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Old 05-18-2013, 11:51 AM
 
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Default Lump Sum Or 30 Years?

Just curious about the math. If you win the 600 million dollar mega-bucks, how do the figures look comparing taking a lump sum over choosing the 30 year payment plan. I am pretty sure that Mega Bucks pays out over 30 years instead of 20.

I'm also pretty sure that their lump sum payment is 1/3 of the amount, not 50%
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Old 05-18-2013, 12:38 PM
 
Location: Sacramento
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About right, maybe a little less than that. The discount rate they use on lotteries is very high (10% or so).
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Old 05-18-2013, 12:59 PM
 
Location: home state of Myrtle Beach!
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Tomorrow is not guaranteed! Take the lump sum and run!
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Old 05-18-2013, 01:12 PM
 
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The lump sum is the smart thing to do, you don't know what things will be like in thirty years. Better to trust yourself with the money, rather then a lottery commission which for all you know will go bankrupt in ten years. The key is just to restrain yourself from spending it all within five years like so many of the idiots that win big money.
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Old 05-18-2013, 05:46 PM
 
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If you are terrible with money, take the payments.

If not, take the cash and here is why:

1. Money is invested in US Treasury Bonds, not outstanding returns and though guaranteed if the USA goes broke like Greece as some speculate, those bonds aren't going to be worth much.
2. If inflation spikes, your investment will be a fixed return while everything else will cost more.
3. In the event of your death, the IRS taxes the payments left (20mm annual payment based on the 600mm prize, so if you have 15 years left you now have a 300mm estate). 300mm is taxed at 50%, so next April your family owes the IRS 150mm but wait, you don't have it so now you have to sell the income stream (cut rate of course) and cash out to pay the IRS. If you have all the cash in place (trusts), tax exempt products then you may pay nothing or if you do have to pay you have the cash on hand.
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Old 05-18-2013, 08:33 PM
 
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Lump sum. There are too many variables and risks with taking payments.
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Old 05-18-2013, 09:48 PM
 
Location: Los Angeles area
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Aren't there a number of variables which might reasonably be considered?

1. How old is the winner? If 70, that would be sole reason enough to take the lump sum. If 25, it might be a reason to consider the payments.

2. What are the needs for cash in the near term?

3. What are the prospects for funding one's retirement absent the lottery winnings? If one is 50, lost his job a year ago, hasn't been able to find another, and has spent down all savings to live on, then the payments might look like the ticket.

4. What is one's ability to handle money? Prone to absurd spending binges? Maybe the payments will make more sense.

Excellent arguments have been made upthread for taking the lump sum, with which I agree. I was trying to play devil's advocate here to see if I could make a case for the payments, and I was having a hard time.
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Old 05-18-2013, 09:58 PM
 
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Tax increases could take a bite out of your money too! Last year a 100mm win would cost you 35mm in taxes, this year that same 100mm win will cost you 39.6mm in taxes so you lost 4.6mm extra because the tax rate went back up. If you had a payment stream your future payments would take the hit on the higher taxes for years to come. Taxes hitting you up front, inflation hitting you when you weren't looking......double whammy!
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Old 05-19-2013, 03:18 AM
 
Location: Sunrise
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And this is why lotteries are a bad deal. They take 100% of your money when you lose. (And almost everyone is going to lose.) They pay a small percentage of what you SHOULD win if you're the "could have been struck by lightning twice, and lived" kind of lucky person who wins.

Better to take that money and invest it in index funds. I'll take the reasonably sure thing over the 1-in-175,000,000 chance, any day.
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Old 05-19-2013, 12:27 PM
 
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Oops, Power Ball, not Mega Bucks. I don't play, so didn't do a good job of keeping them straight. Sorry.

OK 600 million, they give you 200 million cash out. 39% federal tax, 12% state income tax, round it off, you walk away with 100 million.

yearly pay-out, over 30 years( I think). 20 million a year. Minus taxes, 10 million a year.

If you invest that 100 million will it generate 10 million spendable for you?

One advantage of taking the over-time payout is that you have time to arrange tax shelters.

One big disadvantage of the over-time is that in 30 years, after inflation, 10 million might just about have enough buying power to buy a pizza. But one of the good restaurant pizzas, not a cheap take-out.
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