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cash vs. annuity

Topic closed. 267 replies. Last post 11 years ago by CASH Only.

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if you won a jackpot,pick lump sum cash or annuity

i'd pick lumo sum cash [ 82 ]  [73.21%]
i'd pick annuity [ 22 ]  [19.64%]
undecided [ 8 ]  [7.14%]
Total Valid Votes [ 112 ]  
Discarded Votes [ 7 ]  
Todd's avatar - Cylon 2.gif
Chief Bottle Washer
New Jersey
United States
Member #1
May 31, 2000
23348 Posts
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Posted: June 2, 2005, 8:18 am - IP Logged



If you take the annuity, the lottery will actually end up making more money off of your winnings over time...heh. Sad but try. They do indeed invest it and gain interest off that money. That's why you should take the lump sum up front. What you get is an entire jumble of money making interest...how much interest? Well that depends on the bank, but at a standard 8percent compounding interest on just 10million...you will be making a little under 1 million per year in interest after 5 years...see how lump sum works??

 When you take annuity, you're giving the lottery lump sum and they cash in on the interest. Lump sum is always the wisest way to go.





As with your comments on computerized drawings, your comment shows limited knowledge about how things work.

No, the lotteries don't make any more money when a winner selects annuity.  If anything, a bank would benefit from the use of the invested lottery prize money.  The lottery itself does not gain any interest or other benefit when the prize money is invested.  If anything, it gives them more overhead costs, because they have to cut checks to the winner every year, and maintain long-term records.

Some advice to you: calm down and don't state everything as fact, because you don't seem to have a complete grip on the facts yet.  Maybe you can preface your opinions with "I think this is the way it works...."

 

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    atlasshrugged's avatar - candle
    Alaska
    United States
    Member #16217
    May 27, 2005
    287 Posts
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    Posted: June 2, 2005, 9:13 am - IP Logged

    Here's my take on the annuity vs lump sum thing. For me it would depend on the jackpot. If I won a small jackpot like the Lottosouth for like 5 mill. I'd take the lump sum. It would end up being about 2.5 mill and then when taxes are taken out it would end up being a check for about 1.65 mill give or take a few hundred thousand. I would then take that money and hand the vast majority of it over to a financial planner to try and be sure that it would last my entire life. Now if I won one of those 80 million Mega Millions jackpots. I do believe I would take the annuity. It would end up being a lump sum of some where between 25 and 30 million after taxes. I would just rather not have to deal with that kind of money and all the problems associated with it. I know my family. They are vultures. The annuity would be over a million each year but I don't think it would be so much that I'd have to watch my back everytime I walk out the door. That million each year would also be turned over to the financial planner of my choice but  I wouldn't have to deal with the problems of having 25 million dumped in my lap at one time. I think that the states actually want you to take the cash option. They give a larger amount to the state if the winner takes the cash option than if they take the annuity. When I buy a ticket I always get the annuity because here in GA if you chose cash option when you buy your ticket, that's it. If you get the annuity ticket, you have 60 days to decide. I want all the time I can get to make a permanent life changing decision like that. These are just my thoughts. -Bonnie

      MMGuy's avatar - waveform
      Houston, Tx
      United States
      Member #13043
      March 28, 2005
      119 Posts
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      Posted: June 2, 2005, 1:24 pm - IP Logged

      I don't know if someone said this before, but Eric Kyle took the annuity and the Hubbard's took cash.

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        New Member
        Wisconsin
        United States
        Member #16601
        June 2, 2005
        11 Posts
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        Posted: June 3, 2005, 12:21 am - IP Logged

        If you take the annuity, the lottery will actually end up making more money off of your winnings over time...heh. Sad but try. They do indeed invest it and gain interest off that money. That's why you should take the lump sum up front. What you get is an entire jumble of money making interest...how much interest? Well that depends on the bank, but at a standard 8percent compounding interest on just 10million...you will be making a little under 1 million per year in interest after 5 years...see how lump sum works??

         When you take annuity, you're giving the lottery lump sum and they cash in on the interest. Lump sum is always the wisest way to go.

        As with your comments on computerized drawings, your comment shows limited knowledge about how things work.

        No, the lotteries don't make any more money when a winner selects annuity.  If anything, a bank would benefit from the use of the invested lottery prize money.  The lottery itself does not gain any interest or other benefit when the prize money is invested.  If anything, it gives them more overhead costs, because they have to cut checks to the winner every year, and maintain long-term records.

        Some advice to you: calm down and don't state everything as fact, because you don't seem to have a complete grip on the facts yet.  Maybe you can preface your opinions with "I think this is the way it works...."

        Todd yes they do make interest off the money. The cash isn't stored in a safe, it's in a bank in an interest bearing account. You take annuity they get interest of that which they haven't paid out to you. Why do you think they payout over 20-30years instead of 48 months or 5 years? That is a fact.

          LOTTOMIKE's avatar - cash money.jpg
          Tennessee
          United States
          Member #7853
          October 15, 2004
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          Posted: June 3, 2005, 12:48 am - IP Logged

          i'd still rather take the lump sum instead of having to deal with the lottery corporation every year on annuity for 30 years,what would happen if the lottery suddenly ran into problems 10 years down the road? 


            United States
            Member #5565
            July 11, 2004
            260 Posts
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            Posted: June 3, 2005, 11:43 am - IP Logged

            If I won the Lotto South annuity of $ 5 million and purchased a regular house ($ 600 K) in my area, I would keep far more of my money than if I took the winnings in a lump-sum. It would cost me about $50 K in the first year to finance the purchase and pay the real estate taxes, all of which are deductible. Add on the deductions for health insurance, medical savings accounts, property taxes, etc., and I would have about a third of lottery income sheltered from the federal and state income taxes which take out about 38%. If I took the payout as a lump sum, I'd probably have about $ 2.5 million dollars before taxes. After the income taxes hit, I'd be left with about $ 1.5 million because of the higher combined income tax rate of 42%. After purchasing the home with cash, I'd have about $ 900 thousand. With long bonds paying below 4% and stocks yielding 1.7%, I think a more realistic long-term return on the cash would be somewhere around 6 to 7 percent. With no mortgage as a tax shelter and the same deductions as in the annuity example, I would guess that I'd have an adjusted gross of around $ 50 K before the income taxes kicked in.

              atlasshrugged's avatar - candle
              Alaska
              United States
              Member #16217
              May 27, 2005
              287 Posts
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              Posted: June 3, 2005, 12:26 pm - IP Logged

              If I won the Lotto South annuity of $ 5 million and purchased a regular house ($ 600 K) in my area, I would keep far more of my money than if I took the winnings in a lump-sum. It would cost me about $50 K in the first year to finance the purchase and pay the real estate taxes, all of which are deductible. Add on the deductions for health insurance, medical savings accounts, property taxes, etc., and I would have about a third of lottery income sheltered from the federal and state income taxes which take out about 38%. If I took the payout as a lump sum, I'd probably have about $ 2.5 million dollars before taxes. After the income taxes hit, I'd be left with about $ 1.5 million because of the higher combined income tax rate of 42%. After purchasing the home with cash, I'd have about $ 900 thousand. With long bonds paying below 4% and stocks yielding 1.7%, I think a more realistic long-term return on the cash would be somewhere around 6 to 7 percent. With no mortgage as a tax shelter and the same deductions as in the annuity example, I would guess that I'd have an adjusted gross of around $ 50 K before the income taxes kicked in.

              Goodness, you have put some thought into this. This is the reason that I would get in touch with a financial planner before I even cash in my ticket. You have 180 days to cash it in (about 6 mos) I think I could figure out the best way to go within 6 mos. -Bonnie

                LOTTOMIKE's avatar - cash money.jpg
                Tennessee
                United States
                Member #7853
                October 15, 2004
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                Posted: June 3, 2005, 10:05 pm - IP Logged

                these kinds of decisions are more harder than i originally thought.there are so many different ways of looking at this...

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                  New Member
                  Wisconsin
                  United States
                  Member #16601
                  June 2, 2005
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                  Posted: June 4, 2005, 6:44 am - IP Logged
                     

                  If I won the Lotto South annuity of $ 5 million and purchased a regular house ($ 600 K) in my area, I would keep far more of my money than if I took the winnings in a lump-sum. It would cost me about $50 K in the first year to finance the purchase and pay the real estate taxes, all of which are deductible. Add on the deductions for health insurance, medical savings accounts, property taxes, etc., and I would have about a third of lottery income sheltered from the federal and state income taxes which take out about 38%. If I took the payout as a lump sum, I'd probably have about $ 2.5 million dollars before taxes. After the income taxes hit, I'd be left with about $ 1.5 million because of the higher combined income tax rate of 42%. After purchasing the home with cash, I'd have about $ 900 thousand. With long bonds paying below 4% and stocks yielding 1.7%, I think a more realistic long-term return on the cash would be somewhere around 6 to 7 percent. With no mortgage as a tax shelter and the same deductions as in the annuity example, I would guess that I'd have an adjusted gross of around $ 50 K before the income taxes kicked in.

                  Good points. It makes sense that annuity in short winnings can go farther if you're smart. At what point (winnings wise) would you say annuity would produce less benefit? Personally I wouldn't even think of taking annuity for anything over $20 million jackpot.

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                    md
                    United States
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                    April 20, 2005
                    580 Posts
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                    Posted: June 4, 2005, 10:21 am - IP Logged

                    I'd take the lump sum payment and make my money work for me.  Have you ever thought about why money is called currency?  It is electric, it is active, you have to tell/direct money where, what and how to do!


                      United States
                      Member #5565
                      July 11, 2004
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                      Posted: June 4, 2005, 7:25 pm - IP Logged

                      [quote]Good points. It makes sense that annuity in short winnings can go farther if you're smart. At what point (winnings wise) would you say annuity would produce less benefit? Personally I wouldn't even think of taking annuity for anything over $20 million jackpot.[/quote]

                      I think I probably wouldn't take an annuity if the prize was well over $ 200 K per year.  It becomes harder to shield from taxes in my circumstances and my area's cost of living (DC).  Since I'm in my early 40's and my mom is in her 70's, I see the rapid rise in insurance costs second-hand, partially due to the guy in the White House.  I can definitely envision my family's annual health insurance costs approaching $ 20-30K per year by the time I'm 65.  A house that's 600K in my neighborhood now would probably inflate enough to incur real estate taxes near $ 10K by that time.

                      I guess the other option is to seek out cheap havens in the Midwest where housing is still reasonable.

                       

                        danisiri's avatar - Avatar all_for_Jesus.jpg

                        United States
                        Member #13684
                        April 11, 2005
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                        Posted: June 4, 2005, 8:36 pm - IP Logged

                        If I won the Lotto South annuity of $ 5 million and purchased a regular house ($ 600 K) in my area, I would keep far more of my money than if I took the winnings in a lump-sum. It would cost me about $50 K in the first year to finance the purchase and pay the real estate taxes, all of which are deductible. Add on the deductions for health insurance, medical savings accounts, property taxes, etc., and I would have about a third of lottery income sheltered from the federal and state income taxes which take out about 38%. If I took the payout as a lump sum, I'd probably have about $ 2.5 million dollars before taxes. After the income taxes hit, I'd be left with about $ 1.5 million because of the higher combined income tax rate of 42%. After purchasing the home with cash, I'd have about $ 900 thousand. With long bonds paying below 4% and stocks yielding 1.7%, I think a more realistic long-term return on the cash would be somewhere around 6 to 7 percent. With no mortgage as a tax shelter and the same deductions as in the annuity example, I would guess that I'd have an adjusted gross of around $ 50 K before the income taxes kicked in.

                        I think that perhaps your are overcalculating your taxes.  When you take the lump sum, federal tax witholding is only 25%.  Depending on what state you live in, the state income tax could range from 0% to 9%.  Added together, that is still less than the 42% income tax rate you are quoting.  DC does not charge state income tax on lottery winnings, so you would only incur the 25% federal witholding.

                        Now, if you invest your remaining winnings into treasury bonds, you would only pay federal income tax which would range from 15% to 37% depeding upon the amount of interest you earn (no state tax is charged on federal treasury bonds).  If you invest in municipal bonds, you will avoid federal income tax and may be able to avoid state and local taxes if you reside in the same state where the bonds were issued.  So, you could get totally tax free interest income!  The only caveat is that you have to make sure your municipal bonds are not subject to the AMT (alternative minimum tax), but if you stay within the general obligation municipal bonds or similar securities, you will get the triple tax break.

                        Thanks to the current White House resident, you should also see a decrease in the federal income tax rates and hopefully an elimination of the estate tax (which will benefit your heirs).  Perhaps our country will finally eliminate income tax altogether and move to a federal sales tax, so that you are only taxed when you spend money on non-essential items.  One can only hope!

                        As for mortgage interest deductions, the interest penalty overwhelms the tax deduction benefit, so sometimes you are better off being debt free.  You have to remember that tax deductions are not the same as tax credits, so deductions just reduce your adjusted gross taxable income.

                        Don't be so pessimistic about taking a lump sum, there are ways around income tax! Good luck!


                          United States
                          Member #5565
                          July 11, 2004
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                          Posted: June 4, 2005, 9:05 pm - IP Logged

                          [quote]When you take the lump sum, federal tax witholding is only 25%. Depending on what state you live in, the state income tax could range from 0% to 9%. Added together, that is still less than the 42% income tax rate you are quoting. DC does not charge state income tax on lottery winnings, so you would only incur the 25% federal witholding.[/quote]

                          Withholding is what the tax authorities keep from your lottery receipt as mandated by law. What you pay in tax on the lottery winnings will be determined when you file the income tax return. Most jackpot winners will have to pay more when they file since the federal income tax rates since the top marginal bracket of 35 percent starts at 300 K. The exceptions will be those who have very substantial accumulated business losses to offset the lottery bonanza (very unlikely!).

                          The top federal income tax rate is 35 percent. Virginia's top income tax rate is 5.75 percent. Some states don't charge income taxes on local lottery games
                          winnings. They're in the small minority.

                          [quote]Don't be so pessimistic about taking a lump sum, there are ways around income tax![/quote]

                          Actually, I'm not.  I was citing a specific example using a current game.  As a rule of thumb for the area that I live in and the costs there, I would take an annuity if the winnings were between $ 125 K and $ 300 K per year.  Otherwise, I probably would not.

                           

                           

                            danisiri's avatar - Avatar all_for_Jesus.jpg

                            United States
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                            April 11, 2005
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                            Posted: June 5, 2005, 1:34 pm - IP Logged

                            [quote]When you take the lump sum, federal tax witholding is only 25%. Depending on what state you live in, the state income tax could range from 0% to 9%. Added together, that is still less than the 42% income tax rate you are quoting. DC does not charge state income tax on lottery winnings, so you would only incur the 25% federal witholding.[/quote]

                            Withholding is what the tax authorities keep from your lottery receipt as mandated by law. What you pay in tax on the lottery winnings will be determined when you file the income tax return. Most jackpot winners will have to pay more when they file since the federal income tax rates since the top marginal bracket of 35 percent starts at 300 K. The exceptions will be those who have very substantial accumulated business losses to offset the lottery bonanza (very unlikely!).

                            The top federal income tax rate is 35 percent. Virginia's top income tax rate is 5.75 percent. Some states don't charge income taxes on local lottery games
                            winnings. They're in the small minority.

                            [quote]Don't be so pessimistic about taking a lump sum, there are ways around income tax![/quote]

                            Actually, I'm not.  I was citing a specific example using a current game.  As a rule of thumb for the area that I live in and the costs there, I would take an annuity if the winnings were between $ 125 K and $ 300 K per year.  Otherwise, I probably would not.

                             

                             

                            I did some more research into this and I think you are correct.  I find it kind of ridiculous that they would only take out 25% if they know you are going to be taxed at 35% for jackpot winners.  Well, I can still hope that the federal income tax will be eliminated before I win!

                              Todd's avatar - Cylon 2.gif
                              Chief Bottle Washer
                              New Jersey
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                              May 31, 2000
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                              Posted: June 5, 2005, 1:58 pm - IP Logged

                              If you take the annuity, the lottery will actually end up making more money off of your winnings over time...heh. Sad but try. They do indeed invest it and gain interest off that money. That's why you should take the lump sum up front. What you get is an entire jumble of money making interest...how much interest? Well that depends on the bank, but at a standard 8percent compounding interest on just 10million...you will be making a little under 1 million per year in interest after 5 years...see how lump sum works??

                               When you take annuity, you're giving the lottery lump sum and they cash in on the interest. Lump sum is always the wisest way to go.

                              As with your comments on computerized drawings, your comment shows limited knowledge about how things work.

                              No, the lotteries don't make any more money when a winner selects annuity.  If anything, a bank would benefit from the use of the invested lottery prize money.  The lottery itself does not gain any interest or other benefit when the prize money is invested.  If anything, it gives them more overhead costs, because they have to cut checks to the winner every year, and maintain long-term records.

                              Some advice to you: calm down and don't state everything as fact, because you don't seem to have a complete grip on the facts yet.  Maybe you can preface your opinions with "I think this is the way it works...."

                              Todd yes they do make interest off the money. The cash isn't stored in a safe, it's in a bank in an interest bearing account. You take annuity they get interest of that which they haven't paid out to you. Why do you think they payout over 20-30years instead of 48 months or 5 years? That is a fact.

                              This shows how little you know.  The point of the annuity is that YOU, the winner, gets the interest, which is how they arrive at such a high jackpot amount.  Not the lottery.

                              You have a lot to learn, young one.

                               

                              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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