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Annuity or Lump Sum?

Topic closed. 74 replies. Last post 4 years ago by redhot7.

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Which one? Please pick!

Annuity [ 15 ]  [23.44%]
Lump Sum [ 49 ]  [76.56%]
Total Valid Votes [ 64 ]  
Discarded Votes [ 4 ]  
haymaker's avatar - Lottery-012.jpg
Egg Harbor twp.south Jersey shore
United States
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June 29, 2011
3856 Posts
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Posted: May 12, 2013, 4:59 pm - IP Logged

Gotta go w/ lump sum.

I recall reading some time ago about some folks that won back in the 70s when you had to take annuity,

they were getting ready to recieve their last payment an talking about how inflation had taken the fun and

anticipation out of waiting for the check.

Extraordinary Popular Delusions & the Madness of Crowds    -- Charles Mackay  LL.D.


    United States
    Member #106134
    February 13, 2011
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    Posted: May 13, 2013, 12:42 am - IP Logged

    Gotta go w/ lump sum.

    I recall reading some time ago about some folks that won back in the 70s when you had to take annuity,

    they were getting ready to recieve their last payment an talking about how inflation had taken the fun and

    anticipation out of waiting for the check.

    Yeah I could imagine if you won a jackpot in 1978 that paid a $25,000 annual annuity for the next 35 years.  Back when they won I'm sure they thought "Wow this sure is sweet, I can live really well on this & not work."   Fast forward to 2013 and now they're thinking "I shouldn't have retired, living off ramen noodles is no fun." Lol

      DC81's avatar - batman39
      MI
      United States
      Member #54830
      August 31, 2007
      985 Posts
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      Posted: May 13, 2013, 8:44 am - IP Logged

      I'm pretty sure that I would do the annuity.  I like the idea of guaranteed yearly income for 25 years.

      And paying taxes (which have a higher chance of rising than they do falling) on the annuity during the whole time along with being at the mercy of the state it was won. You can beat out the annuity with low risk investments of your own.

      For the most part the annuity really is for suckers. The idea that it's safer has proven in the past that you can get into just as much or even more trouble with the annuity. Now if it was some "For Life" contest then taking the yearly payments might not be a bad thing if you're young and there's no cap on how long it can last. That's really the only place (might be others I'm overlooking) where at least I would consider it.

      You can't predict random.

        PlayToWin47's avatar - Lottery-041.jpg
        Joplin MO
        United States
        Member #138489
        January 28, 2013
        190 Posts
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        Posted: May 13, 2013, 1:39 pm - IP Logged

        I'm pretty sure that I would do the annuity.  I like the idea of guaranteed yearly income for 25 years.

        Since I just realized (a week ago) that they're taking away the annuity option in the Hot Lotto game change, I guess I'll get the lump sum.

        I gotta admit that if I won, and got a single check for several million, it would kinda freak me out ... Too big of numbers too quick!!!

        I do like the idea of getting it and dealing with the taxes one year, then be done with it.  After that, just make good investments and have to deal only with the taxes on the interest.  I know that in reality, that would be best, since there is no doubt that future tax rates will go up because of this country's level of debt.


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          May 13, 2013
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          Posted: May 13, 2013, 2:15 pm - IP Logged

          New poster here and I'm surprised at how many people like the lump sum. But here's what I was thinking behind my view on favoring annuity:

          The opinion from what I've heard from friends seems to be that you can do better to invest the money today. But do people actually know exactly how to "invest" and "live off the interest?"

          Here's what I was thinking and let me know what you guys think.

          Scenario 1: Adam won advertised jackpot of $80million and took the cash estimate of $51.6 million. He will take home $38.7million after 25% federal taxes.

          Scenario 2: Now say Bob won today's advertised jackpot of $80million and took the annuity option over 30 years. He will get paid total of $80million over 30 years but of course he also has to pay federal taxes of 25% so he takes home a total of $60million.

          Say both men are lucky enough to live in a state where they do not tax lotto winnings (ie, California, Florida, etc.) for simplicity's sake.

          So to compare the two options.

          Adam made 38.7 million immediately and of course the possibilities are endless...maybe he made a fortune by investing really well or he lost it all in a year, who knows. Bob on the other hand doesn't have nearly as much capital to invest in in the beginning but he is guaranteed to collect a total of $60million after 30 years.

          So we know that Adam made at least $38.7 million and Bob made at least $60 million. And taking the difference between the two: $21.3million.

          Here's my fundamental question:

          At the end of the 30 years, can Adam say with high confidence that he will invest and make in return more than $21.3 million dollars in his next 30 years? So that he will have been better off than Bob?

          If he can then all the power to him and he should take the lump sum now but to me and to alot of average Bob's out there, it's hard to see how one can make that much in 30 years.

          Now I am also reading alot of opinions on mistrust of the US government in terms of money handling and taxes, which are both fair points. And even if one did NO investing (assuming a person did not blow it like an idiot) they would have far far more wealth than they likely would have at the end of the day (account for 3% loss in inflation). So that I can get.

          But to me it's like a double security (at least with PB it's something like 4% increase each year?) where you have an investment made by the State and you get a yearly stipend, and then you can take that yearly stipend to further invest in what you want. Most of the lotto winners probably have ZERO experience in handling millions of dollars, and I'm sure all the investment bankers/financial brokers would want nothing more than to get their hands on a big multi million dollar portfolio so they can take a good chunk of the pie. It seems difficult to actually be able to grow that much money when the average person is used to only handling tens of thousands of dollars a year and then they are handed literally MILLIONS of dollars.


            United States
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            May 13, 2013
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            Posted: May 13, 2013, 2:45 pm - IP Logged

            And paying taxes (which have a higher chance of rising than they do falling) on the annuity during the whole time along with being at the mercy of the state it was won. You can beat out the annuity with low risk investments of your own.

            For the most part the annuity really is for suckers. The idea that it's safer has proven in the past that you can get into just as much or even more trouble with the annuity. Now if it was some "For Life" contest then taking the yearly payments might not be a bad thing if you're young and there's no cap on how long it can last. That's really the only place (might be others I'm overlooking) where at least I would consider it.

            So my question is what about taxes on investments and capital gains? (Assuming the lump sum will be invested)

            With millions won, people would have one or many very large taxable accounts (after all IRA is only 5500 a year max as of this year, and 401k is limited to 17.5k a year) so anything above that you would be basically managing a taxable investment account. And right now capital gains is 15% but it also possible that that may be raised signifcantly. And on top of inflation (3% yearly), management fees, it seems that you either need to know very well how to handle millions of dollars or be working with an amazing investment bank/financial advisor who is looking out to grow your portfolio instead of their yearly bonus/commission/cut of the pie.

            I can definitely see situations where lump sum is more preferable (older age, wanting to get into some kind of venture capital or very large business that requires a huge start up cash amount). Although it would be interesting to read more about the history of the annuity payments.

              joshuacloak's avatar - Money Swim-uncle-scrooge-mcduck-35997717-677-518.jpg

              United States
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              698 Posts
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              Posted: May 13, 2013, 6:15 pm - IP Logged

              So my question is what about taxes on investments and capital gains? (Assuming the lump sum will be invested)

              With millions won, people would have one or many very large taxable accounts (after all IRA is only 5500 a year max as of this year, and 401k is limited to 17.5k a year) so anything above that you would be basically managing a taxable investment account. And right now capital gains is 15% but it also possible that that may be raised signifcantly. And on top of inflation (3% yearly), management fees, it seems that you either need to know very well how to handle millions of dollars or be working with an amazing investment bank/financial advisor who is looking out to grow your portfolio instead of their yearly bonus/commission/cut of the pie.

              I can definitely see situations where lump sum is more preferable (older age, wanting to get into some kind of venture capital or very large business that requires a huge start up cash amount). Although it would be interesting to read more about the history of the annuity payments.

              u make more form lump sum, if u win

              just go to people who handle 100+ million in cash and how they invest

              they tell u to take the cash vs the annuity

              how is your issue, its easy to beat annuity

              No bees, no honey.

                PlayToWin47's avatar - Lottery-041.jpg
                Joplin MO
                United States
                Member #138489
                January 28, 2013
                190 Posts
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                Posted: May 13, 2013, 6:16 pm - IP Logged

                New poster here and I'm surprised at how many people like the lump sum. But here's what I was thinking behind my view on favoring annuity:

                The opinion from what I've heard from friends seems to be that you can do better to invest the money today. But do people actually know exactly how to "invest" and "live off the interest?"

                Here's what I was thinking and let me know what you guys think.

                Scenario 1: Adam won advertised jackpot of $80million and took the cash estimate of $51.6 million. He will take home $38.7million after 25% federal taxes.

                Scenario 2: Now say Bob won today's advertised jackpot of $80million and took the annuity option over 30 years. He will get paid total of $80million over 30 years but of course he also has to pay federal taxes of 25% so he takes home a total of $60million.

                Say both men are lucky enough to live in a state where they do not tax lotto winnings (ie, California, Florida, etc.) for simplicity's sake.

                So to compare the two options.

                Adam made 38.7 million immediately and of course the possibilities are endless...maybe he made a fortune by investing really well or he lost it all in a year, who knows. Bob on the other hand doesn't have nearly as much capital to invest in in the beginning but he is guaranteed to collect a total of $60million after 30 years.

                So we know that Adam made at least $38.7 million and Bob made at least $60 million. And taking the difference between the two: $21.3million.

                Here's my fundamental question:

                At the end of the 30 years, can Adam say with high confidence that he will invest and make in return more than $21.3 million dollars in his next 30 years? So that he will have been better off than Bob?

                If he can then all the power to him and he should take the lump sum now but to me and to alot of average Bob's out there, it's hard to see how one can make that much in 30 years.

                Now I am also reading alot of opinions on mistrust of the US government in terms of money handling and taxes, which are both fair points. And even if one did NO investing (assuming a person did not blow it like an idiot) they would have far far more wealth than they likely would have at the end of the day (account for 3% loss in inflation). So that I can get.

                But to me it's like a double security (at least with PB it's something like 4% increase each year?) where you have an investment made by the State and you get a yearly stipend, and then you can take that yearly stipend to further invest in what you want. Most of the lotto winners probably have ZERO experience in handling millions of dollars, and I'm sure all the investment bankers/financial brokers would want nothing more than to get their hands on a big multi million dollar portfolio so they can take a good chunk of the pie. It seems difficult to actually be able to grow that much money when the average person is used to only handling tens of thousands of dollars a year and then they are handed literally MILLIONS of dollars.

                Welcome to LP, ginmqi.

                 

                If you're talking about winning 80 million ... unless you're just plain stupid and wasteful with the money, that is enough for at least two or three generations of family to live quite well without even having to worry about investing ... just stuff it in your mattress!!!

                If you're talking about living off of interest, assuming that you invest decently, you and your families should be able to do quite well off of 20 or 30 million ... for several generations!


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                  Posted: May 13, 2013, 6:31 pm - IP Logged

                  Welcome to LP, ginmqi.

                   

                  If you're talking about winning 80 million ... unless you're just plain stupid and wasteful with the money, that is enough for at least two or three generations of family to live quite well without even having to worry about investing ... just stuff it in your mattress!!!

                  If you're talking about living off of interest, assuming that you invest decently, you and your families should be able to do quite well off of 20 or 30 million ... for several generations!

                  Thanks for the welcome. Very interesting crowd here :D

                   

                  Anyway, 80 mil (well the 38 some mil in cash amounts) is definitely more enough wealth than anyone to live off of for generations to come. And it is true that if you just let it sit it'll be fine...even if you are losing 3% every year due to inflation. I guess I was asking an interesting question based off of the premise that the money will do better in your hands now than in the government's hands in 26-30 years.

                   

                  But yes investing wisely is definitely a choice all people should make whether they take annuity or lump sum.


                    United States
                    Member #142489
                    May 13, 2013
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                    Posted: May 13, 2013, 6:35 pm - IP Logged

                    u make more form lump sum, if u win

                    just go to people who handle 100+ million in cash and how they invest

                    they tell u to take the cash vs the annuity

                    how is your issue, its easy to beat annuity

                    You can make more and I agree. I was just pointing out how exactly one can do that. Most people are only used to handling hundreds to thousands of dollars at a time....it will be tough for them to handle millions at a time.

                     

                    Of course there are those who know alot more (hedge fund managers, investment bankers, active mutual fund managers, Warren Buffett/Peter Lynch of the world, etc.) but it seems to me hard to find who you can trust with all those money. After all, they are looking to make as much money off of you because you are (in all likelihood) an average joe who is excited with millions and are looking to entrust your money to a "professional" who knows what they're doing.

                     

                    I guess it's all different opinion. And it comes down to what you want to do.

                     

                    You know what would be cool to do?  Go follow-up all these 100+ million lotto winners in the last few years...then go find them 30 years down the line...do you think they could've beaten the annuity total?  That'll be cool to see what people actually do with their money. :D

                      Avatar
                      Toronto
                      Canada
                      Member #138397
                      January 26, 2013
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                      Posted: May 13, 2013, 7:18 pm - IP Logged

                      New poster here and I'm surprised at how many people like the lump sum. But here's what I was thinking behind my view on favoring annuity:

                      The opinion from what I've heard from friends seems to be that you can do better to invest the money today. But do people actually know exactly how to "invest" and "live off the interest?"

                      Here's what I was thinking and let me know what you guys think.

                      Scenario 1: Adam won advertised jackpot of $80million and took the cash estimate of $51.6 million. He will take home $38.7million after 25% federal taxes.

                      Scenario 2: Now say Bob won today's advertised jackpot of $80million and took the annuity option over 30 years. He will get paid total of $80million over 30 years but of course he also has to pay federal taxes of 25% so he takes home a total of $60million.

                      Say both men are lucky enough to live in a state where they do not tax lotto winnings (ie, California, Florida, etc.) for simplicity's sake.

                      So to compare the two options.

                      Adam made 38.7 million immediately and of course the possibilities are endless...maybe he made a fortune by investing really well or he lost it all in a year, who knows. Bob on the other hand doesn't have nearly as much capital to invest in in the beginning but he is guaranteed to collect a total of $60million after 30 years.

                      So we know that Adam made at least $38.7 million and Bob made at least $60 million. And taking the difference between the two: $21.3million.

                      Here's my fundamental question:

                      At the end of the 30 years, can Adam say with high confidence that he will invest and make in return more than $21.3 million dollars in his next 30 years? So that he will have been better off than Bob?

                      If he can then all the power to him and he should take the lump sum now but to me and to alot of average Bob's out there, it's hard to see how one can make that much in 30 years.

                      Now I am also reading alot of opinions on mistrust of the US government in terms of money handling and taxes, which are both fair points. And even if one did NO investing (assuming a person did not blow it like an idiot) they would have far far more wealth than they likely would have at the end of the day (account for 3% loss in inflation). So that I can get.

                      But to me it's like a double security (at least with PB it's something like 4% increase each year?) where you have an investment made by the State and you get a yearly stipend, and then you can take that yearly stipend to further invest in what you want. Most of the lotto winners probably have ZERO experience in handling millions of dollars, and I'm sure all the investment bankers/financial brokers would want nothing more than to get their hands on a big multi million dollar portfolio so they can take a good chunk of the pie. It seems difficult to actually be able to grow that much money when the average person is used to only handling tens of thousands of dollars a year and then they are handed literally MILLIONS of dollars.

                      I'm very surprised so many people would consider annuity, considering by far the majority of winners pick lumpsum.

                       

                      Let me give you 2 scenarios as well.

                       

                      You've won the lottery and was offered two ways to take the prize:

                       

                      1. 38.7 million USD

                       

                      2. 60 million Japanese Yen.

                       

                      Both options are lumpsum, no-tax. Which would you pick? In case you didn't know, approximately 80 JPY = 1 USD. 

                       

                      I think you would pick choice 1, right? So here's my point. In your examples, yes, Bob gets 60 mil and Adam gets "only" 38.7 mil, 

                      but the currencies are fundamentally different. I mean yes, they're both USD, but the value is very different. Maybe when Bob gets his 60 mil, 

                      a Big Mac would cost 500 bucks. He's only be able to buy 120,000 of them, where as Adam can buy millions of Big Macs now. Of course, inflation won't be

                      that high, but the point is, you can't just look at it as "60 mil" and "38.7 mil", because their values are different. 

                       

                      Another thing is, if you won the lottery, you'd want to purchase a house, a car, etc. But with annuities, you won't be able to afford it at the beginning. You'll have 

                      to put it off for a few years or take a loan against your lottery win, but that loan has interest. If you got the lumpsum and paid your house in full, you won't pay

                      interest for a loan. And investing isn't really that hard. Sure, if you want to make really high returns it is, but if you look at history, if you just invested in gold or

                      silver and didn't do anything with it, you'd have made more than if you took the annuity. stocks have also returned an avg of 10% a yr in history before the crash.

                      As long as you're not taking huge risks to try to make billions, you should do fine.


                        United States
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                        Posted: May 13, 2013, 9:43 pm - IP Logged

                        There are a lot of good arguments in this thread for both sides.  The thing is that most of us will never win PB or MM to decide lump sum or 

                        annuity anyway.  Hell I can't even win pick 3 or 4 what win MM.

                          Teddi's avatar - Lottery-008.jpg

                          United States
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                          Posted: May 14, 2013, 1:04 am - IP Logged

                          I thought if you split the ticket, like an office pool, all parties are required to take the same method. Either all annuity or all lump sum. At least that's how it works in CA.

                          I don't know how it works in Cali. Lot of weird JP rules over there, But I do know in other states each person gets to decide how they want to take it.

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                            Kentucky
                            United States
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                            Posted: May 14, 2013, 1:24 am - IP Logged

                            Which one? I need to know. It's important... I need feedback. 

                            I have no arguments against either choice, but for me in 10 years if "I need cash now" I don't want to call JG Wentworth.

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                              Kunming
                              China
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                              January 23, 2008
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                              Posted: May 14, 2013, 1:32 am - IP Logged

                              Lump Sum. Remember Cyprus? I want it all now!

                              Play to win!