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Lump Sum or payments?

Topic closed. 67 replies. Last post 9 years ago by mylollipop.

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justxploring's avatar - villiarna
Wandering Aimlessly
United States
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November 5, 2005
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Posted: February 19, 2008, 6:40 pm - IP Logged

It seems like a no brainer to take the lump sum.  Wouldn't it be possible to get a higher rate of return by investing the lump sum than the effective rate with taking the annual payments without significnt risk ?

Yes, but you have to figure out how long it will take you to make back the 50% or more that you gave up selecting the lump sum.  At least in FL many of the payouts are often as high as 60%.  Their 20 yr annuity (MegaMoney) is 70%.  (a woman who just won $2M got $1.4M)   

I don't think it's a no-brainer.  Depends on the jackpot.  Also, celebrities can blow everything and make just one movie to earn millions.  Rock stars can go broke and go on tour and make more than you'll ever see in a lifetime.  When most people win the lottery, they get one shot at it.  Some people probably should opt for the annual payments.  For example, if you want to travel all over the world and just not pay attention to your money for 30 years, you'd have to really trust whoever is handling it to feel confident.  Many people who are rich (or were rich) got fleeced by their business managers.


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    Member #17555
    June 22, 2005
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    Posted: February 19, 2008, 6:41 pm - IP Logged

    It seems like a no brainer to take the lump sum.  Wouldn't it be possible to get a higher rate of return by investing the lump sum than the effective rate with taking the annual payments without significnt risk ?

    If I win a million net, I'd like a dollar a year for a million years. This way i wouldn't spend it all at once.

      time*treat's avatar - radar

      United States
      Member #13130
      March 30, 2005
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      Posted: February 19, 2008, 7:21 pm - IP Logged

      For me, I would take payments. 

       

      Only way I would take lump sum  is if it was less then 20 million.

       

      I'm fairly young (late 20's) and payments I think would be best for me. It would prevent me to somehow, blow all that money. I dont think I could trust myself having 100m+ thrown my way. I see it as a type of protection for myself. Receiving a yearly salary from the lottery of 5mill+ would be niceee...

       

      If I was a lot older, (40+) I would definitely take lump sum. 

       

      how would you guys take it?

      Lump sum. I want it while it's still worth something. 

      In neo-conned Amerika, bank robs you.
      Alcohol, Tobacco, and Firearms should be the name of a convenience store, not a govnoment agency.

        JackpotWanna's avatar - squiz

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        Posted: February 19, 2008, 9:46 pm - IP Logged

        Lump sum. I want it while it's still worth something. 

        Good point. Money loses value over time.

          Avatar
          NY
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          October 16, 2005
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          Posted: February 20, 2008, 2:07 am - IP Logged

          It seems like a no brainer to take the lump sum.  Wouldn't it be possible to get a higher rate of return by investing the lump sum than the effective rate with taking the annual payments without significnt risk ?

          If it was possible to get a higher rate of return withoutsignificant risk, why wouldn't the lottery be getting that higher rateand offering an even bigger annuity?

          Of course it depends on whatyou mean by sigificant risk. The lottery is guaranteeing to pay theannuity, so they take a modest interest rate in exchange for very lowrisk.  You can do the same by investing the lump sum in a savingsaccount, CD, government secuities, or any number of investmentsthat  offfer a defined return on your investment. If you'rewilling to accept a little more risk you'll probably get a betterreturn. If you're willing to accept even more risk there's a decentchance you can get a really good return. Enron and Worldcom are fairlyrecent and notorius examples of what happens when the risk wins outover the reward.

          The annuity value doesn't exist yet, so you don't really lose50% or so by taking the cash. Unless you're a complete moron (or youactually want to blow through it in a hurry), you're going to investthe money one way or another, so its just a matter of how you investit. That means the real choice is to take the cash or let the lotteryinvest it for you (and eventually pay the full annuity value). If youlet the lottery invest it, you won't lose a big chunk to taxes rightoff the bat, so the full value (less the first annuity payment) will beinvested.  If you take the cash you'll be losing about 35% to theIRS, and as much as 9% to  the state treasury. That means you'llonly be able to invest 56 to 65% of the cash value, less whatever youkeep liquid so that you can spend it (the equivalent of that firstannuity payment). If you only get to invest 60 cents for every dollarthe lottery gets to invest your investment will need an interest ratethat's 1.67 times what the lottery is getting in order to earn the sameamount of money. In some investments you'll need to pay taxes on thatyear's earnings, but the money the lottery invests will all earninterest until it is paid to you. As a bonus, some of each annuitypayment will be taxed at lower rates. That could save you about 30grand each year, as compared to paying the taxes all at once. For a 25year annuity that's a potential savings of about $750,000.  For ajackpot that would pay $3 million now or $20k per year for the next 25years that's pretty significant. 

          AFAIC, the real reason to take the cash is for the flexibility.

            BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
            Magnolia, Delaware
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            July 20, 2005
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            Posted: February 20, 2008, 1:44 pm - IP Logged

            Lump sum pays less in taxes over time vs annuity! Yes, no matter what you are going to be hit the first payment with 25% right off the top and another 10% at the end of the year for either the lump sum or annuity! But this is where the difference begins. The lump sum is now all paid up in the tax department and now you can invest it to yield the most possible income in the years to come. Now with that you now have to pay taxes on capitol gains (I see light bulbs going off) Yep you pay that at the whopping rate of 15%! I think 15% is better than the huge whopping 35% you are going to pay on that annuity for the next 25 years! Yes you read that right 35%! That annuity check will be hit the same way as it was hit the first time for the duration of the term of the annuity! Dang man go check it out for yourselves on the LP section called Jackpot Analysis!

             

            26 annual payments of $10,384,615
            Lump-sum cash: $164,000,000
            - 25% Federal Tax- $2,596,154
            - $41,000,000
            Subtotal$7,788,461
            $123,000,000

             

            26 annual tax payments @ 2,596,154= 67,500004 vs 41,000,000 one time payment + 10% at the end of the year. Now remember on the annual payments after the 25% you still owe another 10% each year at the end of the year! So with plain and simple math and the help of the Jackpot Analysis page on LP we can now put the Lump sum vs Annuity debate to rest as to which is the better way to go!

            Lump sum is the best and only way to go to come out with the most money in your pocket now and in the future! Because you pay much, much less in taxes!

            Annuities are for people who want to have less now and in the future. Because they want to over pay their government in taxes! 25,500,000 dollars more in taxes and that's without the other 10% that still needs to be tacked on yet! LMFAO

            Keep dreaming the impossible dream, it just may come true! Thumbs Up

              BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
              Magnolia, Delaware
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              Posted: February 20, 2008, 1:48 pm - IP Logged

              oops 26,500,000 my bad!

              Keep dreaming the impossible dream, it just may come true! Thumbs Up

                mylollipop's avatar - Trek STLOGO6.png

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                Posted: March 7, 2008, 1:25 am - IP Logged

                Lump, Lump, Lump, no matter what my age.  I just do not trust an annuity.  Says who we will be a USA in 20-30 years.  The power moguls that be make take over and there would be no lottery-no nothing! Unhappy

                 

                So LUMP it here!Banana