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Making the annuity option more attractive?

Topic closed. 17 replies. Last post 1 year ago by ArizonaDream.

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ArizonaDream's avatar - Lottery-009.jpg

United States
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October 10, 2015
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Posted: October 11, 2015, 1:29 pm - IP Logged

Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers.  (Same with MM and state lotteries)

Thinking about what I'd do if I won, I like the idea of the annuity so I don't have to make huge decisions all at once. But 30 years? I'm old enough that the actuarial tables say I'm just as likely to be dead in 30 years as not.  Also, I want to make a really large purchase right upfront (house). Why couldn't the lotteries structure the annuity to make it more attractive to winners?  I'm thinking 10% now and the rest spread over 20 years would work for me.  (I know I could just get an annuity on my own, but that falls into the huge decision category and loses the deferred tax advantage). 

So my question to you all, is there any way the lottery could offer an annuity option that would make it appealing enough for you to accept instead of cash? 

With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers.

    Raven62's avatar - binary
    New Jersey
    United States
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    June 28, 2005
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    Posted: October 11, 2015, 1:48 pm - IP Logged

    Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers.  (Same with MM and state lotteries)

    Thinking about what I'd do if I won, I like the idea of the annuity so I don't have to make huge decisions all at once. But 30 years? I'm old enough that the actuarial tables say I'm just as likely to be dead in 30 years as not.  Also, I want to make a really large purchase right upfront (house). Why couldn't the lotteries structure the annuity to make it more attractive to winners?  I'm thinking 10% now and the rest spread over 20 years would work for me.  (I know I could just get an annuity on my own, but that falls into the huge decision category and loses the deferred tax advantage). 

    So my question to you all, is there any way the lottery could offer an annuity option that would make it appealing enough for you to accept instead of cash? 

    With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers.

    Under tyranny you won't be deciding for yourself: the government will decide for you.

    A mind once stretched by a new idea never returns to its original dimensions!

      morgothaod's avatar - Lottery-035.jpg

      United States
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      April 19, 2014
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      Posted: October 11, 2015, 2:14 pm - IP Logged

      I would prefer getting payments each year.  However, I would be too worried about something happening and me not receiving my check each time.


        United States
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        February 13, 2011
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        Posted: October 11, 2015, 2:36 pm - IP Logged

        I would prefer getting payments each year.  However, I would be too worried about something happening and me not receiving my check each time.

        Yep I'd be worried about the government saying "Oops we ran out of money to pay you the rest of your jackpot, sorry!"

        I could totally see that happening in Illinois.  Best thing to do is take the lump sum & then have someone setup an annuity of some sort for you if you can't trust yourself not to blow it.

          morgothaod's avatar - Lottery-035.jpg

          United States
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          Posted: October 11, 2015, 3:16 pm - IP Logged

          Yep I'd be worried about the government saying "Oops we ran out of money to pay you the rest of your jackpot, sorry!"

          I could totally see that happening in Illinois.  Best thing to do is take the lump sum & then have someone setup an annuity of some sort for you if you can't trust yourself not to blow it.

          Would my bank set that up for me or do I need to go somewhere else?

            LottoMetro's avatar - Lottery-024.jpg
            Happyland
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            September 1, 2013
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            Posted: October 11, 2015, 4:45 pm - IP Logged

            Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers.  (Same with MM and state lotteries)

            Thinking about what I'd do if I won, I like the idea of the annuity so I don't have to make huge decisions all at once. But 30 years? I'm old enough that the actuarial tables say I'm just as likely to be dead in 30 years as not.  Also, I want to make a really large purchase right upfront (house). Why couldn't the lotteries structure the annuity to make it more attractive to winners?  I'm thinking 10% now and the rest spread over 20 years would work for me.  (I know I could just get an annuity on my own, but that falls into the huge decision category and loses the deferred tax advantage). 

            So my question to you all, is there any way the lottery could offer an annuity option that would make it appealing enough for you to accept instead of cash? 

            With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers.

            Annuitizing over a longer period is what makes the jackpot seem bigger. Due to low interest rates, if the lotteries decreased the payout period then the annuity would be even less attractive than it is now.

            Given the above, the only time I would consider taking the annuity is if the cash prize is so large that you would experience diminishing utility from more upfront lump sum. For example, it is highly unlikely you would immediately know where all $400 million cash is going to be parked, invested, or spent right away (the more money you have the more difficult it is to earn increasing return due to economies of scale). It would probably take a few years to figure it out. If the annuity is going to pay out more than I know I would be able to "easily handle" upfront (say, a few 100 million), then I would probably take it to give me time to ease into the new lifestyle and do long-term financial planning. Just personal preference

            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

              ArizonaDream's avatar - Lottery-009.jpg

              United States
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              October 10, 2015
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              Posted: October 11, 2015, 6:37 pm - IP Logged

              "Annuitizing over a longer period is what makes the jackpot seem bigger. Due to low interest rates, if the lotteries decreased the payout period then the annuity would be even less attractive than it is now."

               

              Only less appealing in the sense that they'd wouldn't be able to advertise such a large amount. It would actually be much more appealing to me because the amount per year would be higher.  But I guess big numbers in the news headlines are the only thing that matters to the lottery commissions. 

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                Wyomissing, PA
                United States
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                November 15, 2014
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                Posted: October 11, 2015, 6:49 pm - IP Logged

                Annuity option can work out well, but there are some big risks to be aware of:

                • Higher taxes / additional surtax on lottery winnings, such as briefly occurred in New Hampshire.
                • Annuity company defaulting and not paying out. Many lottery annuities are not government backed.

                For example, the Pennsylvania Lottery says this:

                -----

                What happens to the prize money if a company who got an annuity bid goes bankrupt?

                Published 08/04/2003 01:14 PM   |    Updated 10/21/2010 04:23 PM
                What happens to the prize money if a company who got an annuity bid goes bankrupt?

                The obligation to pay the prize is based upon contract law. The method that the state uses to fund the prize is a business decision. During a three-month period in 1986, the Lottery funded prizes through the purchase of Treasury notes, but then switched to annuity contracts. If we purchase an annuity from a company that goes bankrupt, the state still has a contractual obligation, so the Lottery would pay the prize.

                As a footnote, although we do use the lowest bid, it is the lowest bid from a bidder that qualifies to submit a quote. Those insurance companies qualifying are all companies whose names are easily recognizable to the general public. In addition we have a limit on the amount of outstanding obligations we fund through any one company.

                -----

                Emphasis above mine. And the extra footnote further illustrates the true nature of lottery annuities for PA Lottery prize winners. PB and MM annuities are, presumably, backed in a similar manner. Not government backed. Government entities, in particular smaller ones, can and do default, restructure, and/or declare bankruptcy. It's not overly common, but occurs enough that it can't be ignored.

                Heck, even when there's money, winners may still be waiting awhile, such as is occurring in Illinois due to budget issues. Not sure if that affects annuity winners, but would wager, regardless, many are nervous wondering if their annual payment will be delayed / not coming at all this year. Those who took the cash option need not worry - they already have the money.

                Bottom line, it seems in today's economic environment, lottery annuities are overly risky. However, that's ultimately a decision each winner needs to make on their own based on their own unique circumstances and faith in getting paid the promised amount over 25+ years without issues. A lot can change in that time. Personally, I'd take the cash.

                A 10 year or less annuity could be worthwhile for many winners, but doubt any lottery will offer that, since the main reason for annuities is to make the jackpot seem much larger than it really is. It's likely in the near future some large jackpot annuities, such as PB / MM, are extended further to 35 or even 40 years, which is likely the limit due to both practical reasons (human lifespan) and diminishing returns (each additional year makes less and less difference).

                  ArizonaDream's avatar - Lottery-009.jpg

                  United States
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                  Posted: October 11, 2015, 7:16 pm - IP Logged

                  MM and PB use government backed securities, from the FAQ on the PB site: 

                  There used to be a larger difference between the two games, but the Mega Millions game was recently changed to mirror the Powerball annuity option. The difference (spread) between the cash and annuity jackpots amounts are now about the same. Both games offer an annuity that pays out in 30 payments over 29 years (the first payment is immediate). Both annuity options are graduated. Any difference will be the result of investement choices. Mega Millions is invested in U.S. government strips. Powerball is invested in a couple dozen types of securities; all backed in some way by the U.S. government or agencies. It is important to understand that the lottery is invested in these securities; not the winner. The winner has a contract with the states to pay the annual prize payment, no matter what happens to the securities.

                  From the Illinois Winner's handbook: 

                  The Lottery currently purchases U.S. Treasury zero-coupon bonds (government securities) to fund and guarantee the future payments of your prize

                   

                  I'd take any Illinois state game JP in cash anyway. It's only with the much higher multi-state jp amounts that I'd consider the annuity.   

                  (As a newbie, I don't think I'm able/allowed to post the actual links) 

                    rcbbuckeye's avatar - Lottery-043.jpg
                    Texas
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                    October 23, 2007
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                    Posted: October 11, 2015, 7:48 pm - IP Logged

                    Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers.  (Same with MM and state lotteries)

                    Thinking about what I'd do if I won, I like the idea of the annuity so I don't have to make huge decisions all at once. But 30 years? I'm old enough that the actuarial tables say I'm just as likely to be dead in 30 years as not.  Also, I want to make a really large purchase right upfront (house). Why couldn't the lotteries structure the annuity to make it more attractive to winners?  I'm thinking 10% now and the rest spread over 20 years would work for me.  (I know I could just get an annuity on my own, but that falls into the huge decision category and loses the deferred tax advantage). 

                    So my question to you all, is there any way the lottery could offer an annuity option that would make it appealing enough for you to accept instead of cash? 

                    With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers.

                    There is no way on God's green earth that I would ever, ever, ever take the annuity. Everrrrrrrr.
                    See what's happening in Illinois?
                    Does anybody think the state or federal government isn't able to step in and say,"Sorry, this is a financial crisis. No payments until further notice". Then it's SOL.
                    You have more options with cash.

                    CAN'T WIN IF YOU'RE NOT IN

                    A DOLLAR AND A DREAM (OR $2)

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                      Kentucky
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                      Posted: October 11, 2015, 11:39 pm - IP Logged

                      Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers.  (Same with MM and state lotteries)

                      Thinking about what I'd do if I won, I like the idea of the annuity so I don't have to make huge decisions all at once. But 30 years? I'm old enough that the actuarial tables say I'm just as likely to be dead in 30 years as not.  Also, I want to make a really large purchase right upfront (house). Why couldn't the lotteries structure the annuity to make it more attractive to winners?  I'm thinking 10% now and the rest spread over 20 years would work for me.  (I know I could just get an annuity on my own, but that falls into the huge decision category and loses the deferred tax advantage). 

                      So my question to you all, is there any way the lottery could offer an annuity option that would make it appealing enough for you to accept instead of cash? 

                      With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers.

                      "Hardly anyone ever takes the annuity option on the PB (see winners stories link on the PB site). Clearly the PB still advertises the annuity value only for the publicity value of huge numbers."

                      They traditionally advertised the highest possible jackpot. Back in the day yearly payments were the only option.

                      "With some reports of up to 70% of winners blowing it all in a few years, it would make sense for lotteries to come up with something to entice more winners to spread out the winnings over a longer period of time, avoiding the negative publicity of big winners turning into big losers. "

                      Read this and then tell us it makes more sense that a state lottery decides when and how much of jackpot prizes players should get. Getting advise from a financial adviser is on most lists of things jackpot winners should do. And at current interest rates, credible adviser will not suggest taking the annuity.

                        Coin Toss's avatar - shape barbed.jpg
                        Zeta Reticuli Star System
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                        Posted: October 12, 2015, 12:00 pm - IP Logged

                        ArizoneDream,

                        "I'd take any Illinois state game JP in cash anyway. It's only with the much higher multi-state jp amounts that I'd consider the annuity."

                        You wouldn't get paid until a budget is set. Illinois hasn't paid any lottery prize of $25,000 or more since July 1st.

                        If you're that insistent on an annuity, take the cash and buy yourself a better one. The lotteries aren't looking for the best deal for you, they're looking at the best deal for 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.

                          psykomo's avatar - animal shark.jpg

                          United States
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                          Posted: October 12, 2015, 12:48 pm - IP Logged

                          AD:

                          Good question, great post! ............."is there any way the lottery could offer an annuity option that would make it appealing enough for you

                          to accept instead of cash? ............. THE assner is "YES" ............yes, yes, yes...........many X's>>>>>>>>>>>"YES"..............................!!!!!!!!!!!!!! 

                          BUT, why won't they make it appealing 2D WINNER??????

                            mypiemaster's avatar - 2015021003pileofcash
                            JACKPOT HUNTER

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                            Posted: October 12, 2015, 3:42 pm - IP Logged

                            I've always said that the options should be 1. CASH

                                                                                          2. ANNUITY

                                                                                          3. 1/2 CASH-1/2 ANNUITY.

                            Option 3 might be attractive to some people for their own personal reasons. Personally, after reading about Illinois, it's cash all the way.

                            Seek and ye shall find -Matt. 7:7 ...Ask and ye shall receive -John 16:24 ...Give and it shall be given unto you -Luke 6:38 ...Be careful what you ask for!!! -Mypiemaster 1:1

                            Having Money Solves Problems That Not Having Money Creates Yes Nod ****John Carlton****

                              Illinois
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                              Posted: October 12, 2015, 5:49 pm - IP Logged

                                  I tried to figure-out if you took the annuity and then sold it to a company like  J G Wentworth or Peachtree that buys annuity's, would you come out ahead instead of taking the cash payout. I called J G Wentworth and asked that question but they wanted nothing to do with me when they found out I haven't won any lotteries (yet). I guess you'll have to get a lawyer to find out that answer if you ever do win the lottery.

                              Stay the course and keep playing responsibly and for the fun of it.