Why not choose the annuity?

Reply #47

Romancandle — Mon, 04 Aug 2014 02:29:14 GMT

Thanks Stack

I agree, most folks may not realize that a 100 million annuity does not = 100 million cleared after taxes over 30 yrs.... not even close.

I was referring to purchasing power in 2044 with 4 million... 1 dollar today being worth half that or less in 2044 type of thing... maybe I got it backwards

I'm sure most financial advisers would definitely recommend cash as they stand to make much more money vs managing the trappings of an annuity for their client. Hopefully that good ad... [ More ]

Reply #46

music* — Mon, 04 Aug 2014 00:53:50 GMT

Thank You Stack47 Mike in Texas for your clarification of my message.

Reply #45

Stack47 — Mon, 04 Aug 2014 00:43:20 GMT

WHAT HAPPENS IF AN ANNUITY PRIZE WINNER DIES?

The estate will handle the lottery prize. A lottery annuity prize is just like any other asset. You can pass any remaining annuity payments on to your heirs or to anyone else. The Powerball game will even cash out an annuity prize for an estate. This may make it easier for the estate to distribute the prize. It also may be necessary to cash out the annuity to pay Federal estate taxes. We will sell some or all of the securities at competitive bid o... [ More ]

Reply #44

mikeintexas — Mon, 04 Aug 2014 00:36:20 GMT

Welcome to LP, music*!

I've read about those cases w/ the annuity and the IRS. I can't remember the specific case, but it really put the family in a bind, almost to the point where they were just going to forfeit the remaining payments just to get out from under the tax bill. I believe they cut some sort of deal w/ the IRS but still didn't get a check for quite some time after the 40% estate tax was paid.

EDIT: Found this on several diff. sites, but they didn't quote the original sou... [ More ]

Reply #43

music* — Sun, 03 Aug 2014 20:58:14 GMT

HI, I am a newby here. About the thirty year annuity(MM/PB). Life insurance is required here. Because if you die before the last payment the IRS will tax the remaining amount at present value. Your heirs will owe a boat load if you die to soon. The insurance would cover this tax bill. I think the IRS gives them ninety days to pay.

I have decided to take the Lump Sum when I win.

Reply #42

Stack47 — Sun, 03 Aug 2014 19:39:14 GMT

The real question with taking the annuity is if it's possible to take a portion of the after tax cash, invest it, and and get the same amount in 30 years. I'm pretty sure most financial adviser will suggest taking the cash if for nothing other than a business reason. It's seems that when discussing cash vs annuity , the fact the annuity will be taxed and possibly at the same tax rate but over 30 years, is usually ignored. And after 30 years a $60 million annuity jackpot might be really $36 milli... [ More ]

Reply #41

Romancandle — Sun, 03 Aug 2014 16:04:53 GMT

So keeping in line with the original post...

Annuities not indexed towards inflation are usually poor choices, that is if you have a choice in the 1st place (annuity or cash). Most scratcher's typically don't give you a choice, you're stuck with that non indexed annuity payout. When you factor in taxes and inflation on top of that, your payout at year 20 etc can be quite lousy... so don't quit your day job just yet if you're a lucky winner in that case.

I don't think Lotto jackpots here in... [ More ]

Reply #40

HoLeeKau — Sun, 03 Aug 2014 13:48:23 GMT

has thrown another wrench into trying to figure out how much you end up with should you win.

Their jackpots are advertised as ALL Cash Jackpot - Tax Withholding Paid.

So now first you have to figure out what they withhold. Almost certainly 25% federal taxes, but are state taxes withheld? Unless you've won a larger amount in the past, you probably don't know that off the top of your head.

Then, many people will not know that you have to pay taxes on the amount of taxes they paid fo... [ More ]

Reply #39

LottoMetro — Sun, 03 Aug 2014 05:00:16 GMT

Lotteries always want to advertise the higher amount. it draws more players in. They'd probably prefer players who don't know the advertised amount is for the annuity only.

It is for this one and only reason that the lotteries have trended towards longer annuities (20, 25, now 30 years).

A longer annuity allows them to advertise a higher annuitized value for the same/lower cash value. There is literally no benefit to the player by this.

I wish they would get rid of them altogether, or a... [ More ]

Reply #38

Stack47 — Sun, 03 Aug 2014 04:23:37 GMT

I do agree that the cash value amount should be easy to find and should be scrolled on the terminal along with the advertised prize and maybe it depends on the state because several do advertise the cash value too. Not very many jackpot winners take the annuity, but it is the highest possible win potential and probably why all the signs and billboards show it and not the cash value.

Reply #37

Coin Toss — Sun, 03 Aug 2014 03:57:30 GMT

MsNumberDream,

Lotteries always want to advertise the higher amount. it draws more players in. They'd probably prefer players who don't know the advertised amount is for the annuity only.

mikeintexas,

I remember the history book picture.

Then fast forward a few years for me......after 'Nam I went to Germany for three years. My uncle had been in WWII and gave me a 100,000 Reichsmark bill and said, Flash this some night for fun.

So I did....I was in a gasthaus and whe... [ More ]

Reply #36

mikeintexas — Sun, 03 Aug 2014 03:18:07 GMT

That's right, jj. I remember a photo in my h.s. history book of a 1920's German man wheeling a wheelbarrow full of Marks to the grocery store so he could buy a loaf of bread. I just checked the rates of inflation after WWI and 170 Marks would buy an oz. of gold in 1919 but by 1923 it took 87 trillion Marks. The rate of inflation went up steadily for a few years then jumped 100% from 1918-19.

If a roll of TP cost a hundred bucks, then seems like it'd be cheaper to use the money.... [ More ]

Reply #35

jjtheprince — Sun, 03 Aug 2014 02:56:27 GMT

Taking it in lump sum is a hedge against inflation. I don't worry much about the taxes the government imposes, the hidden tax of inflation can be far worse.

Let's say you win some fairly large amount, take the annuity, and see that on year 30 you'll bring in over 1,000,000 a year. Right now in 2014 that sounds excellent, but in 2044 a weeks worth of groceries might set you back $25,000, rent on your retirement apartment might be $150,000 a month, a gallon of gas could run $100/gallon yes we'l... [ More ]

Reply #34

MsNumberDreamer — Sun, 03 Aug 2014 00:47:11 GMT

I know because I look it up but I would rather them say Today's jackpot is 57 million and have the cash value hanging in the stores rather than the annuity amount.

NC deducts both. I know this... I'm just saying that... being that most players choose cash value that is the amount that should be advertised.

Reply #33

Stack47 — Sat, 02 Aug 2014 23:59:32 GMT

If on an 100 million jackpot all I am going to get before taxes is 57 million, I would much rather know that when purchasing the ticket.

The cash value after taxes is usually around 1/3 of advertised or highest possible jackpot and the jackpot lottery games have been around long enough so most of the average lottery players already know which opinion they will choose.

I would like to be able to expect the amount I am buying a ticket for.

It certainly appears you now know the advertis... [ More ]

Reply #32

MsNumberDreamer — Sat, 02 Aug 2014 18:33:04 GMT

That really bugs me! Being that majority chooses cash on winning jackpots, I would much rather them advertise the Cash Value rather than the Annuity value. If on an 100 million jackpot all I am going to get before taxes is 57 million, I would much rather know that when purchasing the ticket. I would like to be able to expect the amount I am buying a ticket for.

Reply #31

Toronto — Sat, 02 Aug 2014 17:47:07 GMT

You don't have to pay federal, but you still must pay state and local taxes. The yields on these bonds are adjusted for these considerations anyway.

Reply #30

Romancandle — Sat, 02 Aug 2014 17:41:04 GMT

CT, thanks... I forgot about that basic premise- the advertised vs actual amount.

I suppose if you're financially savvy and/or have a trusted circle of advisers, then the cash option is the way to go most of the time. Key word trusted ... savvy

For me, the notion of having a new pile of cash option money like that in my hands and fending off the hordes is kind of scary... can't claim anonymously round here.

At least with the annuity (in higher JP's- MM/PB), if you make a mistake one ye... [ More ]

Reply #29

CDanaT — Sat, 02 Aug 2014 17:26:49 GMT

Take the cash now, pay your appropriate taxes now, get your personal materials,now, for the future..future taxes are very unpredictable, especially with government growth, spending,control the growing attitude of financial redistribution.

Prepare for a rainy day ..... You won't be sorry.

Reply #28

Goteki54 — Sat, 02 Aug 2014 16:19:16 GMT

On a million dollars, I would take the lump sum. If I netted $400k after taxes, I would use the money to buy a house with cash, thus I could invest $15k a year from monthly savings from not having a house payment into investments. Now if the winnings was $100 million or higher, I would most likely take the annuity. It would be a safe guard against me ever spending all the money. When people retire, they care about cash flow income. With me knowing I would have money coming in for the rest of my

Reply #27

Pita Maha — Sat, 02 Aug 2014 14:52:03 GMT

As Stack47 mentioned above:

It doesn't necessarily means she wants it now but the annuity ties up HER MONEY for the next 29 years. Next time you speak with your financial adviser ask which they would recommend.

That's the biggest issue I have with taking the annuity if it were me. That it would tie up MY MONEY that I managed to finally win after beating astronomical odds, a once-in-a-lifetime amazing occurrence that few get to enjoy, and .... I get it drip-fed to me over decades. It's not... [ More ]

Reply #26

Drenick1 — Sat, 02 Aug 2014 12:58:06 GMT

Just because the jackpot was $66 million doesn't mean anyone would actually receive that amount over the course of the annuity. Once you factor in taxes (at current rates) you would end up with less than $40 million total and that is IF you pay no state income tax. There is no telling where the future tax rate may go and at this point the winner from Michigan made the right choice by collecting $27 million cash now instead of receiving under $40 million over the course of 30 years.

If tax ra... [ More ]

Reply #25

Coin Toss — Sat, 02 Aug 2014 04:04:31 GMT

They offer it because the advertised cash jackpot amount doesn't exist.

That's why they want the winners to take an annuity, and if not, why the cash amount is so much less.

Reply #24

Stack47 — Sat, 02 Aug 2014 03:45:50 GMT

That someone who told you was probably unaware of the fact every PB jackpot winner since 2007 took the cash and several said they talked to financial advisers before validating their ticket. After 30 years of paying taxes, taking the annuity means the $66 million is only worth $40 million and with conservative investments, $10 million in cash could double in 15 years and be worth $40 when the annuity ended.

It doesn't necessarily means she wants it now but the annuity ties up HER MONEY for th... [ More ]

Reply #23

mikeintexas — Sat, 02 Aug 2014 02:54:08 GMT

Me too, Piaceri. I wouldn't criticize anyone for what choice they made, but I don't want to be getting that last check and be too old to enjoy it. (or not remember what bank it was deposited into

Reply #22

helpmewin — Sat, 02 Aug 2014 02:47:10 GMT

Someone told me once the people who take Cash option is maybe Greed, maybe even desperation For example the 24 year old girl that just won 66 million settled for 27 million because she wants it all NOW! BIG Difference

Reply #21

mikeintexas — Sat, 02 Aug 2014 02:25:04 GMT

exempt municipal bonds

Doesn't that depend upon the laws of the state? I don't know much at all about them, but I do remember someone in here saying that the current administration wants to put some limits on those federal tax breaks. (a quick search in another tab found this: Ending Tax Breaks On Municipal Bonds Shifts Burden To The Rest Of Us)

I agree, though - even at a measley 1%, you could make a significant amount on several millions. I remember figuring that on one of the last re... [ More ]

Reply #20

LottoMetro — Sat, 02 Aug 2014 01:30:35 GMT

And then pay taxes on that interest.

Not if you choose exempt municipal bonds

That's my plan....set aside the amount for taxes and try to make use of it as long as I can.

Reply #19

mikeintexas — Sat, 02 Aug 2014 01:23:24 GMT

I see CT replied, so....sorry 'bout that.

Before anyone mentions it, I know that entire percentage isn't taken out at first - I believe it's only 25% and you'd have to pay the rest when taxes are due. Another discussion in here was about not tarrying in picking up a HUGE jackpot win, especially one won just after the first of the year. You could make a substantial sum of money even at low interest off of the money you'll eventually have to pony up to Uncle Sam.

And then pay taxes on... [ More ]

Reply #18

mikeintexas — Sat, 02 Aug 2014 01:16:39 GMT

CT wasn't saying that, at least I don't think so. I certainly don't want to put words in his mouth or misinterpret what he said, but I believe what he meant was that if taxes go up as high as they've been in the past ( they climbed all the way to 94% for the top bracket earnings at the end of WWII and decreased after that, but the rate was 50% as recently as 1982 - down from 70% the previous yr.) then those last checks wouldn't buy very much. I think that's what was meant and I agree.

I al... [ More ]

Reply #17

LottoMetro — Sat, 02 Aug 2014 00:50:46 GMT

If the annuity is such a terrible choice, then why does MM and PB even offer it?

Maybe because it benefits the lottery? I heard from a site that shall go unnamed that somehow spreading the payments over time benefits the lottery more than the player. I know the payout is in reality the same though.

I think the annuity rate would have to be high for me to take it. A 5% annual return on a starting balance of $25.55 million will be much higher than a 10% annual return on an average annuity pa... [ More ]

Reply #16

Romancandle — Sat, 02 Aug 2014 00:17:02 GMT

If the annuity is such a terrible choice, then why does MM and PB even offer it?

It is indexed towards inflation... and if taxes go to 50 to 60%... we got bigger problems as a whole.

The annuity rates aren't that great though right now, so cash is king.

Reply #15

Coin Toss — Fri, 01 Aug 2014 23:39:22 GMT

As lottolaughs said, the same amount of money doesn't have the original spending power.

As for taxes that's in the U.S.

Other places such as Canada and England it's all yours, no taxes. Sweet huh?

That's been discussed on here a few times.

Reply #14

MsNumberDreamer — Fri, 01 Aug 2014 23:17:06 GMT

Now I see. I didn't know the annual check drops after so many years. That is really crazy! Also, I didn't think about a change in taxes.

I still think it is terrible that you scratch 1 million and your take home is a little over 400,000.

Reply #13

MsNumberDreamer — Fri, 01 Aug 2014 23:14:04 GMT

You're so right. I always look at the location of winners for the top prize on scratch offs and they really are always in the same area. It is very annoying. I play MM/PB. Every now and then I will grab a scratch off but I don't expect that big prize on those. I was really surprise to find out someone scratched a million right below my house. Big shocker

Reply #12

maringoman — Fri, 01 Aug 2014 23:05:12 GMT

The distribution of top prizes of scratch tickets is not random. That's why I won't play them consistently like I do draw games.

Reply #11

Coin Toss — Fri, 01 Aug 2014 22:25:01 GMT

But it for cash for how much on the dollar

Reply #10

SammyJoe10 — Fri, 01 Aug 2014 22:14:06 GMT

I also live in NC and the way they penalize winners for taking the lump sum is ridiculous. If the scratch off says you win a million, your prize should be the full million (take home around 700k after taxes). Not that it matters, I gave up buying scratchers a long time ago. There is no way the tickets are distributed randomly. The larger prizes are always awarded to the same geographic locations and to the same players. I'm so sick and tired of reading about Mr. Joe winning his SECOND major scra... [ More ]

Reply #9

Win$500Quick — Fri, 01 Aug 2014 21:41:49 GMT

LOL

Reply #8

Stack47 — Fri, 01 Aug 2014 19:04:56 GMT

I posted this link the other day and it probably answers your question. The October 10, 2007 PB jackpot winner was the last to take the annuity and two people were involved. Just guessing but many of the jackpot winners probably spoke with financial advisers and it sure looks like their advice was to take the cash and run.

Reply #7

Piaceri — Fri, 01 Aug 2014 16:51:17 GMT

I'm over 50... no lottery annuities for me

Reply #6

mypiemaster — Fri, 01 Aug 2014 16:28:17 GMT

There are people out there that will buy your annuity for cash and vice versa. Taking the annuity really depends on your personal choice and situation. If you are one of those people that can't wait to go spending, or you have some form of substance abuse problem, better take the annuity. In the end, the decision is truly yours because if you blow your wad, there is really nobody to blame but yourself. Spend wisely and you have nothing to worry about.

Reply #5

Toronto — Fri, 01 Aug 2014 16:04:22 GMT

If you really wanted an annuity, you could just take the cash prize and buy an annuity yourself. Choosing the annuity prize gives you no options to convert it to a lump sum at a later time if you change your mind.

Reply #4

Coin Toss — Fri, 01 Aug 2014 15:24:46 GMT

Today's annuity amount might sound tempting but by the end of the term of the annuity that last payment might buy a car. Or a happy meal

Reply #3

Pita Maha — Fri, 01 Aug 2014 14:58:59 GMT

What would be the first annuity payment on a million jackpot? $15,000? You can do a lot more with $400,000 now, than be drip-fed much smaller amounts over the years. What if you die in 3 years? And as others have said, what if the tax rate goes to 50%? 60%? Or higher?

I'd never take the annuity for any jackpot. And from the stats, most don't. Besides, I don't focus on the advertised jackpot amount. I look at it from the cash-option, after-taxes point of view. And it always looks like a lot of... [ More ]

Reply #2

lottolaughs — Fri, 01 Aug 2014 14:28:49 GMT

Someone told me once to take the cash because it's worth more now then it will be 20+ years from now.

Reply #1

maringoman — Fri, 01 Aug 2014 14:25:48 GMT

The problem with annuity is that you cannot be sure what the government will decide as far as taxes are concerned. A few years back NJ imposed taxes on lottery (prior to that they never taxed lottery at the state level) and backdated them to the beginning of that year.

Why not choose the annuity?

MsNumberDreamer — Fri, 01 Aug 2014 12:21:08 GMT

Someone won 1 million on a scratch off down the street from my house. He chose the cash option and the prize dropped to 600,000. After taxes he only took home a little over 400,000.

First off, I didn't know the highest prizes on scratch tickets had a cash option. But I am surprised the amount can drop so drastically.

So in this situation would you choose annuity? Or why wouldn't you choose annuity and take the much lesser amount