Financial analyst looks at lottery jackpot cash/annuity options

Comment #18

Pythagoras — Wed, 21 Sep 2005 03:10:19 GMT

Well you-now, First things first. Remember, we've paying our money and winning other players money here. Therefore, old Uncle Sam (for us Old School Folks and the TAX MAN or G.I.R.L.S. for you new age readers) rules should always be considered first. If the winner of a large jackpot is smart, he, she, or they would take the money and run like hell. Why? No brianer...I don't want to pay any higher percentage in taxes on that money than I need to. Shorter tax liabilities is always better. I can in... [ More ]

Comment #17

rundown99 — Tue, 20 Sep 2005 15:33:10 GMT

But if you win the jackpot in a state where you can be anonymous, such as Delaware, Ohio (with the help of a trust), New Hampshire (Formation of a Trust is needed), or Louisiana (also with the help of a trust), you wouldn't need to worry what family or friends think because they wouldn't know anyway. You would only do what YOU think is best, because society at large couldn't target you for something that no one knows that you have.

Comment #16

Rip Snorter — Sat, 27 Aug 2005 11:42:49 GMT

I agree with you that there's something a bit strange, almost sick, in the partisanship concerning how winners should handle their money. All the drumbeats, table-pounding and opinions strong enough to pass for religion aren't a kind of behavior easily explained within my own mind.To be honest, if I were younger, if the occasion was right, I might take the annuity, if I didn't hold the certainty that these people can't be trusted. I believe they're deliberately attempting to give a false impre... [ More ]

Comment #15

Rip Snorter — Sat, 27 Aug 2005 11:28:09 GMT

You make a valid point. One of the most valid I've seen on the annuity/lump argument. I'm not certain how the tax difference between earnings and capital gains works, but I definitely believe it's possible a person could make a lot of wrong choices and find he'd paid out so much more in taxes than anticipated that the annuity would have been a blessing.Professional advice, shining spotlights into every corner where the rats and roaches might be is the only wise approach, you observe, and I agr... [ More ]

Comment #14

ChazzMatt — Sat, 27 Aug 2005 05:27:10 GMT

I'm just saying the annuity protects your money and gives a larger guaranteed income even if it's somewhat smaller than the theoretical maximum if you invested all the cash yourself. I'm just saying that theoretical maximum will probably never be seen because you will have less cash to invest. The real world maximum is probably the annuity and you know it's coming every year. No, I don't work fo the lottery. The lottery doesn't care what you do with your money, they don't make any money o... [ More ]

Comment #13

mtncharlie — Sat, 27 Aug 2005 03:38:06 GMT

It seems as though no one really has a notion as to what the proper thing to do is; that's human nature. The best thing to do is what YOU think is best for you. However, you might want to consider getting professional help from a financial lawyer, and an accountant. As to the question of Lump Sum or Annuity , I have not seen anyone address the Tax situation. In most cases, if a lottery winning is taken as an annuity, the proceeds are generally considered income , and with a good tax... [ More ]

Comment #12

Rip Snorter — Sat, 27 Aug 2005 03:14:46 GMT

It is for the people who offer the annuities as representative of the value of the jackpot. It is for the people who want to have control of those annuity funds for thirty years. For them it's the only reasonable option.Jack

Comment #11

Rip Snorter — Sat, 27 Aug 2005 02:58:32 GMT

Speak for yourself, amigo.Thirty years is a long time to trust strangers with what's yours. Most people would probably prefer to take risks with their own bad judgement than trust to that of strangers. Those who don't want to risk taking personal responsibility for their wealth already take the annuity.I can easily understand how you might prefer to choose to take the annuity if that's how you view reality and measure your own ability to handle your responsibilities, your ability to behave wi... [ More ]

Comment #10

ChazzMatt — Sat, 27 Aug 2005 02:48:07 GMT

Yes, my point was that everyone who compares annuity vs. cash option treats it like a theoretical problem in accounting, without considering real world factors. You have 34 million in cash, and you are NOT going to immediately go invest it in stocks and bonds without spending a penny. Also, a lot of investments you make do tie up your money, so you aren't going to invest ALL of it. You are going to spend some, invest some. And you might spend more than you should, due to the emotions of th... [ More ]

Comment #9

ipodmini1 — Thu, 25 Aug 2005 06:27:05 GMT

how about just buy a stock index fund and lock in for 25 to 30 years? from past performance, you can get at least 10%/year. everybody can do that. annuity is NOT an option.

Comment #8

fxsterling — Thu, 25 Aug 2005 04:37:28 GMT

tyson is a fool .......... did,nt he see rocky

Comment #7

Rip Snorter — Wed, 24 Aug 2005 14:20:32 GMT

Todd:I'd guess you're probably right on both counts. Probably that was the point ChazzMatt was making, and probably some winners would come out better financially by putting their money outside their control where they can't make decisions involving spending it, or investing it in places where the risk is higher, along with the returns.If a jackpot winner is young, or if he's young enough to have a the probability of a lot of years left, investing it anywhere at all where he can't spend it all u... [ More ]

Comment #6

Todd — Wed, 24 Aug 2005 14:07:35 GMT

Jack,I think ChazzMatt's point was that if the winner chose the annuity option, they may do better than the person who blows a large amount of his/her winnings, because they will have more of their initial money remaining for investment purposes.Hence, in the real world of people winning and spending, perhaps the person choosing annuity does in fact come out ahead.

Comment #5

Rip Snorter — Wed, 24 Aug 2005 12:28:16 GMT

You might well be right. The Powerball winner might actually make the choice to spend some of the money that belongs to him, reducing the remainder of the sum that belongs to him.You're certainly correct in asserting that he doesn't have the option if he assigns the responsibility for his fiscal decisions to the benevolent hands of Powerball officials for the duration. The British aristocracy used to do that with their erstwhile sons..... give them an annual allowance to protect them from thei... [ More ]

Comment #4

ChazzMatt — Wed, 24 Aug 2005 04:58:19 GMT

A recent Powerball jackpot winner chose a one-time, pretax cash payment of $34,662,300.66 vs. $59.5 million in 30 annual payments with the first payment at the beginning of year one. This equates to an annual interest rate of about 4.26 percent. The only thing wrong with that analysis is I would BET the PowerBall winner would NOT have $34.6 million to invest by the end of the month. He might have 30 million or 25 million. THEN, he would invest the rest. You have 34.6 million and you are going... [ More ]

Comment #3

tg636 — Wed, 24 Aug 2005 03:56:34 GMT

I wish we could have a more detailed and definitive answer with a real case study with taxes, interest, money spend on living vs. money tied up in investments and inflation factored in to finally get a good answer to this vexing question.

Comment #2

winner2b — Wed, 24 Aug 2005 02:01:38 GMT

umm...how about showing some calculations or some tables?!? I think we all know, if we win huge sums we can afford Pro. advice.

Comment #1

Just6ntlc — Tue, 23 Aug 2005 22:08:47 GMT

If I win a $50 million jackpot. I would take the cash option. Definately, I would find an accountant to help our family situations.

Financial analyst looks at lottery jackpot cash/annuity options

Lottery Post — Tue, 23 Aug 2005 22:06:00 GMT

Q: I've just won a $50 million lottery. Should I take all cash or an annuity?A: It depends on a lot of things, one of which is the interest rate the lottery uses in calculating the annuity value vs. the immediate payout. Another is the uncertainty associated with future income taxes.The conventional wisdom is to take the money as a lump sum. That's because the lottery takes the cash prize (today's dollars) and uses that money to buy investments that will fund the annual payments. That may mean t... [ More ]