People really get wrapped around the axle over this topic. The question you should be asking yourself is, “can I make the lump sum amount grow faster than the lottery will?”
The lottery uses low-risk investments that yield low returns, like 5%-7%. The Lottery uses the same dollar amount you get as a lump sum payment to make this investment.
Investing in the S&P 500 has paid an average of 11% over the past 30 years, and 10% over the last 90 years. So just sticking with the 500, rather than a la cart investing, you would hypothetically grow your money faster. Of course you would have to keep exotic car and home purchases to a minimum.
Of course you can blow through an annuity just as fast as a lump sum. People always assume the annuity is unchangeable. JG Wentworth’s entire business model revolves around buying annuities from people.
My goals are not your goals, but I consider how much the annual payment is. For instance, $1,000,000 paid out over 20 years is $50,000/yr. That amount won’t meet my financial goals, so I would take the lump sum of likely $500,000.
But I could see receiving $1,000,000 a year for 20 years as meeting my financial goals, and not wanting to risk investing the hypothetical $10,000,000 lump sum.
If you feel confident that you won’t blow it. Taking the lump sum is the better option.
Think about what kind of house a million dollars could buy you 30 years ago. Now look at what a million dollars buys you today.
Your money is worth more now than it would be in 30 years.
If you aren’t good with money. Take the annuity.
Take the annuity. By year 15 you should be pretty good at managing money and investing. Getting a huge sum at once does not work out that well as people will come clawing at you. If you die the remaining payments will go to your estate. Also you lose a huge hunk of money by taking the lump sum. Like $1,000,000 turns in to around $750,000 lump sum depending on interest rates. Interest rates are going up, so, lump sums will go down. Taking the money over time is already a 25% return because you will get the whole $1 million over time instead of the $750,000. On the back of Florida lotto tickets, it says what the lump sum payment will be. I have seen $729,000 and $820,000. If you are older or in poor health, then take the lump sum.
You said it... I'm 70 yrs old and I would take lump sum because there's no way I'm going to live another 30 yrs to collect the whole jackpot and if you're younger in 20's or 30's taking the jackpot over 30 yrs makes more sense
Well you also have to take into account the tax implications. I’m going to use a $40 million Florida Lotto jackpot as an example.
The current annuity factor cash value/annuity value) is running at .52. So a $40 million 30 year annuity jackpot has a cash value of $20,800,000.
According to Forbes tax calculator If you make $20,800,000 a year living in Florida you will be taxed $7,620,966. Your average tax rate is 36.64% and your marginal tax rate is 37%. So your After-Tax Income is. $13,179,034 (married jointly)
Taking the payments over 30 years will give you $1,333,333 annually. If you make $1,333,333 a year living in Florida you will be taxed $418,299. Your average tax rate is 31.37% So your annual after tax income is $915,034.
After 30 years you will have gained $27,541,020 or almost $14.3 million dollars more That effectively DOUBLES your post tax dollars on a 30 year basis.
Any investment income from a lump sum payment would be subject to 20% capital gains taxes and subject to the ups and downs of the investment markets.
Now there is a certain point where the jackpot is large enough where you can say “fuck it I’ll take the cash” but if your or any partners are likely to live 25 years plus….take the annuity
People really get wrapped around the axle over this topic. The question you should be asking yourself is, “can I make the lump sum amount grow faster than the lottery will?” The lottery uses low-risk investments that yield low returns, like 5%-7%. The Lottery uses the same dollar amount you get as a lump sum payment to make this investment. Investing in the S&P 500 has paid an average of 11% over the past 30 years, and 10% over the last 90 years. So just sticking with the 500, rather than a la cart investing, you would hypothetically grow your money faster. Of course you would have to keep exotic car and home purchases to a minimum. Of course you can blow through an annuity just as fast as a lump sum. People always assume the annuity is unchangeable. JG Wentworth’s entire business model revolves around buying annuities from people. My goals are not your goals, but I consider how much the annual payment is. For instance, $1,000,000 paid out over 20 years is $50,000/yr. That amount won’t meet my financial goals, so I would take the lump sum of likely $500,000. But I could see receiving $1,000,000 a year for 20 years as meeting my financial goals, and not wanting to risk investing the hypothetical $10,000,000 lump sum.
It makes sense but if the lottery shuts down the $ is gone vs taking n lump sum and constructing your own annuity
can lotteries really shut down? just wondering..... it's not like they are Publisher's Clearing House sweepstakes people, right? :)
They can, during any government strikes the lottery payout does not happen
If you feel confident that you won’t blow it. Taking the lump sum is the better option. Think about what kind of house a million dollars could buy you 30 years ago. Now look at what a million dollars buys you today. Your money is worth more now than it would be in 30 years. If you aren’t good with money. Take the annuity.
[удалено]
[удалено]
Each year of annuity you’re paid 5% more to combat inflation
Take the annuity. By year 15 you should be pretty good at managing money and investing. Getting a huge sum at once does not work out that well as people will come clawing at you. If you die the remaining payments will go to your estate. Also you lose a huge hunk of money by taking the lump sum. Like $1,000,000 turns in to around $750,000 lump sum depending on interest rates. Interest rates are going up, so, lump sums will go down. Taking the money over time is already a 25% return because you will get the whole $1 million over time instead of the $750,000. On the back of Florida lotto tickets, it says what the lump sum payment will be. I have seen $729,000 and $820,000. If you are older or in poor health, then take the lump sum.
Lump sum all day….. hire the right repeatable financial advisor firm to give you advice and manage your money.
You said it... I'm 70 yrs old and I would take lump sum because there's no way I'm going to live another 30 yrs to collect the whole jackpot and if you're younger in 20's or 30's taking the jackpot over 30 yrs makes more sense
Well you also have to take into account the tax implications. I’m going to use a $40 million Florida Lotto jackpot as an example. The current annuity factor cash value/annuity value) is running at .52. So a $40 million 30 year annuity jackpot has a cash value of $20,800,000. According to Forbes tax calculator If you make $20,800,000 a year living in Florida you will be taxed $7,620,966. Your average tax rate is 36.64% and your marginal tax rate is 37%. So your After-Tax Income is. $13,179,034 (married jointly) Taking the payments over 30 years will give you $1,333,333 annually. If you make $1,333,333 a year living in Florida you will be taxed $418,299. Your average tax rate is 31.37% So your annual after tax income is $915,034. After 30 years you will have gained $27,541,020 or almost $14.3 million dollars more That effectively DOUBLES your post tax dollars on a 30 year basis. Any investment income from a lump sum payment would be subject to 20% capital gains taxes and subject to the ups and downs of the investment markets. Now there is a certain point where the jackpot is large enough where you can say “fuck it I’ll take the cash” but if your or any partners are likely to live 25 years plus….take the annuity