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Annuity vs. Cash Analysis

Topic closed. 11 replies. Last post 10 years ago by Coin Toss.

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Delaware
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Posted: October 29, 2006, 11:49 am - IP Logged

I have done an analysis of the annuity vs. cash on a spreadsheet. I wanted to see, when factoring in taxes and interest, how much you would wind up with over the same time frame. I used Powerball as the test thanks to their helpful email about how the graduated annuity is calculated (via a spreadsheet).

With Wednesday's Powerball jackpot, the annuity is $93 million and the cash option is $44 million. Over a time period between 2006 and 2035, if you never spent a penney of your winnings, you would need to earn 5% APY interest to make up the difference lost for taxes (estimated at 35% federal, 0% state, calculated on both interest earned and annual payments). Under the same scenario, if you took the cash option and let the same interest compound, you would have about $72.3 million after taxes, a different of almost $21 million less.

I took into assumption living in a no-income-tax state, no change in the tax brackets, no spending of winnings and interest, and constant compounding interest rate. Obviously this isn't realistic, but if you adjusted any of those variables on both sides (annuity vs. cash) the results would be porportionally the same.

There is, however, a turning point with this. If you were to earn interest at 7.9696229%, you would be dead even between cash and annuity (+/- less than $1), so if you could earn above that rate (8% generally) under the current split between cash and annuity, you would come out ahead taking the cash option. Obviously this could not be achieved without putting everything into higher risk investments.

Just a few thoughts when making your decision when you win.

    Todd's avatar - Cylon 2.gif
    Chief Bottle Washer
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    Posted: October 29, 2006, 10:03 pm - IP Logged

    All of that is already pre-calculated at www.usamega.com.  Click on Jackpot Analysis under the Powerball heading.  It shows both cash option and graduated annuity, as well as taxes for every state.

     

    Check the State Lottery Report Card
    What grade did your lottery earn?

     

    Sign the Petition for True Lottery Drawings
    Help eliminate computerized drawings!

      Coin Toss's avatar - shape barbed.jpg
      Zeta Reticuli Star System
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      Posted: October 29, 2006, 11:04 pm - IP Logged

      Of course, when deciding on cash vs annuity just perhaps things like the Mayan prophecy about 12-21-2012 should be considered.

      Google that one, Mayans + 12-21-2012

      Shocked

        justxploring's avatar - villiarna
        Wandering Aimlessly
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        Posted: October 29, 2006, 11:31 pm - IP Logged

        Of course, when deciding on cash vs annuity just perhaps things like the Mayan prophecy about 12-21-2012 should be considered.

        Google that one, Mayans + 12-21-2012

        Shocked

        They didn't say the world would end, just that we'd be entering into a new consciousness.  Most of the people I know walk around unconsciously so they probably won't even notice.  So for now, if I win any money I'm going to say "it's my-an, it's my-an"  (no disrespect meant)

          Coin Toss's avatar - shape barbed.jpg
          Zeta Reticuli Star System
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          Posted: October 30, 2006, 12:33 am - IP Logged


          "it's my-an, it's my-an"?

          Green laugh

          "Most of the people I know walk around unconsciously..........."

           There's a phrase in Japanese, I forget the words, but it means "born unconscious, died while still asleep"  - a lot of people do indeed go through life like that.

          About 12-21-2012 , I've wondered about people who do think it's going to be the end of the world - say theyr'e driving around in the summer of 2012 and see a sign on a furniture store that says "No payments until 2013" - and they're thinking, "Oh really".

          So they 'load up', and then 12-21-2012 comes and goes and........

          Too bad Rod Serling isn't still around....... 

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            Delaware
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            Posted: October 30, 2006, 1:18 am - IP Logged

            Of course, when deciding on cash vs annuity just perhaps things like the Mayan prophecy about 12-21-2012 should be considered.

            Google that one, Mayans + 12-21-2012

            Shocked

            There have been many end-of-world theories and we are still here.

              justxploring's avatar - villiarna
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              Posted: October 30, 2006, 1:19 am - IP Logged

              Reminds me of the REM song from 1987.  "It's the end of the world as we know it and I feel fine."

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                Zeta Reticuli Star System
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                Posted: October 30, 2006, 1:54 am - IP Logged


                RDC137

                Art Bell said a meteor hit the earth a few years ago, the wolrd ended, we're all dead and this is hell - but no one told us.

                  justxploring's avatar - villiarna
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                  Posted: October 30, 2006, 2:41 am - IP Logged


                  RDC137

                  Art Bell said a meteor hit the earth a few years ago, the wolrd ended, we're all dead and this is hell - but no one told us.

                  Does this mean I should have collected on my Life Insurance policy?

                    SirMetro's avatar - center
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                    Posted: October 30, 2006, 9:22 am - IP Logged


                    RDC137

                    Art Bell said a meteor hit the earth a few years ago, the wolrd ended, we're all dead and this is hell - but no one told us.

                    Perhaps this reinforces the statement Ignorance is bliss

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                      Harbinger
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                      Posted: October 30, 2006, 10:03 am - IP Logged

                      There have been many end-of-world theories and we are still here.

                      Al Gore says we have less than 10 years before planet earth ceases to exist as we know it today.  He was one of the founders of the internet,  he made this forum possible.  He also was a tobacco farmer,  so he should know, you know;  How to predict the future. 

                      Remember the end is near, so chose your numbers wisely.  LOL jarasan Party

                        Coin Toss's avatar - shape barbed.jpg
                        Zeta Reticuli Star System
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                        Posted: October 30, 2006, 10:35 am - IP Logged


                        Between Al Gore or Art Bell I'll go with Art Bell!

                        :tinhat: