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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 ]  

United States
Member #5565
July 11, 2004
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Posted: July 13, 2005, 10:02 am - IP Logged

 Fidelity found that the average investor earned an annual return  5 percentage points below their funds.  When the funds were returning 10 percent per year in the 80s and 90s, the average return was 5 percent, about the same as the money market in those days.  It probably becomes a wider disparity when they apply the income tax to the frequent trading in and out by the average fundholder.  Ultimately, there was a wide gap between what people said they were able to accomplish (ego) and the reality...

    LOTTOMIKE's avatar - cash money.jpg
    Tennessee
    United States
    Member #7853
    October 15, 2004
    11338 Posts
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    Posted: July 22, 2005, 12:29 am - IP Logged

    Annuity never.

    what is so evil about annuity??

      emilyg's avatar - cat anm.gif

      United States
      Member #14
      November 9, 2001
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      Posted: July 22, 2005, 12:32 am - IP Logged

      Annuity never.

      what is so evil about annuity??

      nothing evil - whatever suits a person best

      love to nibble those micey feet.

       

                                   

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        Silicon Valley
        United States
        Member #18886
        July 22, 2005
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        Posted: July 22, 2005, 6:16 am - IP Logged

        So, here's a few quick calculations which should (hopefully) prove the value of cash value over annuity:

        The California State Lottery's SuperLotto Plus minimum jackpot is 7 million, and these numbers are using that figure (and the lump sum figure provided on the lottery web page here) as a basis.  I will, for the sake or argument, assume that the state lottery program faithfully pays out on schedule for the duration of the annuity and that the bonds actually earn the estimated interest over that time.

        Annual Payments Total after 26 years = $7,000,000
        After 35% taxes on all payments: $4,550,000

        (and yes, you'll be in the highest tax bracket with even the smallest annual payment made).

        Estimated Lump Sum: $3,640,000
        After 35% Taxes: 2,366,000
        After 26 years of 5% compounded annual interest: $8,412,721
        After paying 35% tax on interest: $6,296,369

        And, just to be fair, here's what you'd have if you immediately invested each of the 26 annual payments into a 5% interest account (assuming 35% taxes on each payment and the interest earned): $6,217,577

        So... take the annuity and put every dime in a 5% account and end up with about 6.217M, take the cash value and stick it in a 5% account and get 6.296M... not a huge difference.  However, keep in mind that both those figures are assuming you're still working for all 26 years and taking no money out of your winnings account (how many people wanna do that, honestly).  If you start taking money out each year to live on, the cash value becomes more and more attractive, since you have so much more money earning interest to begin with. 

        I don't know about you, but I'm pretty sure I could find a finiancial advisor that would earn me more than 5% annually, starting with over $2.3M in capital, and get me enough additional income to live quite happily while my money kept growing.

        So yeah, I'd go for the cash value.

         


          United States
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          July 11, 2004
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          Posted: July 22, 2005, 2:03 pm - IP Logged

          You left out out of the comparison the fact that there'll be money left over from the annuity each year to invest in marketable securities, funds, or real assets.  It then becomes a comparison of two investment approaches:  dollar-cost averaging versus lump-sum investing.  Studies have shown dollar-cost averaging to do at least as well as lump-sum investing since the latter tends to pick hot periods to get into the markets. 

           

          The annual payments from the annuity and the investment income (regardles of whichever payment method you chooose) will have more shelter from taxes since you have exemptions for yourself and your dependents, deductions for your mortage, real estate, property, and state income taxes,  deductions for health expenses, and business write-offs especially if you purchase income-oriented real estate for its depreciation deductions.


            United States
            Member #16612
            June 2, 2005
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            Posted: July 22, 2005, 8:35 pm - IP Logged

            I rather take lump sum [Cash Value]

              LOTTOMIKE's avatar - cash money.jpg
              Tennessee
              United States
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              October 15, 2004
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              Posted: July 26, 2005, 9:19 am - IP Logged

              I rather take lump sum [Cash Value]

              a lot of people would although you do have the occasional person who chooses annuity.....


                United States
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                July 11, 2004
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                Posted: July 26, 2005, 11:17 am - IP Logged

                Lottery players tend to be older than the general population.  As such, they're not going to take a 25- or 30-year annuity payment if they're in their late 30s or older.


                  United States
                  Member #379
                  June 5, 2002
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                  Posted: July 27, 2005, 8:18 pm - IP Logged

                  Especially the new PB annuity.


                    United States
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                    Posted: July 30, 2005, 12:59 pm - IP Logged

                    When will lotteries go to 40-year annuities?


                      United States
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                      Posted: July 30, 2005, 1:26 pm - IP Logged

                      Longer annuity terms are also a ploy to inflate the value of the jackpot.

                        LOTTOMIKE's avatar - cash money.jpg
                        Tennessee
                        United States
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                        October 15, 2004
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                        Posted: August 2, 2005, 7:17 am - IP Logged

                        you could be right....


                          United States
                          Member #379
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                          Posted: August 5, 2005, 3:20 pm - IP Logged

                          I wouldn't mind seeing even longer (eg 40 payments) annuities, with a balloon at the end, as long as there's a cash option.

                             
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