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Why not choose the annuity?

Topic closed. 47 replies. Last post 2 years ago by Romancandle.

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Romancandle's avatar - moon
Upacreek
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Posted: August 2, 2014, 1:41 pm - IP Logged

They offer it because the advertised cash jackpot amount doesn't exist.

That's why they want the winners to take an annuity, and if not, why the cash amount is so much less.

CT, thanks... I forgot about that basic premise- the advertised vs actual amount.

I suppose if you're financially savvy and/or have a trusted circle of advisers, then the cash option is the way to go most of the time.  Key word "trusted"... "savvy"

For me, the notion of having a new pile of cash option money like that in my hands and fending off "the hordes" is kind of scary... can't claim anonymously round here.

At least with the annuity (in higher JP's- MM/PB), if you make a mistake one year, you can recover in the next and that's appealing.

Not being one of those folks broke in a few years... conservative approach, yes... but I'd be happy with several hundred thousand on a graduated scale for the next 29yrs.

-RC

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    Posted: August 2, 2014, 1:47 pm - IP Logged

    And then pay taxes on that interest.

    Not if you choose exempt municipal bonds Wink

    That's my plan....set aside the amount for taxes and try to make use of it as long as I can.

    You don't have to pay federal, but you still must pay state and local taxes. The yields on these bonds are adjusted for these considerations anyway.

      MsNumberDreamer's avatar - lottery balls-cash.jpg
      North Carolina
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      Posted: August 2, 2014, 2:33 pm - IP Logged

      They offer it because the advertised cash jackpot amount doesn't exist.

      That's why they want the winners to take an annuity, and if not, why the cash amount is so much less.

      That really bugs me! Being that majority chooses cash on winning jackpots, I would much rather them advertise the Cash Value rather than the Annuity value.  If on an 100 million jackpot all I am going to get before taxes is 57  million, I would much rather know that when purchasing the ticket.  I would like to be able to "expect" the amount I am buying a ticket for.

      To God be the glory... 

      When you're winning you're being blessed by Him!

       

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        Kentucky
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        Posted: August 2, 2014, 7:59 pm - IP Logged

        That really bugs me! Being that majority chooses cash on winning jackpots, I would much rather them advertise the Cash Value rather than the Annuity value.  If on an 100 million jackpot all I am going to get before taxes is 57  million, I would much rather know that when purchasing the ticket.  I would like to be able to "expect" the amount I am buying a ticket for.

        "If on an 100 million jackpot all I am going to get before taxes is 57  million, I would much rather know that when purchasing the ticket."

        The cash value after taxes is usually around 1/3 of advertised or highest possible jackpot and the jackpot lottery games have been around long enough so most of the average lottery players already know which opinion they will choose.

        "I would like to be able to "expect" the amount I am buying a ticket for."

        It certainly appears you now know the advertised jackpot are the cash value are two different amounts. FYI, some states have state income taxes that will be deducted just like Federal taxes.

          MsNumberDreamer's avatar - lottery balls-cash.jpg
          North Carolina
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          Posted: August 2, 2014, 8:47 pm - IP Logged

          "If on an 100 million jackpot all I am going to get before taxes is 57  million, I would much rather know that when purchasing the ticket."

          The cash value after taxes is usually around 1/3 of advertised or highest possible jackpot and the jackpot lottery games have been around long enough so most of the average lottery players already know which opinion they will choose.

          "I would like to be able to "expect" the amount I am buying a ticket for."

          It certainly appears you now know the advertised jackpot are the cash value are two different amounts. FYI, some states have state income taxes that will be deducted just like Federal taxes.

          I know because I look it up but I would rather them say "Today's jackpot is 57 million" and have the cash value hanging in the stores rather than the annuity amount.

          NC deducts both.  I know this... I'm just saying that... being that most players choose cash value that is the amount that should be advertised.

          To God be the glory... 

          When you're winning you're being blessed by Him!

           


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            Posted: August 2, 2014, 10:56 pm - IP Logged

            Taking it in lump sum is a hedge against inflation.  I don't worry much about the taxes the government imposes, the hidden tax of inflation can be far worse.

            Let's say you win some fairly large amount, take the annuity, and see that on year 30 you'll bring in over 1,000,000 a year.  Right now in 2014 that sounds excellent, but in 2044 a weeks worth of groceries might set you back $25,000, rent on your retirement apartment might be $150,000 a month, a gallon of gas could run $100/gallon & yes we'll still be using fossil fuels for the most part 30 years from now.

            When you look at it that way, that $1 mil doesn't look too exciting in 30 years.

              mikeintexas's avatar - tx avatar-1.gif
              Texas Panhandle
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              Posted: August 2, 2014, 11:18 pm - IP Logged

              That's right, jj.  I remember a photo in my h.s. history book of a 1920's German man wheeling a wheelbarrow full of Marks to the grocery store so he could buy a loaf of bread.  I just checked the rates of inflation after WWI and 170 Marks would buy an oz. of gold in 1919 but by 1923 it took 87 trillion Marks.  The rate of inflation went up steadily for a few years then jumped 100% from 1918-19.

              If a roll of TP cost a hundred bucks, then seems like it'd be cheaper to use the money.

                Coin Toss's avatar - shape barbed.jpg
                Zeta Reticuli Star System
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                Posted: August 2, 2014, 11:57 pm - IP Logged

                MsNumberDream,

                Lotteries always want to advertise the higher amount. it draws more players in. They'd probably prefer players who don't know the advertised amount is for the annuity only.

                mikeintexas,

                I remember the history book picture.

                Then fast forward a few years for me......after 'Nam I went to Germany for three years. My uncle had been in WWII and gave me a 100,000 Reichsmark bill and said, "Flash this some night for fun."

                So I did....I was in a gasthaus and when it was time to pay I showed the owner / bartender the WW II currency. She reached under the counter and pulled out a menu from 1939.

                Ein Bier   (One beer) ............ 300,000 RM.

                Scared

                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.

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                  Kentucky
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                  Posted: August 3, 2014, 12:23 am - IP Logged

                  I know because I look it up but I would rather them say "Today's jackpot is 57 million" and have the cash value hanging in the stores rather than the annuity amount.

                  NC deducts both.  I know this... I'm just saying that... being that most players choose cash value that is the amount that should be advertised.

                  I do agree that the cash value amount should be easy to find and should be scrolled on the terminal along with the advertised prize and maybe it depends on the state because several do advertise the cash value too. Not very many jackpot winners take the annuity, but it is the highest possible win potential and probably why all the signs and billboards show it and not the cash value.

                    LottoMetro's avatar - Lottery-024.jpg
                    Happyland
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                    Posted: August 3, 2014, 1:00 am - IP Logged

                    MsNumberDream,

                    Lotteries always want to advertise the higher amount. it draws more players in. They'd probably prefer players who don't know the advertised amount is for the annuity only.

                    mikeintexas,

                    I remember the history book picture.

                    Then fast forward a few years for me......after 'Nam I went to Germany for three years. My uncle had been in WWII and gave me a 100,000 Reichsmark bill and said, "Flash this some night for fun."

                    So I did....I was in a gasthaus and when it was time to pay I showed the owner / bartender the WW II currency. She reached under the counter and pulled out a menu from 1939.

                    Ein Bier   (One beer) ............ 300,000 RM.

                    Scared

                    Lotteries always want to advertise the higher amount. it draws more players in. They'd probably prefer players who don't know the advertised amount is for the annuity only.

                    It is for this one and only reason that the lotteries have trended towards longer annuities (20, 25, now 30 years).

                    A longer annuity allows them to advertise a higher annuitized value for the same/lower cash value. There is literally no benefit to the player by this.

                    I wish they would get rid of them altogether, or at least make it a reasonable duration (say 10-15 years).

                    If the chances of winning the jackpot are so slim, why play when the jackpot is so small? Your chances never change, but the potential payoff does.
                    If a crystal ball showed you the future of the rest of your life, and in that future you will never win a jackpot, would you still play?

                    2016: -48.28% (13 tickets) ||
                    P&L % = Total Win($)/Total Wager($) - 1

                      HoLeeKau's avatar - YheaShea
                      Idaho
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                      Posted: August 3, 2014, 9:48 am - IP Logged

                      has thrown another wrench into trying to figure out how much you end up with should you win.

                       

                      Their jackpots are advertised as "ALL Cash Jackpot - Tax Withholding Paid." 

                      So now first you have to figure out what they withhold.  Almost certainly 25% federal taxes, but are state taxes withheld?  Unless you've won a larger amount in the past, you probably don't know that off the top of your head.

                      Then, many people will not know that you have to pay taxes on the amount of taxes they paid for you -- because it's part of the value of the prize. 

                      Last night's jackpot was 10M.  If it had been won, the lottery would have paid 2.5M to the feds and around 80K to the state (in Idaho).  The tax burden on that would be significant, cutting into the winner's take-home by over 850K.  That would come as quite a sticker shock if you had subtracted only the rest of the federal tax (13 or 14%) and had been happily figuring out your new budget all day today while you waited for the lottery office to open on Monday.

                        Romancandle's avatar - moon
                        Upacreek
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                        Posted: August 3, 2014, 12:04 pm - IP Logged

                        So keeping in line with the original post...

                        Annuities not indexed towards inflation are usually poor choices, that is if you have a choice in the 1st place (annuity or cash).  Most scratcher's typically don't give you a choice, you're stuck with that non indexed annuity payout.  When you factor in taxes and inflation on top of that, your payout at year 20 etc can be quite lousy... so don't quit your day job just yet if you're a lucky winner in that case.

                        I don't think Lotto jackpots here in IL are indexed towards inflation w/ the annuity... so take the cash.

                        With annuities indexed towards inflation (MM PB), that's a bit better depending on your particular situation.  So with the original post, that's the only time I would even consider taking the annuity option.

                        Like most folks have said, with MM/PB you could still take the cash and buy an annuity later.

                        Currently the "in theory value" of MM annuity in year one (2014) is worth about 1 million (not considering all tax liabilities).  Year 30 it's worth about 4 million in 2014 dollars... in year 2044, 30 yrs into the future... that 4 million is worth who know's what??? a lot less, guessing only 1 to 2 million?

                        My flux capacitor is low on fuel today... if I can get it up and running again, I let ya all know what's happening in 2044.  I bet the Cubs still haven't won the world series yet LOL

                        -RC

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                          Kentucky
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                          Posted: August 3, 2014, 3:39 pm - IP Logged

                          So keeping in line with the original post...

                          Annuities not indexed towards inflation are usually poor choices, that is if you have a choice in the 1st place (annuity or cash).  Most scratcher's typically don't give you a choice, you're stuck with that non indexed annuity payout.  When you factor in taxes and inflation on top of that, your payout at year 20 etc can be quite lousy... so don't quit your day job just yet if you're a lucky winner in that case.

                          I don't think Lotto jackpots here in IL are indexed towards inflation w/ the annuity... so take the cash.

                          With annuities indexed towards inflation (MM PB), that's a bit better depending on your particular situation.  So with the original post, that's the only time I would even consider taking the annuity option.

                          Like most folks have said, with MM/PB you could still take the cash and buy an annuity later.

                          Currently the "in theory value" of MM annuity in year one (2014) is worth about 1 million (not considering all tax liabilities).  Year 30 it's worth about 4 million in 2014 dollars... in year 2044, 30 yrs into the future... that 4 million is worth who know's what??? a lot less, guessing only 1 to 2 million?

                          My flux capacitor is low on fuel today... if I can get it up and running again, I let ya all know what's happening in 2044.  I bet the Cubs still haven't won the world series yet LOL

                          The real question with taking the annuity is if it's possible to take a portion of the after tax cash, invest it, and and get the same amount in 30 years.  I'm pretty sure most financial adviser will suggest taking the cash if for nothing other than a business reason. It's seems that when discussing "cash vs annuity", the fact the annuity will be taxed and possibly at the same tax rate but over 30 years, is usually ignored. And after 30 years a $60 million annuity jackpot might be really $36 million after taxes.

                          To make it simple, use the "rule of 72" where if you divide 72 by an interest rate, the result is the number of years it will take to double the initial investment For instance it will take about 12 years (72/6) for an amount of money to double getting a 6% interest rate.

                          "in year 2044, 30 yrs into the future... that 4 million is worth who know's what??? a lot less, guessing only 1 to 2 million?"

                          Or just go back 30 years into the past. The prime interest rate was 13% on June 26, 1984.

                            music*'s avatar - nw bookeep.jpg
                            Happy California
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                            Posted: August 3, 2014, 4:58 pm - IP Logged

                            HI, I am a newby here.  About the thirty year annuity(MM/PB). Life insurance is required here. Because if you die before the last payment the IRS will tax the remaining amount at present value. Your heirs will owe a boat load if you die to soon. The insurance would cover this tax bill.  I think the IRS gives them ninety days to pay.

                              I have decided to take the Lump Sum when I win. Smile

                              mikeintexas's avatar - tx avatar-1.gif
                              Texas Panhandle
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                              Posted: August 3, 2014, 8:36 pm - IP Logged

                              HI, I am a newby here.  About the thirty year annuity(MM/PB). Life insurance is required here. Because if you die before the last payment the IRS will tax the remaining amount at present value. Your heirs will owe a boat load if you die to soon. The insurance would cover this tax bill.  I think the IRS gives them ninety days to pay.

                                I have decided to take the Lump Sum when I win. Smile

                              Welcome to LP, music*!

                              I've read about those cases w/ the annuity and the IRS.   I can't remember the specific case, but it really put the family in a bind, almost to the point where they were just going to forfeit the remaining payments just to get out from under the tax bill.  I believe they cut some sort of deal w/ the IRS but still didn't get a check for quite some time after the 40% estate tax was paid.

                              EDIT:  Found this on several diff. sites, but they didn't quote the original source, sorry.  This was the case I vaguely remembered.

                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache. 

                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache.

                              Read more : http://www.ehow.com/info_8715094_can-lottery-winnings-down-die.html
                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache.

                              Read more : http://www.ehow.com/info_8715094_can-lottery-winnings-down-die.html
                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache.

                              Read more : http://www.ehow.com/info_8715094_can-lottery-winnings-down-die.html
                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache

                              Read more : http://www.ehow.com/info_8715094_can-lottery-winnings-down-die.html
                              A woman in Texas inherited her brother's lottery winnings after his death. However, because of federal taxes due, she was actually asked to pay $18,000 a year more than what she collected in each of the first 10 years. Only in the eleventh year would she finally begin to reap the benefits of the lottery winnings. So the good news is that you can pass down your lottery winnings. The bad news is that if you don't plan ahead, you could be saddling your heirs with a major headache

                              Read more : http://www.ehow.com/info_8715094_can-lottery-winnings-down-die.html