|Posted: August 17, 2008, 5:05 am - IP Logged|
I've found government securities to be very stable. I've also purchased US Savings bonds. I know someone here keeps saying they don't keep up with inflation and that I'm "bad in math" but right now I'm earning 8.22% and that's tax deferred.
Anyway, it's true that you can usually get a much better interest rate by taking the cash, but interest on what? If you have $10 million and the lump sum pays only 50%, you need to do the math to figure out how much time it will take to get back that cut. So the percentage of the lump sum does matter.
I've already written many times that the annuity is not a great way to increase your wealth and that most people will make more money by taking the cash. However, there are some pros and cons. The advantage to receiving annual payments is knowing a check is coming in the mail every year and exactly what the amount will be. So someone who doesn't enjoy investing won't have to worry about dealing with the ups and downs of the financial markets. If it's true that most people go through their winnings in 5 years, perhaps some people would find annual payments beneficial for their emotional well-being. One problem is that after 30 years (or 26 for MM) the payments will stop.
The biggest drawback is that the payments stay the same and you might find that you need more money in the future to buy property, start a business, pay for medical expenses, etc. That's why some people sell their structured settlements. Another worry is what others here have asked, that is, what if our government collapses? However, if that happens, what good will our banks be? Money won't matter and I'd be more concerned about food riots and looting than investments.
So maybe the best suggestion is that everyone who wins the lottery should take the lump sum, build a bunker (or a nuclear fallout shelter) and stock up on canned goods, guns & ammo.