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Am I the only one sick and tired of not winning the lottery?
shmokes:
It's not about whether the annuity is enough. it's about the math the lotto people use to come up with that number. The cash payout is based on what would add up to the total jackpot if invested at such-and-such rate of return over a thirty year period. So, as a lotto winner, you have to look at what number they used for the such-and-such. If they based the payout on an 8% return, you have to decide whether, given the lump sum, you could do better than 8% average over 30 years. If so, lump sum, if not the annuity is a better deal.
Of course, there are other factors. A lot of lotto players, most maybe, are quite old. If I'm 60 years old, what do I want with a 30 year annuity? Or maybe the cash payout is based on a 6% return and the market says that anything less than 8% is a ripoff. But I know that I can't be trusted with money, or I have a family of hairbrained schemers that I can't say no to. Then maybe I still take the annuity.
Or, hell, maybe you're just worried that the state/country will go bankrupt and 15 years down the road they'll default on your annuity. I have no idea how possile this is, but maybe it's a concern . . .
At any rate, it's really not a clear-cut thing whether to take the lump sum or annuity. It's a case-by-case thing. Sometimes it's objectively a better deal, sometimes not. And sometimes subjective factors outwiegh the objective facts.
Edit: grammar/spelling. Typed on an iPad with autocorrect turned off.
Gray_Area:
--- Quote from: wp34 on December 28, 2011, 11:52:20 am ---
I still play anyway occasionally. If I won I would build one huge arcade I can tell you that.
--- End quote ---
I was thinking about that today. I figured the local golf castle in the early 80s, after adding go-karts and batting cages, cost...mmm....20 million if you were to buy it, games and all. That's why they don't make them anymore. When I was a kid, the place was abso-packed on weekends. Now, I'm surprised they're still around.
--- Quote from: CheffoJeffo on December 28, 2011, 01:06:02 pm ---My parents were in town for the holiday and it turns out that one of their neighbours won 1/3 of the recent 250 Powerball.
--- End quote ---
six degrees
Vigo:
--- Quote from: drventure on December 29, 2011, 11:11:03 pm ---For instance, from one article:
"Instead of taking the $314.9 million jackpot as an annuity, Whittaker opted for a single payment of $170 million. After taxes, he got $113.9 million."
Ouch, 2/3 of your winnings gone before you even get a dime.
Of course, then you have to wonder what he was thinking.
At 314mil, over a 30 year annuity, that's about 10mil a year, or about 872,000$ a month, figure roughly 50% tax on that, and you're still talking 400,000+$ PER MONTH. Is my math right? It's late.
Who couldn't live on that?
--- End quote ---
Maybe i am not looking at it right, but I see the lump sum to be a better deal.
Going by your math with the annuity, the guy would make a total (rounding up) of 150 million after waiting 30 years, sounds like a good deal. However, the guy could just go with the lump sum of 113 million, immediately invest 50 million of it at a safe expected ROI of around 5%, and by the time the 30 years are up, he would have totaled 200 million instead of the 150 million, and that is after the interest earnings are taxed at that same roughly 50% number.
He would also have over 60 million dollars at his disposal immediately for any business, charity or crazy world changing idea he wanted to start. I personally think that if I won millions of dollars, I would have the belief that it was for a reason and would want to do something with the money that is tangible to benefit the world.
Samstag:
--- Quote from: Vigo on December 30, 2011, 11:41:31 am ---
--- Quote from: drventure on December 29, 2011, 11:11:03 pm ---For instance, from one article:
"Instead of taking the $314.9 million jackpot as an annuity, Whittaker opted for a single payment of $170 million. After taxes, he got $113.9 million."
Ouch, 2/3 of your winnings gone before you even get a dime.
Of course, then you have to wonder what he was thinking.
At 314mil, over a 30 year annuity, that's about 10mil a year, or about 872,000$ a month, figure roughly 50% tax on that, and you're still talking 400,000+$ PER MONTH. Is my math right? It's late.
Who couldn't live on that?
--- End quote ---
Maybe i am not looking at it right, but I see the lump sum to be a better deal.
Going by your math with the annuity, the guy would make a total (rounding up) of 150 million after waiting 30 years, sounds like a good deal. However, the guy could just go with the lump sum of 113 million, immediately invest 50 million of it at a safe expected ROI of around 5%, and by the time the 30 years are up, he would have totaled 200 million instead of the 150 million, and that is after the interest earnings are taxed at that same roughly 50% number.
He would also have over 60 million dollars at his disposal immediately for any business, charity or crazy world changing idea he wanted to start. I personally think that if I won millions of dollars, I would have the belief that it was for a reason and would want to do something with the money that is tangible to benefit the world.
--- End quote ---
Going by Shmokes's math, $114M at 8% would be more than 1 billion after 30 years. The real rate that would turn $114M into into $315M in 30 years is about 3.4%. If it's a 20 year annuity the rate would be 5.1%.
I'd like to know where you're getting your "safe" 5%. I only know of one investment that's safe and pays more than the rate of inflation, and that's limited to a $5000/year contributions.
Vigo:
I was going off of an average fed bond payout of 5.4%, and a friend of mine who is a high end financial advisor guarantees a min 5% on return annually (averaged over a course of a decade i believe) when he is given full control over the investments. I don't know if minimum investment needed for the guarantee, but I am sure a powerball winner would meet that amount.
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