|Posted: April 20, 2006, 12:44 am - IP Logged|
Oh this is classic!
It'll come as no surprise to anyone that I think the Powerball annuity makes absolutely no sense whatsoever. But just for kicks let's take the points one by one:
1. It forces you to stick to a budget.
Please refer to the story on Lottery Post about the family in Florida who was recently arrested for tax fraud. THEY took the annuity.
2. The kids and family will be well aware that there is an annual limit of funds.
See the same story.
3. The annuity can be willed on after you die.
Ever hear of the Death...oops Estate Tax? If I remember correctly the Unified Family Credit (or whatever it's called) doesn't take effect until 2010. But even then Estate Taxes are crippling...even if a Trust is formed. Right now I believe the Estate Tax stands at something like 48% of the total value of the estate. That 48% has to be paid within 9 months after the death or it is subject to a 20% penality! Now if you leave an annuity that's still worth $100 million dollars where do you think your heirs are going to come up $48 million to pay the IRS? Borrow it against the annuity? Sell the annuity for a perchantage on the dollar? If they do that what will they have left? You better have a plan because they have to pay the Death Tax before they can collect the annuity.
4. The annuity can be cashed out at any time.
By who? Not the lottery. Maybe some schumck company that buys annuities for a perchantage...but then you'd get even less than you would have got taking the cash. You'd have been better off taking the cash in the first place.
5. The annuity will gain 4% percent interest per each annual payment.
Uh that's 4% TAXABLE interest! You can invest the money yourself and get close to 3% TAX FREE on municiple bonds. And you can still do better than 4% taxable with an extremely conservative investment plan.
6. The annuity is worth more overall than the cash value.
The annuity is a promise to pay. The cash value is money in hand or...as we used to say; Green, Train Riding Money! Which do you think is worth more? (Remember the old cartoon? I'd gladly pay you Tuesday for a Hamburger today.)
The bottom line is I can't think of a single reason to take the annuity.
Money frees you from doing things you dislike. Since I dislike doing nearly everything, money is handy. - Groucho Marx