|Posted: November 18, 2012, 1:34 am - IP Logged|
I doubt it, but then I kind of know the truth. Players can choose between cash or annuity. The cash is all of the money that the lottery has (a percentage of sales). The annuity is what the lottery can pay out if most of the cash is invested over time (the first payment is in cash). The lottery can invest the money BEFORE taxes - unlike the winner who pays tax and then invests the rest. Plus, the winner actually gets a contract from all of the states that guarantees payment of yearly payments. The lottery keeps no part of the cash or earnings on the cash. Either way, the winner gets it all.
Now, is it wise to take the annuity? Not so much in the current environment. The lottery locks in the annuiity based on current interest rates - which are very low right now. Also, the federal income tax rate is at historic lows. For reasonable folks with some self-control and a little financial know-how, it may be best to take the cash, pay the taxes at the current low rates (they are only likely to go up), and lock up the money in a box until interest rates rise (and they can't get much lower).
If a person is concerned about spending the money foolishly or investing the money and losing it all, then the annuity can offer a 100% guarantee that the annuity stream will continue for decades to come. The annuity lets you go crazy and live foolishly and still know that you will be rich again next year.