Lump Sum or Over Time Pay?

http://www.cnn.com/2006/US/02/22/powerball.winners/index.html

The above link news isn't surprising but. . .Since I don't gamble, the eight people that have won the PowerBall are each receiving $22.1 million. . .

Question for ya'll, if it were you, would you have lump sum pay or the XX number of pay over time?

What do you say?

I read somewhere (Forbes???) that one in five americans think their road to prosperity can be achieved by winning the lottery :shrug:. NOT by hard work or by savings BUT relying on incredibly low odds to achieve success. Sad statement about our values. Well back on topic -- No sense in speculating on what *I* will do since if you don't play you can't win and I don't play.

You have to do a NPV (net present value) calculation based on the terms they give you, expected inflation, and expected return on investment in order to get a precise calculation.

I read sometime ago that the winners of the lottery admit that they wish they had their life back before they won. Seems they've accumulated more problems after their sudden wealth. . .

$22 mil...I'd just take it and run. Just simple 5% interest is well over $1,100,000 a year. For many of us, I suspect one or two years worth of annual interest is more than we're going to make in our entire careers. No need to be greedy, right? I actually think it might be difficult to spend enough to run out over a lifetime - unless you go out a buy a Gulfstream or something else similar.

Lump sum. You never know about tomorrow and that truck with your name on it.

-LT

JonSidneyB said:

You have to do a NPV (net present value) calculation based on the terms they give you, expected inflation, and expected return on investment in order to get a precise calculation.

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What about tax realization and consequenses. That in itself points to distributed equal payments. Unless you get hit for all of it right away, but I don't think you do.

BTW I don't think I've ever bought a ticket to a lottery.

I'm in my fifties. I'll take it now, please.

I figure that I can invest it as well as they can. I also know how to budget. The taxes suck, but it sucks more to die before you get it.

Daniel

the tax considerations are factored into an NPV calculation...you will have to guess at any changes in tax code to calculate this.

BVH said:

$22 mil...I'd just take it and run. Just simple 5% interest is well over $1,100,000 a year. For many of us, I suspect one or two years worth of annual interest is more than we're going to make in our entire careers. No need to be greedy, right? I actually think it might be difficult to spend enough to run out over a lifetime - unless you go out a buy a Gulfstream or something else similar.

Click to expand...

i'd live off the interest....

Payments over time for sure. If you notice the lump sum is less than half the total of the payments over time. In essence by taking a lump sum you're gambling that inflation will be fairly high. If it isn't, you'll have lost big time. After that you have the tax consequences. Payments of a few million a year result in something like 40 to 50% going in taxes, depending upon locality. Take a lump sum so that you have an income of tens of millions for one year, and your tax liability exceeds 90%.

An even better way is to take it in installments divided among family members. Figure if you win a $20 million prize, take it over 20 years, and split it 5 ways, that's still $200,000 a year each, and the total taxes paid to the government overall is even less than one person taking payments over time. Besides that, $200K a year for 20 years properly invested will more than cover you for life. Basically, in my mind the idea is to do whatever it takes so the government gets a little as possible. I'd even burn most of the money if it was a choice between the government getting or just burning it.

Next thing I would do is disconnect my phone so as not to get everyone and his brother trying to get a piece of my newfound wealth.

Of course, I don't play the lottery so all of the above is a moot point. You have a better chance of getting hit by lightning twice, abducted by aliens, and seeing Elvis all in the same night than you do of winning the big prize.

I don't know what entity administers Powerball, but I don't trust it to be around in 30 years. Too many pension funds have been raided and too many Enrons have come and gone for me to put my faith in others. I'll take the early payout and diversify the heck out of it, thank you. Number crunching brainiacs factor risk into the calculus, and so shall I.

Until then, spending less than we make and sticking 15% of gross into retirement will have to do the trick.

best regards, and keep on dreaming

In Canada there is a scratch lottery ticket called Set for Life where if you win you get $1000 a week for 25 years. The TV commercials really play up the "getting money every week" aspect.

But here is what their web page says "NOTE: Persons who reveal (3) Set for Life symbols are entitled to claim either (i) a single payment of $1,000,000, or (ii) a single payment of $10,000, together with an annuity payment of $1,000 per week for 1,290 successive weeks. Annuity payments are not transferable, assignable or commutable in whole or in part. If the winner (i) resides outside any of the following Provinces or Territories of Canada: Alberta, Saskatchewan, Manitoba, Yukon, Northwest Territories or Nunavut, (ii) consists of more than one individual, (iii) fails to select one of the payment options, (iv) fails to provide WCLC or its third party provider with the information requested to process annuity payments within the time specified by it for so doing, (v) would reach the age of 91 years prior to the last annuity payment coming due, or (vi) if WCLC foresees any present or future difficulty for WCLC in processing the annuity prize in the manner contemplated by the Game Conditions respecting this game, WCLC may pay the prize in the single payment of $1,000,000. Copies of the SPECIAL GAME CONDITIONS GOVERNING SCRATCH 'N WIN ANNUITY PRIZES, as well as other details governing this game and this ticket and relating to prize claims, are available from WCLC upon request. Winners may wish to seek professional advice with regard to annuity prizes."

Basically they are suggesting you take the $1million up front since the annuity isn't transferable.

In Canada lottery winnings aren't taxed so there is no tax savings from getting paid out over time.

In some ways $1000 a week would be better (everyone you've ever met in your life wouldn't be showing up asking for a little "help"). But if you were to die it would sure hurt your family to be cut off. Though I suppose you could buy a $1M life insurance policy for a few thousand a year (depending on your age and health).

Greg

Taking $1,000,000 in one lump sum in the case you mentioned is a no-brainer because $1000 a week over the next 25 years comes to $1.3 million but the present value of these payments would be way less than the $1 million lump sum prize under any conceiveable circumstances. The fact that lottery winnings aren't taxed in Canada is simply the icing on the cake for taking the lump sum.

You are right on both your points.

Greg

lump sum, I don't want "them" holding my $$$.

Lump sum - even if it's only half, you can go do something immediate with it and probably beat the annutity with ease... for far longer than the annuity. Or you can go buy something signifigant - like a company.

You have far more options with a lump sum and get to deal with taxes and whatever government red tape up front and all at once.

Lump some, then I could shower my self with Surefire Beasts, and Ti everything with trit on everything also.

The 22 mil was AFTER taxes so there is no further tax liability except on the interest you receive.

every fiscally "smart" person i have ever discussed that with has said that the lump sum is the way to go MOST of the time.. you have to make some comparisons and decide what level of involvement you want to have with your money, but taking the lump sum and putting it to work can yield better income than payments over time easily.