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Annuity vs Cash Value

Topic closed. 57 replies. Last post 3 months ago by TheMeatman2005.

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If you won a jackpot, which would you take?

Lump sum cash (1 payment) [ 64 ]  [77.11%]
Annuity (30 payment) [ 12 ]  [14.46%]
Undecided at the moment [ 7 ]  [8.43%]
Never going to win so what difference does it make [ 0 ]  [0.00%]
Total Valid Votes [ 83 ]  
Discarded Votes [ 1 ]  
TheMeatman2005's avatar - lightening
Brooklyn, NY
United States
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October 29, 2015
875 Posts
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Posted: July 17, 2016, 12:17 pm - IP Logged

i think pymts.  i'm bad at saving,know nothing about investing. as long as  i had enough to pay off all my bills, and live comfortably.

Even if you opt for the annuity payments, you should still get professional financial advice.

Spend some, save some. 

The Meatman

“The quickest way to double your money is to fold it in half and put it in your back pocket.” Will Rogers

Winning happens in a flash, Like A Bolt Of Lightning!  Patriot

    music*'s avatar - nw bookeep.jpg
    Happy California
    United States
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    August 2, 2014
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    Posted: July 17, 2016, 1:47 pm - IP Logged

     Whomever is asked for professional advice they will welcome you with open arms and a smile.

     I've been rich and I've been poor. Believe me, rich is better. 

     Attributed to Joe E. Lewis and others

      music*'s avatar - nw bookeep.jpg
      Happy California
      United States
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      Posted: July 17, 2016, 1:57 pm - IP Logged

      i think pymts.  i'm bad at saving,know nothing about investing. as long as  i had enough to pay off all my bills, and live comfortably.

       Just be forewarned about those factoring companies like JG Wentworth and others. They will contact you. A phrase you could use is, "NO Action Here". A fellow poster recommended Ed Ugels' book. He was one of those factoring employees and told us what they did to annuity winners. Those companies are not charities.Red Devil

       I've been rich and I've been poor. Believe me, rich is better. 

       Attributed to Joe E. Lewis and others

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        New Member
        Philadelphia, PA
        United States
        Member #162811
        January 13, 2015
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        Posted: July 24, 2016, 1:15 am - IP Logged

        Just remember that the payout for the annuity is back-end heavy.  For powerball, you would literally get 50% of the money during the last 10 years of the 30 year payout timeline.  So you would have to deal with 20 years of inflation before you get half of the of your money and another 10 years to get the other half.

          Sunglasses's avatar - nicebear
          Zaperlopopotam
          Belgium
          Member #173932
          March 26, 2016
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          Posted: July 25, 2016, 11:39 am - IP Logged

          Annuity or cash value, I say take them both!

          Thumbs Up

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            NH
            United States
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            December 5, 2009
            223 Posts
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            Posted: July 25, 2016, 5:45 pm - IP Logged

            I would take the lump sum and then set up my own Annuity with the lump sum payment...That way you could take whatever you want up front(5-10%) to buy your Estate and everything that goes with that with cash. Then collect a weekly or monthly or yearly check off your Annuity you set up...That way you're locked in to whatever the tax rate is when you collect the lump sum. I can't imagine any situation in America where the tax rates drop. They imop are only going to go up...Take your tax hit now with the lump sum.

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              New Member
              Seattle
              United States
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              March 16, 2016
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              Posted: July 25, 2016, 6:57 pm - IP Logged

              I think it depends on the terms. Here in Washington we have a $30 ticket where top prize is $2 million paid at $80,000 for 25 years or you can take $750,000 lump sum. Now seriously in that case the best option is the annuity.

              But if its $1 million paid at $50,000 for 20 years or $700,000 cash now then you take cash now.

              Its depends on the terms, which arent always the same or even close to the same.

              I would bet in most cases, the best move is the annuity. Now to mention everything thinks they wont do it but what if you blow it in 5 years ? Then what ? With an annuity paying you for 20 or 25 years that pretty mush has you set for life.  Everyone say well I would never blow the money - but its amazing how many people do.

                TheMeatman2005's avatar - lightening
                Brooklyn, NY
                United States
                Member #169723
                October 29, 2015
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                Posted: July 26, 2016, 8:26 pm - IP Logged

                I have always said that if you are below 40-45 years old that the annuity is better than taking cash value since it will provide a nice income for the next 29 years.

                But, if you are older than 40-45 years old, you would be wiser to take the cash. Depending on how much older than 40-45, you don't know how long you will live and may not live long enough to collect all the payments. Plus, if you die before collecting the last payment, it will leave your heirs responsible for the estate tax. That's 40% of however much the balance of your annuity is worth at the time of your death (in excess of the $5.45 mil estate tax exemption).

                The Meatman

                “The quickest way to double your money is to fold it in half and put it in your back pocket.” Will Rogers

                Winning happens in a flash, Like A Bolt Of Lightning!  Patriot

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                  Delaware
                  United States
                  Member #93503
                  July 1, 2010
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                  Posted: July 26, 2016, 8:41 pm - IP Logged

                  I'd take the annuity since i'm only 25 but either way this would be a nice problem to have!

                    maxodds's avatar - max
                    Jupiter, FL
                    United States
                    Member #154501
                    April 18, 2014
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                    Posted: August 1, 2016, 10:26 am - IP Logged

                    For the first win I would take the Lump sum, but for subsequent winning I might opt for the annuity.

                    We could all win the lottery today!

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                      Maryland
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                      January 2, 2015
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                      Posted: August 2, 2016, 4:00 pm - IP Logged

                      Just remember that the payout for the annuity is back-end heavy.  For powerball, you would literally get 50% of the money during the last 10 years of the 30 year payout timeline.  So you would have to deal with 20 years of inflation before you get half of the of your money and another 10 years to get the other half.

                      What are you talking about??? If the payments are the same how is it BACK-END heavy?

                      Are you trying to factor inflation in?  That will depend on what you do with the lump sum money to compare to the annuity.

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                        Maryland
                        United States
                        Member #162434
                        January 2, 2015
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                        Posted: August 2, 2016, 4:19 pm - IP Logged

                        What are you talking about??? If the payments are the same how is it BACK-END heavy?

                        Are you trying to factor inflation in?  That will depend on what you do with the lump sum money to compare to the annuity.

                        TIME-OUT!!!!!

                        I just looked at the Mega Millions annuity payout schedule (30 annual payments) & Powerball also. 

                        I am 100% incorrect with what I said above!!! 

                        I was under the understanding it was 30 equal payments.  WOW!! They start with paying 1.5% on the first payment (my rough estimate) and finish with 6.2% of the principle. 

                        So the biggest issue I can see with the annuity is what happens if the federal government INCREASES the tax rate? It was as high as 50% back in 1986 (30 yrs ago) then quickly dropped to 28% in 1988,  by 1993 was up to 39%.  So if you took the annuity in that 5 year period you saw the rate SHOOT up by 11% in a short time.  But if you took the lump sum in that 5 year period you WON an extra 11% that didn't go to fed taxes.

                          TheMeatman2005's avatar - lightening
                          Brooklyn, NY
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                          October 29, 2015
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                          Posted: August 2, 2016, 5:01 pm - IP Logged

                          Taken from: http://www.megamillions.com/difference-between-cash-value-and-annuity

                          Difference Between Cash Value and Annuity 

                          If you win a Mega Millions jackpot, you will choose how to be paid: Cash Option or Annual Payout. Prize claim parameters vary from state to state. Contact your Mega Millions lottery for detailed information. 

                          Annuity option: The Mega Millions annuity is paid out as one immediate payment followed by 29 annual payments. Each payment is 5% bigger than the previous one. We used to pay the jackpot in equal installments, but players expressed concern that the cost of living would be increasing while their payments were not. We changed to payments that increase each year to help protect winners’ lifestyle and purchasing power.

                          For a typical jackpot of $50 million, the initial payment would be more than $750,000, and future annual payments would grow to almost $3.1 million.

                          When the jackpot is $100 million, each payment is twice as big. When the jackpot is $25 million, each payment is half as big, etc. 

                          Cash option: A one-time, lump-sum payment that is equal to the cash in the Mega Millions jackpot prize pool.

                          The Meatman

                          “The quickest way to double your money is to fold it in half and put it in your back pocket.” Will Rogers

                          Winning happens in a flash, Like A Bolt Of Lightning!  Patriot

                            aux8b's avatar - home

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                            Posted: August 2, 2016, 5:03 pm - IP Logged

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                              wisconsin
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                              Posted: August 2, 2016, 10:23 pm - IP Logged

                              It depends on how big of a drop-off from jackpot amount to take home after taxes. Say the jackpot was $3 million and after cash option/taxes you take home around a million. I'd be tempted and take the annuity and invest a chunk of it a year into a IRA and use the rest to save up for a house . Work a few years and save some more and retire maybe a decade down the road.