How are payments invested?

Reply #20

DC81 — Sun, 17 Aug 2008 14:30:42 GMT

At least some former winners who sold their annuity end up with more problems, especially with taxes which for some reason the ones I've read about thought they could actually still get away with paying the taxes on only what the yearly annuity payment is and not the lump sum they acquired. Though I think at least some of them had no choice but to take the annuity at the time they won but they seriously should know better. Probably doesn't help that they take this lump sum because they need mone... [ More ]

Reply #19

justxploring — Sun, 17 Aug 2008 09:05:31 GMT

I've found government securities to be very stable. I've also purchased US Savings bonds. I know someone here keeps saying they don't keep up with inflation and that I'm bad in math but right now I'm earning 8.22% and that's tax deferred.

Anyway, it's true that you can usually get a much better interest rate by taking the cash, but interest on what? If you have $10 million and the lump sum pays only 50%, you need to do the math to figure out how much time it will take to get back that cut. S... [ More ]

Reply #18

savagegoose — Sun, 17 Aug 2008 06:31:09 GMT

heres an article i read a little while ago, the biggest buy back of bonds etc in history. seems the states didnt want to lose out with this credit crisis, and forced banks to buy back the now worthless bonds. billions worth, i was wondering if the lotto annuities are part of that deal. gee having the gov on your side looking after you sure makes the annuity a safer option.

http://www.finfacts.com/irishfinancenews/article_1014412.shtml

ps thats kinda got a different spin to i... [ More ]

Reply #17

time*treat — Sun, 17 Aug 2008 00:24:36 GMT

I like the way you think.

Reply #16

Bradly_60 — Fri, 15 Aug 2008 23:59:04 GMT

The Federal Government will probably never default on their loans (bonds and notes) if they run out of money they can just print more (not wise economically but if it happened that is what they would do). This is why the state lotteries will invest annuities into one year US Treasuries. They take the first one and pay it to you when you claim it and then they buy 25 one-year treasuries for the remaining years. After one year passes they pay you one of those and reinvest the other 24. The problem... [ More ]

Reply #15

justxploring — Fri, 15 Aug 2008 23:26:39 GMT

Which is why I added that last paragraph. However, that has nothing to do with answering the OP how are payments invested? It would be like asking

How many tomatoes should I use to make salsa?

and then answer

You might get salmonella, so I wouldn't eat any tomatoes.

(bad analogy, but you see my point

Reply #14

BaristaExpress — Fri, 15 Aug 2008 22:57:59 GMT

The one thing that will cause the value of the annual payments to decrease over time is inflation. The money you receive in 20 years won't buy nearly as much as it does today.

That statement alone is the prime reason as to why you're NOT to take an annuity!!! It just doesn't add up to take an annuity, because each year the dollar loses it's buying power

Reply #13

justxploring — Fri, 15 Aug 2008 08:36:07 GMT

For some people, taking annual payments makes sense. For others it doesn't. You can usually make more money over the 20 or 30 years by investing wisely. That said, it's comforting to know you'll be getting another check soon no matter how badly you mess up that year.

People are always concerned about the payments stopping. I would have the same concern, but AFAIK no state lottery has ever folded. If I'm wrong, then I'd appreciate a comment from someone who has this knowledge. Regarding govern... [ More ]

Reply #12

claymore — Thu, 14 Aug 2008 22:51:01 GMT

Once you are given a contract for a guaranteed yield, the total payments will add up to that face value at maturity.

Ohhhh, okay.

That's exactly what I wanted to know. I wasn't sure if someone could end up with LESS then what they understood they were getting at the time of choosing the annuity over cash.

Thanks!

claymore

Reply #11

justxploring — Thu, 14 Aug 2008 19:09:43 GMT

That's what I was saying regarding how money is invested. A 20 year annuity has to have a higher interest rate to reach the same jackpot as a 30 year annuity. MM is 26 years, so it's somewhere in the middle. PB cash option is usually a little less than 50% and MM is usually around 60%. I know I've said this before when people have asked why the cash option for MM is higher than PB when the jackpots are similar. It's all based on what initial investment is required to payout the jackpot after XX... [ More ]

Reply #10

DC81 — Thu, 14 Aug 2008 16:46:59 GMT

Mega Millions is closer to 39-40% less than the jackpot at this point though that's probably because their annuity pays out over I think, five less years than Powerball. For example right now the advertised jackpot at 70 million has a cash option of 42.5 million which is 60.7% of the annuity.

Reply #9

Coin Toss — Thu, 14 Aug 2008 06:53:08 GMT

A while back we had a thread about this and someone pointed out that the advertised jackpot doesn't even actually exist.

In other words, let's say PB or MM has a jackpot of $100,000,000 for an upcoming drawing. There is no $100 million. That amount is based on the winner taking an annuity over a drawn out period of years.

That's why the cash value for the same jackpot is 50% or less.

Reply #8

justxploring — Thu, 14 Aug 2008 04:53:48 GMT

Anytime you get annuity payments, that's really all you are getting. A 30 year annuity to me is a lousy deal. I remember when the matrix changed in FL for the Lotto. That was before the cash option and the payments were over 20 years. So $1 million was $50,000 a year or 5%. People weren't happy and the Lottery announced that the reason the payments changed from 20 to 30 years was to give the winner more money. I even remember the example they gave which was that a $6 million prize would be $240,... [ More ]

Reply #7

four4me — Thu, 14 Aug 2008 04:38:12 GMT

I heard somewhere that the lottery invests the annuity owed to a person that takes the annuity and thats how they make additional money off of your win. And are able to pay you the interest your annuity earned.

Reply #6

justxploring — Thu, 14 Aug 2008 04:33:09 GMT

True, I agree. However, what if the law changes and lottery prizes are no longer subject to federal tax or we no longer have any income tax? Then you would benefit over time.

Scary, FYI when the entire banking system collapsed, the people who lost all their money had it in savings banks. You've probably read about Babe Ruth and how he handed money out to people, right? He had invested in annuities to provide a lifetime of payments for his family and was not hurt by the market crash.

Reply #5

justxploring — Thu, 14 Aug 2008 04:05:46 GMT

Not true, but I don't want to get into another argument. They are talking about the initial amount to make the lump sum payment, meaning that if they advertise $100 million, the cash option might vary. Once annual payments are chosen, you have a structured settlement and you will get the same check every year.

People always choose to read things the way they want to, whether or not they understand the verbage. I hope you are not a financial planner or investment counselor, since you would be... [ More ]

Reply #4

TheGameGrl — Thu, 14 Aug 2008 03:23:01 GMT

one amount goes into Uncle sams right pocket and one amount goes into his left pocket.

Reply #3

ThatScaryChick — Wed, 13 Aug 2008 04:55:51 GMT

I would always choose cash. Who knows how the government will be 3, 5, or 10 + years down the road.

Reply #2

claymore — Tue, 12 Aug 2008 21:48:25 GMT

That information is similar to what I have found.

So there are no guarantees...

( _ )

Cash option always then, lol.

Thanks.

claymore

Reply #1

Stack47 — Tue, 12 Aug 2008 21:41:32 GMT

From the Ohio Lottery site:

Upon claiming the Mega Millions jackpot, the prize winner is given the option to receive the prize winnings in a single cash payment. The gross cash option will represent the sum of the first annuity installment plus the net proceeds from the sale of the government securities originally purchased to fund the annuity prize. Government securities are susceptible to financial market conditions; therefore the amount that is actually realized may vary from the amount o... [ More ]

How are payments invested?

claymore — Tue, 12 Aug 2008 21:36:09 GMT

Now before everyone starts throwing stones at me, I did use the search function...however, I admit it was a lack-luster attempt. I also did a quick scan of the MM Website, but my college student brain refuses to absorb anything that does not begin with cliffnote.

What I would like to know is:

If one purchases a Mega Millions ticket, hits the jackpot, and chooses to take 26 annual payments, how is the remaining principal invested?

Is there a guaranteed rate of return? What is