Which is best, Lump Sum vs Annuity? (Super Lotto!)Prev Topic Next Topic

Timber!

United States
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April 5, 2017
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Apr 5, 2017, 5:32 am

I am 42yo, I have not won, but I play sometimes for fun, then I started to think which one would I choose. Lump Sum or Annuity? What about you guys?

We all claim to be good investors, even me, but 70% of people who win loose their fortune within the first 3-7 years. That is something to consider.

After crunching the calculator to death I think that annuity payments might give me a better return. What do you guys think?

Hypothesis: 1-2

1) If I win 26M Jackpot and choose the lump sum I end up with $13,520,000. The cash option is between 45-55% (lump sum). I chose 52% for my example. I am in California so I get taxed 25% of what I get, that's -$3,380,000.00 for a total of $10,140,000.00. (California does not have State taxes.)

Ok, now let's pretend I am a decent investor and put the money in a Trust Fund where I found a 4% interest a year out of the principle. From the principle $10M at 4% interest is $405,600 a year. But bad news, cash coming out of a Trust Fund is taxed AGAIN! In my understanding. So I will be taxed -$101,400 which is 25% of $405,600. That comes to $304,200 a year. Then I have to pay Lawyers, Accountants, and Financial Advisors, and be able to trust them and family.

2) If I choose Annuity payments for the $26M Jackpot, I get paid 2.5% interest the first year, and it continues to grow until it reaches 5.1% the last year of 26 years.

Let's take the taxes out right away. So, out of $26M jackpot I am taxed 25%, that is -$6,500,000 for a total of $19,500,000 net. The first year I will receive the 2.5% out of $19.5M, equals $487,500 in my deep pockets. End of story! I would invest $77,000 a year out of my annuity into a Trust Fund so I can live off the interest at the end of 26 years, I would be 68yo. I read of a couple who chose 26 annuity payments, but forgot to save for after their money ran out. They where dead broke.

To conclude, the second choice makes more sense to me since the 26M won't be cut by about 50%, then taxed 25%. Out of that I will be taxed AGAIN an additional 25% because interest from a Trust Fund is taxed as income. Then I have to pay Lawyers, Accountants, and Financial Advisors a great deal, not to mention the stress of who should I trust that won't swindle a nickel here and penny there. Or, which family member that came out of the wood work will take the money and run, or any lawsuits that puts all that money in jeopardy. And maybe bad investment choices takes me down a notch.

The only way it would be worth receiving the lump sum to beat the Annuity payments for me would be if I could find a 7%+ returned interest in a Trust Fund on the principle of $10M. Plus, if I was able to invest a good chunk in property that gave me a 12% ROI (Return Of Investment) per year. But, that is hard to find, and is it worth it? Or, if I won a 60 Million Jackpot. Which is enough money no matter how you put it.
Raven62

25

New Jersey
United States
Member #17,842
June 28, 2005
180,983 Posts
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Apr 5, 2017, 6:24 am

Quote: Originally posted by Timber! on Apr 5, 2017
I am 42yo, I have not won, but I play sometimes for fun, then I started to think which one would I choose. Lump Sum or Annuity? What about you guys?

We all claim to be good investors, even me, but 70% of people who win loose their fortune within the first 3-7 years. That is something to consider.

After crunching the calculator to death I think that annuity payments might give me a better return. What do you guys think?

Hypothesis: 1-2

1) If I win 26M Jackpot and choose the lump sum I end up with $13,520,000. The cash option is between 45-55% (lump sum). I chose 52% for my example. I am in California so I get taxed 25% of what I get, that's -$3,380,000.00 for a total of $10,140,000.00. (California does not have State taxes.)

Ok, now let's pretend I am a decent investor and put the money in a Trust Fund where I found a 4% interest a year out of the principle. From the principle $10M at 4% interest is $405,600 a year. But bad news, cash coming out of a Trust Fund is taxed AGAIN! In my understanding. So I will be taxed -$101,400 which is 25% of $405,600. That comes to $304,200 a year. Then I have to pay Lawyers, Accountants, and Financial Advisors, and be able to trust them and family.

2) If I choose Annuity payments for the $26M Jackpot, I get paid 2.5% interest the first year, and it continues to grow until it reaches 5.1% the last year of 26 years.

Let's take the taxes out right away. So, out of $26M jackpot I am taxed 25%, that is -$6,500,000 for a total of $19,500,000 net. The first year I will receive the 2.5% out of $19.5M, equals $487,500 in my deep pockets. End of story! I would invest $77,000 a year out of my annuity into a Trust Fund so I can live off the interest at the end of 26 years, I would be 68yo. I read of a couple who chose 26 annuity payments, but forgot to save for after their money ran out. They where dead broke.

To conclude, the second choice makes more sense to me since the 26M won't be cut by about 50%, then taxed 25%. Out of that I will be taxed AGAIN an additional 25% because interest from a Trust Fund is taxed as income. Then I have to pay Lawyers, Accountants, and Financial Advisors a great deal, not to mention the stress of who should I trust that won't swindle a nickel here and penny there. Or, which family member that came out of the wood work will take the money and run, or any lawsuits that puts all that money in jeopardy. And maybe bad investment choices takes me down a notch.

The only way it would be worth receiving the lump sum to beat the Annuity payments for me would be if I could find a 7%+ returned interest in a Trust Fund on the principle of $10M. Plus, if I was able to invest a good chunk in property that gave me a 12% ROI (Return Of Investment) per year. But, that is hard to find, and is it worth it? Or, if I won a 60 Million Jackpot. Which is enough money no matter how you put it.

https://www.lotterypost.com/search/forums?q=lump+sum+vs+annuity&t=all

https://www.lotterypost.com/search/forums?t=all&q=cash+value+vs+annuity

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Redd55

United States
Member #164,715
March 12, 2015
1,300 Posts
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Apr 5, 2017, 8:27 am

Quote: Originally posted by Timber! on Apr 5, 2017
I am 42yo, I have not won, but I play sometimes for fun, then I started to think which one would I choose. Lump Sum or Annuity? What about you guys?

We all claim to be good investors, even me, but 70% of people who win loose their fortune within the first 3-7 years. That is something to consider.

After crunching the calculator to death I think that annuity payments might give me a better return. What do you guys think?

Hypothesis: 1-2

1) If I win 26M Jackpot and choose the lump sum I end up with $13,520,000. The cash option is between 45-55% (lump sum). I chose 52% for my example. I am in California so I get taxed 25% of what I get, that's -$3,380,000.00 for a total of $10,140,000.00. (California does not have State taxes.)

Ok, now let's pretend I am a decent investor and put the money in a Trust Fund where I found a 4% interest a year out of the principle. From the principle $10M at 4% interest is $405,600 a year. But bad news, cash coming out of a Trust Fund is taxed AGAIN! In my understanding. So I will be taxed -$101,400 which is 25% of $405,600. That comes to $304,200 a year. Then I have to pay Lawyers, Accountants, and Financial Advisors, and be able to trust them and family.

2) If I choose Annuity payments for the $26M Jackpot, I get paid 2.5% interest the first year, and it continues to grow until it reaches 5.1% the last year of 26 years.

Let's take the taxes out right away. So, out of $26M jackpot I am taxed 25%, that is -$6,500,000 for a total of $19,500,000 net. The first year I will receive the 2.5% out of $19.5M, equals $487,500 in my deep pockets. End of story! I would invest $77,000 a year out of my annuity into a Trust Fund so I can live off the interest at the end of 26 years, I would be 68yo. I read of a couple who chose 26 annuity payments, but forgot to save for after their money ran out. They where dead broke.

To conclude, the second choice makes more sense to me since the 26M won't be cut by about 50%, then taxed 25%. Out of that I will be taxed AGAIN an additional 25% because interest from a Trust Fund is taxed as income. Then I have to pay Lawyers, Accountants, and Financial Advisors a great deal, not to mention the stress of who should I trust that won't swindle a nickel here and penny there. Or, which family member that came out of the wood work will take the money and run, or any lawsuits that puts all that money in jeopardy. And maybe bad investment choices takes me down a notch.

The only way it would be worth receiving the lump sum to beat the Annuity payments for me would be if I could find a 7%+ returned interest in a Trust Fund on the principle of $10M. Plus, if I was able to invest a good chunk in property that gave me a 12% ROI (Return Of Investment) per year. But, that is hard to find, and is it worth it? Or, if I won a 60 Million Jackpot. Which is enough money no matter how you put it.

They withhold 25% for federal taxes. However, you will owe more and pay the top rate. I just multiply the lump sum by 0.604 to see what I would be left with after all federal taxes are paid. In Calif, after you submit your claim, you do not immediately have to choose whether you want the annuity or the lump sum. This is the time when you meet with a financial expert who will help you decide what is the best choice for you. And the annuity runs over 30 years - not 26. And of course, you wd be liable for both federal and state taxes on interest income.
lottolaughs

Sunny California
United States
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May 31, 2006
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Apr 5, 2017, 8:44 am

Lump sum. You never know what tomorrow may bring or if you'll still be alive even 6 months from now. We all know life is short. As you age you realize that more and more. I never think "years from now", lol. Once you hit 50 it's kind of hard to.
Redd55

United States
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March 12, 2015
1,300 Posts
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Apr 5, 2017, 9:55 am

Quote: Originally posted by lottolaughs on Apr 5, 2017
Lump sum. You never know what tomorrow may bring or if you'll still be alive even 6 months from now. We all know life is short. As you age you realize that more and more. I never think "years from now", lol. Once you hit 50 it's kind of hard to.

I agree. But, if you are young and have a huge jackpot, annuity may be better way to go. You would start out taking home 7-10 mil and go up. That would tie me over until next yearly check.

And, if you have heirs, the annuity payments would be passed on to them. There may be tax consequences, tho, so again, the need to consult an expert.

But I'm old and I dont trust the state to have my money so, lump sum it is.

California
United States
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March 2, 2016
135 Posts
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Apr 9, 2017, 4:14 pm

If I won a $26 million SuperLotto Plus jackpot, then I'd get advice before deciding on lump sum or annuity.

In either case, I might stick all of my winnings in CDARS, ICS, and other "safe" investments. Other kinds of investments would earn more interest or ROI, but would also require me to be more involved or require me to pay others to take care of it (something that I don't like doing). I wouldn't worry too much about inflation eating away at my principal; I'd rather just enjoy my free time and do what I want instead of dealing with investments.

Here's my analysis of annuity vs lump sum for the most recent $26 million SuperLotto Plus jackpot:

Payment #	Gross	Taxes	Tax %	Net
1	$470,600	$142,527	30.3%	$328,073
2	$481,000	$146,646	30.5%	$334,354
3	$499,200	$153,853	30.8%	$345,347
4	$520,000	$162,090	31.2%	$357,910
5	$540,800	$170,326	31.5%	$370,474
6	$564,200	$179,593	31.8%	$384,607
7	$587,600	$188,859	32.1%	$398,741
8	$611,000	$198,126	32.4%	$412,874
9	$634,400	$207,392	32.7%	$427,008
10	$660,400	$217,688	33.0%	$442,712
11	$686,400	$227,984	33.2%	$458,416
12	$712,400	$238,280	33.4%	$474,120
13	$741,000	$249,606	33.7%	$491,394
14	$772,200	$261,961	33.9%	$510,239
15	$803,400	$274,316	34.1%	$529,084
16	$834,600	$286,671	34.3%	$547,929
17	$868,400	$300,056	34.6%	$568,344
18	$902,200	$313,441	34.7%	$588,759
19	$938,600	$327,855	34.9%	$610,745
20	$977,600	$343,299	35.1%	$634,301
21	$1,016,600	$358,743	35.3%	$657,857
22	$1,055,600	$374,187	35.4%	$681,413
23	$1,099,800	$391,690	35.6%	$708,110
24	$1,141,400	$408,164	35.8%	$733,236
25	$1,188,200	$426,697	35.9%	$761,503
26	$1,235,000	$445,230	36.1%	$789,770
27	$1,284,400	$464,792	36.2%	$819,608
28	$1,336,400	$485,384	36.3%	$851,016
29	$1,391,000	$507,006	36.4%	$883,994
30	$1,445,600	$528,627	36.6%	$916,973
	$26,000,000	$8,981,090	34.5%	$17,018,910
Payment #	Gross	Taxes	Tax %	Net
Lump	$16,100,000	$6,331,770	39.3%	$9,768,230

wander73

Philadelphia, PA
United States
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March 24, 2014
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Apr 9, 2017, 4:35 pm

Lump sum.

You don't know the interest rates for the following year
music*

Fresno, California
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August 2, 2014
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Apr 9, 2017, 4:52 pm

Quote: Originally posted by wander73 on Apr 9, 2017
Lump sum.

You don't know the interest rates for the following year

and you do not know the tax rates either.

"We are all in this together!"
noise-gate

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White Shores- California
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December 12, 2012
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Apr 10, 2017, 10:49 pm

Quote: Originally posted by wander73 on Apr 9, 2017
Lump sum.

You don't know the interest rates for the following year

That's right, show me the money!

* Voice of Reason *

* People who say it cannot be done should not interrupt those who are doing it- George Bernard Shaw.
zephbe

South Carolina
United States
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July 15, 2009
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Apr 11, 2017, 10:56 am

Younger than 60--take the annuity. 60 or over--take the lump sum and invest it.

Every champion was once a contender who refused to give up.-Rocky Balboa

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AlanHarvey

Houston
United States
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April 19, 2017
22 Posts
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Apr 25, 2017, 6:46 am

I have to agree with you on lump sum for my situation. I have known two Texas lotto winners here in Texas. The first one was a co-worker and had no choice but annuity as Texas didn't offer lump sum at the time. My friends our level headed people and have done well since their winnings. The other winner; well, let's just say lessons learned but doing well now. I would take the lump sum at my age I good if I'm alive to make to the bathroom when I need to pee. I think I would just make sure I tax it at 40% and be done. Invest the remaining into Muni Bonds which are tax free. Texas; for the moment, doesn't have state taxes.
Kingofearth

Israel
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May 5, 2016
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Apr 26, 2017, 3:22 pm

Quote: Originally posted by lottolaughs on Apr 5, 2017
Lump sum. You never know what tomorrow may bring or if you'll still be alive even 6 months from now. We all know life is short. As you age you realize that more and more. I never think "years from now", lol. Once you hit 50 it's kind of hard to.

The median age in the US is 38 so your words of wisdom are only applicable to a small minority of players
https://www.cia.gov/library/publications/the-world-factbook/fields/2177.html

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