottery will invest the money for the winner and pay out the cash, plus the interest earned over time.  100% of the cash and interest goes to the winner.

          All annuities are based on a cash value.  There is no other way to do it.  An annuity presupposes a cash amount.  Annuity mean a cash amount that is invested and paid out as cash and interest over time.

          Why would anyone decide to take an annuity? OK, here goes.  Let's use $100 million in cash as an example (easier on my math skills).

          If the winner takes cash, he pays about 45% in state and federal taxes.  The cash wininer then has about $65 million left over to invest.  Where will he invest it?  He can take some risk and earn a high rate or he can look for a safe investment with a lower rate.  Risk means that he could lose all of the money.  Most people will probably want to set up an income stream that will keep up with inflation for most or all of their life.

          If the winner takes the annuity, then the lottery invests the entire $100 million.  The lottery does not pay taxes and since the winner does not yet have the money, the winner does not pay taxes on the $100 million.  The lottery is then earning interest on $100 million while the cash wininer is earning interest on $65 million.  The lottery pays out all of the cash and interest to the winner over 29 years.  The Powerball game creates an annuity stream that increases the payment each year by 4% - about the expected rate of inflaction.

          So the choice is - do you want to invest $65 million yourself or do you want to invest $100 million that has a structured payout over 29 years giving a guaranteed income that increases by 4% every year.

          Deciding what you want to do with the money is the winner's choice of course.  There are also good reasons for spending the money right away - a winner's age is key.  Or maybe the winner has a great investment for the cash.  Or maybe the winner just wants to spend it all on one huge part and then get back to his normal life.  I don't JUDGE people here if they don't set up a nice dental plan.  <G>

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            Posted: August 10, 2006, 12:12 pm - IP Logged


            chuck32

            You just gave me the answer I've been looking for all along:

            Then multiple winners could choose individually whether to receive a lump sum or get the larger amount spread over 30 payments, the lottery spokeswoman said.

            That's what I was getting at.

            Thanks.

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              I guess I'm not doing a very good job of explaining this.  No, it does not have to be unanimous.  One person can take the cash, one person can take the annuity.  I'm guessing that you might think that the lottery already has all of the money in the annuity amount.  It does not.  The annuity is created with future interest earnings.  The only thing that the lottery has is the cash amount.

              The cash amount is first split among all of the winners (just in the lottery's head at this point, not actually handing out money).  A winner can choose to receive the prize as either cash or annuity.  If one of the winners wants the annuity method then the lottery will invest the money for the winner and pay out the cash, plus the interest earned over time.  100% of the cash and interest goes to the winner.

              All annuities are based on a cash value.  There is no other way to do it.  An annuity presupposes a cash amount.  Annuity mean a cash amount that is invested and paid out as cash and interest over time.

              Why would anyone decide to take an annuity? OK, here goes.  Let's use $100 million in cash as an example (easier on my math skills).

              If the winner takes cash, he pays about 45% in state and federal taxes.  The cash wininer then has about $65 million left over to invest.  Where will he invest it?  He can take some risk and earn a high rate or he can look for a safe investment with a lower rate.  Risk means that he could lose all of the money.  Most people will probably want to set up an income stream that will keep up with inflation for most or all of their life.

              If the winner takes the annuity, then the lottery invests the entire $100 million.  The lottery does not pay taxes and since the winner does not yet have the money, the winner does not pay taxes on the $100 million.  The lottery is then earning interest on $100 million while the cash wininer is earning interest on $65 million.  The lottery pays out all of the cash and interest to the winner over 29 years.  The Powerball game creates an annuity stream that increases the payment each year by 4% - about the expected rate of inflaction.

              So the choice is - do you want to invest $65 million yourself or do you want to invest $100 million that has a structured payout over 29 years giving a guaranteed income that increases by 4% every year.

              Deciding what you want to do with the money is the winner's choice of course.  There are also good reasons for spending the money right away - a winner's age is key.  Or maybe the winner has a great investment for the cash.  Or maybe the winner just wants to spend it all on one huge part and then get back to his normal life.  I don't JUDGE people here if they don't set up a nice dental plan.  <G>


              You've done a perfectly good job of explaining it each of the several times you've explained it. Any confusion experienced by anyone isn't  a reflection on you.

              As far as the choice between investing 65 million myself or having the lottery invest 100 million on my behalf, I think you're overlooking one important detail. If the lottery buys me an annuity my annual interest income may be higher, but  I don't have any principal. I get those higher payments for a period of time and then they stop. If I invest the cash I've got 65 million in principal and it can potentially pay me (and my heirs) that lower annual income every year until the world ends. If you take the annuity and there's any significant chance that you'll live longer than the payment period you have to be saving some of the payments. With the cash you can spend every penny it earns (yes, your spending power will go down each year). Ignoring future changes in investment opportunities, I don't think there's really a huge difference in the annual spending power between cash and annuity. I think one of the choices offers a major advantage in terms of flexibility, though.

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                Posted: August 11, 2006, 9:33 am - IP Logged


                You've done a perfectly good job of explaining it each of the several times you've explained it. Any confusion experienced by anyone isn't  a reflection on you.

                As far as the choice between investing 65 million myself or having the lottery invest 100 million on my behalf, I think you're overlooking one important detail. If the lottery buys me an annuity my annual interest income may be higher, but  I don't have any principal. I get those higher payments for a period of time and then they stop. If I invest the cash I've got 65 million in principal and it can potentially pay me (and my heirs) that lower annual income every year until the world ends. If you take the annuity and there's any significant chance that you'll live longer than the payment period you have to be saving some of the payments. With the cash you can spend every penny it earns (yes, your spending power will go down each year). Ignoring future changes in investment opportunities, I don't think there's really a huge difference in the annual spending power between cash and annuity. I think one of the choices offers a major advantage in terms of flexibility, though.

                You do indeed get the principle with the lottery payment.  They payout includes the interest AND the principle. 

                To do an apples/apples comparison, take the after-tax cash you end up with if you take the cash option and then go shopping.  Go to an insurance company or other financial  and ask what kind of guaranteed, graduated annuity stream you can set up.  Then compare that to the lottery's income stream.  Most people forget about inflation.  Getting $50,000 a year is one thing now; quite another in 10 or 15 years. 

                This also gives you the chance to see if you prefer to set up some other kind of annuity stream - longer payments, shorter payments, etc. 

                This assumes, of course, that you want an annuity stream.  Cash can be a good choice for some people.

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                  Posted: August 11, 2006, 10:04 am - IP Logged

                  Good points are being made on all sides here, which is what tends to happen when the unhelpful "only take the cash option, no matter what" mantra is taken out of the discussion.

                  Chuck32 makes some very good points about the annuity stream, and I would completely agree that the lottery has the clout and resources to come up with a much better annuity stream than anyone could get on their own (unless you happen to be Bill Gates).

                  KY Floyd also introduced an excellent point about keeping the money in an investment, rather than getting an annuity stream, which is a completely different animal.  With an annuity stream, one would need to have the discipline and diligence to set aside a portion of the payment every year, and put it into a good investment.  (That is, if you wish to have a good-sized nest egg remaining at the end of the 29-year period.)

                  The cash option would provide more financial power for the average lottery winner, such as guaranteeing a business or construction loan. It is a difficult thing to talk about in concrete terms, because it all comes down to the ability to convince the financial institution, but my feeling is that the cash offers more buying power and leverage.

                  However, someone who is middle-aged or older may not be concerned with having a sizable nest egg remaining after 29 years, so the annuity may be just what they need -- a maximized, annually-increasing money stream that lasts the extent of their foreseeable lifetime.

                  The bottom line is that every lottery winner should weigh all options and take the time to think through everything -- without any knee-jerk reactions.

                   

                  Check the State Lottery Report Card
                  What grade did your lottery earn?

                   

                  Sign the Petition for True Lottery Drawings
                  Help eliminate computerized drawings!

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                    Posted: August 11, 2006, 12:37 pm - IP Logged

                    Lotteries can get better prices from the big brokers than your average Joe, but probably not any better than any other big investment firm.  The real secret is that the lotteries invest the cash amount BEFORE taxes.  It's easy to be a financial genius when you start with nearly twice the cash to invest.  <G>

                    Cash probably takes the most discipline, with a straight equal payout taking second place (since you would have to save and invest some every year to keep up with inflation).  A graduated long-term annuity stream probably takes the least discipline unless, as you say, you plan to live a lot longer than 29 years and need to save for a future nest egg.  But I say, let the kids take care of you then, they've been living off you all this time!

                    Until the IRS can change the rules, players have only the two options.  There is no right answer for everyone.  I just tend to "hawk" the annuity option since everyone seems to get bad advice and dismisses it without running the numbers.

                    Well, I think that we've finally beaten the annuity horse to death.

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                      Posted: August 11, 2006, 6:37 pm - IP Logged

                      You do indeed get the principle with the lottery payment.  They payout includes the interest AND the principle. 

                      To do an apples/apples comparison, take the after-tax cash you end up with if you take the cash option and then go shopping.  Go to an insurance company or other financial  and ask what kind of guaranteed, graduated annuity stream you can set up.  Then compare that to the lottery's income stream.  Most people forget about inflation.  Getting $50,000 a year is one thing now; quite another in 10 or 15 years. 

                      This also gives you the chance to see if you prefer to set up some other kind of annuity stream - longer payments, shorter payments, etc. 

                      This assumes, of course, that you want an annuity stream.  Cash can be a good choice for some people.


                      I can appreciate if you see it as a matter of semantics, but if the lottery buys me an annuity all I get is an annual payment. Some investment company will have principal that they use to generate the annual payment, but I won't have a dime in principal. That's the nature ofthe annuity option. The investment company gets the principal in exchange for promising the payments.  If they do well with the investment they might still have some principal left after making the final payment, and if I'm clever I'll have saved some of the payments which will then be my principal. That's one of the  big drawbacks to the annuity.

                      You make a good point about inflation, but that's a two way street. A dollar today is worth less than a dollar next year, and the annual payments, whether they increase each year or not, will be diminished by inflation. The investment companies sell the annuity because their expertise says that what they pay out over time will be less valuable than the cash they collect today.

                      Your last two sentences suggest that the only two choicesare an annuity or  using the cash, but that's not the case. I would expect that all but those who expect to die shortly (or throw one big party and then return to their previous life) will be interested in a dependable annual income. Immediately investing the cash in an annuity of your own choosing would probably be one of the more foolish strategies, but there are any number of options that can generate an annual income while preserving the principal. The more likely scenario is using some of the cash early on and investing  the remainder, and presumably preserving some or all of the principal.

                      I'm not suggesting that taking the cash is the only sensible strategy for everyone, but taking less than the advertised value and paying  your taxes isn't a huge penalty compared to taking the deferred payments. There are plenty of people who should take (and plenty of past winners who should have taken) the annuity. It all depends on your discipline and what you want to do with your winnings.

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                        Posted: August 11, 2006, 8:26 pm - IP Logged

                        what? that doesn't sound right.

                         

                         

                        well, it's still more money than they started out with =)  so good luck to them, and congratulations.

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                          I can appreciate if you see it as a matter of semantics, but if the lottery buys me an annuity all I get is an annual payment. Some investment company will have principal that they use to generate the annual payment, but I won't have a dime in principal. That's the nature ofthe annuity option. The investment company gets the principal in exchange for promising the payments.  If they do well with the investment they might still have some principal left after making the final payment, and if I'm clever I'll have saved some of the payments which will then be my principal. That's one of the  big drawbacks to the annuity.

                          You make a good point about inflation, but that's a two way street. A dollar today is worth less than a dollar next year, and the annual payments, whether they increase each year or not, will be diminished by inflation. The investment companies sell the annuity because their expertise says that what they pay out over time will be less valuable than the cash they collect today.

                          Your last two sentences suggest that the only two choicesare an annuity or  using the cash, but that's not the case. I would expect that all but those who expect to die shortly (or throw one big party and then return to their previous life) will be interested in a dependable annual income. Immediately investing the cash in an annuity of your own choosing would probably be one of the more foolish strategies, but there are any number of options that can generate an annual income while preserving the principal. The more likely scenario is using some of the cash early on and investing  the remainder, and presumably preserving some or all of the principal.

                          I'm not suggesting that taking the cash is the only sensible strategy for everyone, but taking less than the advertised value and paying  your taxes isn't a huge penalty compared to taking the deferred payments. There are plenty of people who should take (and plenty of past winners who should have taken) the annuity. It all depends on your discipline and what you want to do with your winnings.

                          Well, all you get is a LARGER annual payment that is part principle and part interest.  You are correct that there are many options.  You could give some investment company cash in exchange for an annuity stream - and you can set up an annuity stream in many ways.  You could, for example set up a stream of interest only and still have the full cash amount back in X years.  The company would determine their real interest earnings, keep their share, and pay you the difference. 

                          But here we are comparing a graduated annuity stream that is designed to keep up with inflation.  You are correct that a dollar today is worth more than a dollar next year.  But a graduated annuity stream give you more dollars next year so that your "real income" IS the same.  The annual payment of a graduated annuity is NOT diminished by inflation since the dollars of a graduated payment increase to keep up with inflation.

                          I said that the only choices are cash or the graduated 29-year annuity FROM THE LOTTERY.  A winner can certainly take cash and set up many different kinds of options.

                          Taking the cash and paying taxes is a huge penalty compared to taking the deffered payments.  You can certainly invest the post-tax cash and spend only the interest, but the earnings will be lower than a cash + interest distribution.  There may be some winners who might like to live off a small interest amount for their entire life and then leave the principle to their heirs (after estate taxes).  That is an option for a private investment.

                          All of this only really makes sense when you actually do the math.  Take $50 million (cash prize after taxes) and invest it.  Take $100 million (cash before taxes) and invest it and look at the income streams. 

                          I do agree that you really have to take a hard look at the kind of person you are and what your goals and life situation is.  I really only got into this long discussion because I think that too many people make too much of a quick decision to forgo the 100% guaranteed, inflation-adjusted annuity.

                          Whew! I'm even tired of talking about it, and I love this stuff.

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                            Posted: August 12, 2006, 2:03 am - IP Logged

                            I think my ship is coming in tomorrow night and I will be taking the cash because I have to split the prize with someone else.  Now if I had been the 208.6 million winner I think that I would have entertained the annuity idea but I still would have went with cash.  For me it is because I want to have the money under my control so I can do what I want with the cash prize I get.  Now all I have to do is get all six on the same line.-weshar75


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                              Posted: August 13, 2006, 12:34 pm - IP Logged

                              If they win it, congratulations to them. I hope they choose cash.