Lump sum and I'd definitely not let that lump rot on the bank account, that would be utterly retarded and each lottery winner doing so should be punished.
Annuity.
If you take the lump some you are getting less than 50% of it.
For example, you won 200 million. If you took the lump sum, first you would be penalized for taking it down to about 115 million. Then, since you got it all at 1 time, you were put in the highest tax bracket (10 million a year or more) which is 50% federal income tax, plus state, plus local and lets face it, you will not have the resources yet to hire the lawyers and set it up where you can hide that like the current rich guys can (many paying taxes on less than 20% of what they make anyways)
If you take it as payments, you are not getting penalized and you are in a lower tax bracket. And lets face it, I doubt many will be able to invest it and make more than they just lost in that time without insane luck that was even better than they luck they burned to win it to begin with.
So, I would rather get 200 million dollars paid over 30 years than to get 50-ish million dollars at once.
Also, if you take it as a lump sum, and you end up in a bad marriage or a drug problem later and you are broke and screwed. In payments, you go broke, you have another check coming later down the road.
I'd take it as a lump some and split it up between spending, cds or something where I can earn interest on it(if it's enough money it wouldn't be too hard to live off interest alone), and some investments.
The cash you won from the Powerball or Megamillions (US Lotteries for those who aren't from here) annuity is made by using the cash they have on hand and buying US Government Treasury Securities. So the money you are getting paid is basically federally insured. So the only way you aren't getting paid is if the US defaults in which case we will be in a global collapse anyways if it is that soon in which case that is the least of your problems.
Annuity for sure. The temptation to blow it all away with a lump sum is way to great.
The Glowing Piece of Radical Rock!
lump sum, put it in a 401k
Lump for which i'd buy houses for myself and my family (close family only) then invest most of it, live off the income from it, or build a few more houses and live off the income of renting those out, along with the leftovers invested.
Dragonflight Nerfs vs fun again show a Blizzard that hasn't learnt a lesson, Actions speak louder than words afterall watch what they do and do not do.
Lump Sum, buy a few houses, put the money in an over seas bank.
Annuity, I wouldn't want to spend it all at one time.
Packers - Penguins - Gators
Lets just do the math.
So 200Mil either in lump sum or over 30 years.
If lump sum then you lose half up front and 35% to federal income tax leaving you with 65mil.
So what average annual interest rate do you need to turn that into 200mil over 30 years?(the value of the annuity after 30 years)
Answer: 3.85%.(or 6.85% including a 3% yearly inflation rate)
Not unreasonable at all over a 30 year period, in fact it is low. A smart diversified investment plan can expect 12%(12% is the average rate of return for all mutual funds over the past 80 years.)
So factoring in 3% inflation with average(12%) rate of return would net you effectively $862,399,100.49 over 30 years.
If you took the annuity and invested everything you would have $648,159,223.87
So a lump sum in that case is definitely the better choice.(If you even care about the difference between having $862mil vs $648mil)
Lump sum. I'm 27, and want to do things nao.
You lose half of it up front and receiving it all at 1 time puts you in the highest tax bracket (over 10 million a year) and you would be paying 50% federal income tax on it, plus your state level income tax and any local taxes.
But aside from that, sounds like a good deal. Not used to seeing things pay interest rates that high.
In the US the highest federal tax bracket is currently 35% for those making over roughly 380k per year. I didn't include state and local taxes because not everyone has to pay those and for those that do it tends to vary.
But you could run whatever numbers you wanted, the point is that the lump sum is the better deal most of the time. And basically the longer the term on the annuity the better bet the lump sum becomes.
Also to add if you do happen to win the lottery and have a choice upon recite of the winnings of whether to take a lump sum or annuity, you can always just pay for a financial adviser and lawyer to figure it out for you. With that being said I think all the lotteries here require you to chose payment option on the point of sale of the ticket.
Last edited by NeftBat; 2011-11-03 at 02:26 AM.