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One more annuity vs cash discussion

Topic closed. 20 replies. Last post 10 years ago by SirMetro.

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Coin Toss's avatar - shape barbed.jpg
Zeta Reticuli Star System
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Posted: January 13, 2007, 5:54 pm - IP Logged

One thing I haven't seen mentioned in these discussions, (or I missed), is any mention of someone taking a cash option not having the same"buying power",  let's say, of what the annuity offered. 

In other words, let's say the deal is a $100,000,000 annuity spread over 20 or 26 years as compared to a cash option that is about 40% of that, pre-tax.

I've learned here on LP that the advertised jackpot amount (annuity) doesn't really exist in cash (and that's what the prize wouldl be, theorhetically, if a winner opts for the annuity). I've also seen people post "you can buy better annuity" (that, in fact, was someone's sig, I'm sorry I forget whose). 

The question is, could $46,000,000 pre-tax cash really buy an annuity equivalent to a $100,000,000 (pre-tax annuity?) That's a difference of $54,000,000, which definitely is nothing to sneeze at.

And considering the current news story on Whittaker, would he have been better off with an annuity, or would he have blown all that too, year by year or perhaps by credit and having all those checks spent before he got them?

Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

Lep

There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

    Todd's avatar - Cylon 2.gif
    Chief Bottle Washer
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    Posted: January 13, 2007, 5:59 pm - IP Logged

    Those are all excellent points.  They get raised here and there, so it's nice to see the arguments laid out all together.

    I agree with you, and I'll bet that Jackie Boy would not be in near the trouble he's in today -- singing the blues about "all the crooks" -- if he took the annuity! 

    There are absolutely plusses and minuses to each option, and those who look at it with a black & white perspective are possibly overlooking several important factors.

     

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      Guru101's avatar - rw6jhh
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      Posted: January 13, 2007, 6:08 pm - IP Logged

      One thing I haven't seen mentioned in these discussions, (or I missed), is any mention of someone taking a cash option not having the same"buying power",  let's say, of what the annuity offered. 

      In other words, let's say the deal is a $100,000,000 annuity spread over 20 or 26 years as compared to a cash option that is about 40% of that, pre-tax.

      I've learned here on LP that the advertised jackpot amount (annuity) doesn't really exist in cash (and that's what the prize wouldl be, theorhetically, if a winner opts for the annuity). I've also seen people post "you can buy better annuity" (that, in fact, was someone's sig, I'm sorry I forget whose). 

      The question is, could $46,000,000 pre-tax cash really buy an annuity equivalent to a $100,000,000 (pre-tax annuity?) That's a difference of $54,000,000, which definitely is nothing to sneeze at.

      And considering the current news story on Whittaker, would he have been better off with an annuity, or would he have blown all that too, year by year or perhaps by credit and having all those checks spent before he got them?

      The annuity option does have its advantages. For example, the annuity option of the PowerBall is 30 years. Well, if the person takes the annuity option, in about 10 years they will have the same, if not more money than if they had taken the cash option. After that, the person can look forward to 20 more years of big ol' checks.

      Party

        tiggs95's avatar - Lottery-036.jpg

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        Posted: January 13, 2007, 8:06 pm - IP Logged

        If you are young I think it's best to take payments over 30 years..But if you a tad bit old like 50 or over 60 cash option to me would be best..More to spend at a old age...

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          Delaware
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          Posted: January 15, 2007, 2:52 am - IP Logged

          A large factor comes down to the age of the person. Taking an annuity at 80 makes no sense. Take the cash, spend it fast, and heck with the grandkids inheritance.

          A younger person in their 20s, 30s, or even 40s would be better served in most cases by taking the annuity and doing their best to try to live a normal life. Even if the person simply rolled the cash not needed into bank accounts paying 4-5% per year (no risk) your money will grow by hundreds of thousands and eventually millions by the time it's all over. Even accounting for inflation a person can upgrade their lifestyle and still not come close to using up all the annual payment if they plan wisely and control themselves. That being said, it would also be advisable to take 10% from the first payment (only) and blow it mindlessly to get that out of your system.

            justxploring's avatar - villiarna
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            Posted: January 15, 2007, 4:29 am - IP Logged

            "A large factor comes down to the age of the person. Taking an annuity at 80 makes no sense. Take the cash, spend it fast, and heck with the grandkids inheritance."  rdc127 

            I once wrote something similar to your first sentence, that age is a factor.  However, I would never just spend my money wildly without helping my family.  I don't have children.  But if I were 80 and had a son, I hope I would trust him enough to claim the prize and promise me he would choose the annuity, or at least set up a trust with an attorney. If not, when I die my heirs will be paying the IRS a lot of inheritance tax.  I know many people live beyond 90, but most 80 year olds wouldn't be able to spend it all having fun, unless it winds up going to a nursing home or medical bills.  I've also written that I realize it's not a parent's obligation to support his children once they've grown, but why not make their lives more comfortable?

            Specifically, this topic was talking about the value of the annuity vs taking the cash.  There will always be a lot of people who write that the market will average about 9% over time, and that many people double their money in less than 10 years, which is true. However, you can still lose a lot unless you invest in a very conservative portfolio. Most winners have no idea where to deposit millions of dollars and would be putting their faith in a financial planner, and they make mistakes. Big ones!!  Rather than spending the time listing all of the possible investments and returns, I can only say from my experience that getting a check every year for the next 30 would be very comforting, and I'm in my 50s.  If I won $30M or more I would probably take it over time. Anyone can live happily on a million a year and still be very generous.  If I won much less, I might choose the cash so I could invest in real estate without waiting for my money. In another 20 years there won't be any land left to buy!

              Coin Toss's avatar - shape barbed.jpg
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              Posted: January 15, 2007, 10:21 am - IP Logged

              I've thought a lot about this kind of stuff.

              OK, let's just say for conversation there was lottery in the 1950's, and the jackpot was $5 million, which would have been a lot more money then than it is now. Let's also say someone hit, and took an annuity, and after taxes that  came out to $330,000 a year. They'd pretty much think they were set, but as they years went on that once "vast annual income" wouldn't even buy a house in some places. What sounded like a fortune the first year turns out to be a comfortable living, sure, but not the score it first was. 

              There are probably quite a few people here on this board that can tell you what people are paying for cars once bought houses.  

              As for the stock market, even the "pros" get clobbered and the market can take dramatic turns in just one day. Consider 9-11 and airline stocks. (Although, oddly, just prior to 9-11 there was an unusally huge amount of shorting of airline stocks going on!)

              Another thing I've wondered about is people who insist that if you give to a church or charity you give 10%, ok so far. Then some of them say 10% based on gross. When I hear that one I always use a lottery jackpot as an example- OK ace, you're going to give 10% of the gross. So the advertised jackpot was $20,000,000 and you pledge to give 10% Based on the $20,000,000, but whether it's annuity or cash, after taxes you're not in any way, shape, or form going to see $20,000,000. But you've pledge $2,000,000. 

              The point is, when that $20 million becomes a lot less, would they still kick in the $2 they pledged? I kind of doubt it.

              Discuss if you will

              Smile

              Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

              Lep

              There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                justxploring's avatar - villiarna
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                Posted: January 15, 2007, 10:30 am - IP Logged

                But if you a tad bit old like 50 or over 60 cash option to me would be best..More to spend at a old age...

                 

                I just noticed this.  Thanks at lot from all of us aging 55 year olds!

                 

                 

                Coin Toss wrote:  They'd pretty much think they were set, but as they years went on that once "vast annual income" wouldn't even buy a house in some places.

                Yes, this is true.  However, if they purchased a couple of homes in the 50s, they'd have plenty of money just from selling them!  I know people who bought homes for $25K in 1960 and the homes are now being sold for over a million. I realize that people hate to move from a home they grew up in or raised their families, but when I hear complaints about the high taxes and insurance, I think to myself "they can move."  When you don't have anything to sell or money in the bank, you don't have that choice. 

                Also, when were are discussing gigantic jackpots like $100 million it's very different from preparing for the future with your 401K or IRA by putting $250 away every month. The people who spend it on beachfront mansions and Aston Martins might find themselves in trouble. But all anyone needs to do when he wins $100 million or even 1/2 is to take the first million or two and deposit it.  Then he'll never be broke.  But I guess "broke" is a relative term.  

                  Coin Toss's avatar - shape barbed.jpg
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                  Posted: January 15, 2007, 10:35 am - IP Logged

                  But if you a tad bit old like 50 or over 60 cash option to me would be best..More to spend at a old age...

                   

                  I just noticed this.  Thanks at lot from all of us aging 55 year olds!

                   

                   

                  Coin Toss wrote:  They'd pretty much think they were set, but as they years went on that once "vast annual income" wouldn't even buy a house in some places.

                  Yes, this is true.  However, if they purchased a couple of homes in the 50s, they'd have plenty of money just from selling them!  I know people who bought homes for $25K in 1960 and the homes are now being sold for over a million. I realize that people hate to move from a home they grew up in or raised their families, but when I hear complaints about the high taxes and insurance, I think to myself "they can move."  When you don't have anything to sell or money in the bank, you don't have that choice. 

                  Also, when were are discussing gigantic jackpots like $100 million it's very different from preparing for the future with your 401K or IRA by putting $250 away every month. The people who spend it on beachfront mansions and Aston Martins might find themselves in trouble. But all anyone needs to do when he wins $100 million or even 1/2 is to take the first million or two and deposit it.  Then he'll never be broke.  But I guess "broke" is a relative term.  

                  Call you and raise you by two!

                  Wink

                  Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

                  Lep

                  There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                    LottoHackJack's avatar - leaf
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                    Posted: January 15, 2007, 11:08 am - IP Logged

                       If you are business-minded and know how to or are experienced at taking healthy risks for gain, or have access to good professional advisors, take the lump sum. Ask Gates or Trump...

                       If you are consumer-oriented, take the annuity so that you can learn to live comfortably within your means and maybe stay out of trouble on an annual basis, and know that you can do so for years to come. Ask Jack Whittaker...

                    LottoHackJack

                      Coin Toss's avatar - shape barbed.jpg
                      Zeta Reticuli Star System
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                      Posted: January 15, 2007, 11:30 am - IP Logged

                      Trump? When he's peaking or re-organizing?

                      Professional advisors are in it more for themselves than their clients, if the client makes money, fine, but they get heat, too, and they exist to see activity in accounts (it's called churning), not stagnation.

                      There are honest and really conscientious ones, sure but often they move on to other things.

                      I remember one who said he did it for seven years and 99% of his clients didn't really need his advice as much as they needed simply more money to do what they wanted to do.  


                      Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

                      Lep

                      There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                        justxploring's avatar - villiarna
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                        Posted: January 15, 2007, 11:50 am - IP Logged

                        Trump? When he's peaking or re-organizing?

                        Professional advisors are in it more for themselves than their clients, if the client makes money, fine, but they get heat, too, and they exist to see activity in accounts (it's called churning), not stagnation.

                        There are honest and really conscientious ones, sure but often they move on to other things.

                        I remember one who said he did it for seven years and 99% of his clients didn't really need his advice as much as they needed simply more money to do what they wanted to do.  


                        I Agree!  If I had only taped the first time I sat down with the financial planner at Paine Weber 6 years ago I would have been able to sue him.  People give so-called advice based on what is good for them and for their firm.  There are some brokers who will pay a lot of attention to individual clients however and their personal needs, but they're hard to find. Maybe if someone won the lottery, it would be different, but even honest people can make bad decisions. Trust me, I know.

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                          Posted: January 15, 2007, 2:51 pm - IP Logged

                          No hi-jack, just a giggle:

                          A very wealthy Wall Street exec decided to call it quits with his mistress. Thanks to him, she had a penthouse on the 23rd floor over looking Central Park.

                          He went up to see her, holding a letter in his hand, and said, "Sorry honey, but I tanked. I took a beating on shorting a couple of securities and another one went down to nothing. Sorry, but it's all gone, the penthouse, you're Jag XJ6, Maserati, the weekends in Paris, the minks, the jewellery, everything."

                          She said, "Ahhhh. I can't live like that!" and jumped out the window, 23 floors up."

                          Hr looked out the window, saw where she hit, held "the letter" in his hand, and said, "Thanks, Paine Weber."

                          Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

                          Lep

                          There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

                            tiggs95's avatar - Lottery-036.jpg

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                            Posted: January 15, 2007, 10:42 pm - IP Logged

                            If you don't trust anyone put your money in the bank in a savings account..You have to pay taxes no matter what.The goverment can rip you off for just so much..If I hit big time I have a brother-in-law who lives in San Diego and he is worth 8mil.I will call him and let him advise me.I'm sure he knows how to handle big money..Now all I have to do is HIT!

                              psykomo's avatar - animal shark.jpg

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                              Posted: January 16, 2007, 12:18 am - IP Logged

                              One thing I haven't seen mentioned in these discussions, (or I missed), is any mention of someone taking a cash option not having the same"buying power",  let's say, of what the annuity offered. 

                              In other words, let's say the deal is a $100,000,000 annuity spread over 20 or 26 years as compared to a cash option that is about 40% of that, pre-tax.

                              I've learned here on LP that the advertised jackpot amount (annuity) doesn't really exist in cash (and that's what the prize wouldl be, theorhetically, if a winner opts for the annuity). I've also seen people post "you can buy better annuity" (that, in fact, was someone's sig, I'm sorry I forget whose). 

                              The question is, could $46,000,000 pre-tax cash really buy an annuity equivalent to a $100,000,000 (pre-tax annuity?) That's a difference of $54,000,000, which definitely is nothing to sneeze at.

                              And considering the current news story on Whittaker, would he have been better off with an annuity, or would he have blown all that too, year by year or perhaps by credit and having all those checks spent before he got them?

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