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Old 04-04-2018, 08:00 PM
 
2,797 posts, read 2,511,845 times
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Probably because they are young, have enough intelligence to know they don't know how to manage their money and figure they can live year to year on the annuity payout but not enough self discipline or restraint from doing something stupid. Silly but that's about the only reason I can surmise.


I would always take the lump sum which, let's say it's a $100 million (or more) mega or power ball (the only time I buy a ticket for the dream) and this results in total after tax lump sum initial year clearing $40 million.


I meet with top rated estate and trust attorney and a tax accountant. I outline that I desire to create multiple income streams with the least tax burden going forward in future years. I allocate $25 million to create a foundation, of which I pay myself as administrator a high five figure annual salary and use that as the vehicle to help my 'causes'. $12.5 million to a trust generating say 4% ($500,000) of which I gift 32 friends family the maximum tax free annually $14,000 and myself the remaining $52,000. Then use the $2.5 million (less legal / accountant fees) to 'play' with, but probably would invest at least a third of it in things like Muni Boards and REITS. I could live very comfortably on about $150 to $200k annually and never deplete the original lump sum.


I had to laugh about the comment of the presumption someone playing the lotto having the sense to plan or manage what they won.


We had a recent queen of hearts weekly drawing attract national news when no one won after 48 weeks and the jackpot got to over $5 million. The set up: every weeks drawings paid for tickets roll over to next week as the prize accumulate, and all the tickets purchased are disposed off. It actually had better odds than the lotto when you think about it when there was only four cards left un 'turned' and the amount of tickets purchased the last week being just under a million.


Anyhow, what was funny, is some idiot whose ticket was pulled first from the drum the night of the last drawing, only put their first name and NO telephone number on it (still only had a 1 in 4 chance to win it) - but yes, there is the issue of people being too stupid to know what to do if they did win and those who buy without ever thinking throw the scenario despite the infinitesimal odds of actually winning.
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Old 04-04-2018, 09:18 PM
 
Location: Silicon Valley
2,744 posts, read 1,207,954 times
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Quote:
Originally Posted by Lowexpectations View Post
This ignores the time value of money
Actually, it IS the time value of money difference. Money + Time is more valuable in some hands than it is others.
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Old 04-04-2018, 10:08 PM
Status: ""Don't count the days; make the days count "" (set 4 days ago)
 
Location: Eastern Long Island, New York
306 posts, read 88,188 times
Reputation: 1060
Back in December of 2006 a long time neighbor of mine who was 50 years old at the time bought a couple of the new $25.00 NY Lottery scratch off tickets and one of them hit for the Jackpot of $2 Million dollars.

He was not given the option of a lump sum at that time on that scratch off ticket and instead was told he would be paid $100k a year for 20 years.....he told me after taxes his check came to $68k.

But what if someone should die before receiving all of the prize money?

From the NY State Lottery site

The Lottery may continue making payments to the original prize winner, the estate of a deceased prize winner, or whoever the Lottery is ordered to pay pursuant to an appropriate judicial order. This is according to New York State Tax Law Section 1613. Lottery payments will not be accelerated upon a prize winner's death.

Hope it is so for the family of this unfortunate winner ..but since he claimed the prize before his death his family should be good

http://abc7ny.com/hobbies/lottery-winner-dies-weeks-after-cashing-in-$1m-scratch-off-ticket/3007721/

Last edited by NY 915; 04-04-2018 at 10:34 PM..
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Old 04-04-2018, 10:13 PM
 
Location: Ft. Myers
15,563 posts, read 9,642,463 times
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Quote:
Originally Posted by Trishim View Post
I get you don't get the entire amount for various reasons, but it's still a lot especially at the higher levels.

Because you might be older and not live long enough to see the full payout. I would take the money and run with it.
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Old 04-05-2018, 12:39 AM
 
Location: Copenhagen, Denmark
9,864 posts, read 8,000,104 times
Reputation: 11210
[quote=Thatsright19;51515927]Let me crack out the old tvm solver....


Hint: Present Value = (Annual Payout/Opportunity Cost of Capital)*(1-(1+Opportunity Cost of Capital)^-Payout period in years)
OR Annual Payout = (Present Value*Opportunity Cost of Capita)*(1-(1+Opportunity Cost of Capita)^-Payout period in years)^-1

But, even if the Present Value of the winnings are the same for different payout options, there may still be good reasons to prefer one over the others. This can be due to many rational factors, such as different tax impacts and different personal rates of time preference.

In Denmark, where I now live, Danish lottery winnings are not taxed!
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Old 04-05-2018, 01:09 AM
 
Location: Chesapeake Bay
6,043 posts, read 3,633,588 times
Reputation: 3481
Quote:
Originally Posted by Eastern Long Island Tom View Post
Back in December of 2006 a long time neighbor of mine who was 50 years old at the time bought a couple of the new $25.00 NY Lottery scratch off tickets and one of them hit for the Jackpot of $2 Million dollars.

He was not given the option of a lump sum at that time on that scratch off ticket and instead was told he would be paid $100k a year for 20 years.....he told me after taxes his check came to $68k.

But what if someone should die before receiving all of the prize money?

From the NY State Lottery site

The Lottery may continue making payments to the original prize winner, the estate of a deceased prize winner, or whoever the Lottery is ordered to pay pursuant to an appropriate judicial order. This is according to New York State Tax Law Section 1613. Lottery payments will not be accelerated upon a prize winner's death.

Hope it is so for the family of this unfortunate winner ..but since he claimed the prize before his death his family should be good

http://abc7ny.com/hobbies/lottery-winner-dies-weeks-after-cashing-in-$1m-scratch-off-ticket/3007721/
Yep. I know someone who won that. He was a couple of years from retirement, never showed up at work again, taught high school. Just quit without a word.
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Old 04-05-2018, 06:20 AM
 
2,440 posts, read 1,048,636 times
Reputation: 9496
Quote:
Originally Posted by artillery77 View Post
You get less if you take the lump sum, and pay more in taxes assuming tax rates are steady.
Id rather take the lump sum and put the bulk of it into a diverse low risk stock portfolio and enjoy using the income from returns. That way the lottery money is working for me , I get to control it or use it as I see fit.
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Old 04-05-2018, 06:32 AM
 
2,962 posts, read 2,869,867 times
Reputation: 2839
I don't know how much truth there is in it, but we always hear about lottery winners that squander all their winnings. The annuity option might be a safeguard against their own stupidity.
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Old 04-05-2018, 07:41 AM
 
Location: Los Angeles County
11,062 posts, read 8,980,576 times
Reputation: 28987
To protect you from yourself.
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Old 04-05-2018, 08:31 AM
 
Location: Raleigh
8,007 posts, read 5,287,613 times
Reputation: 9647
When you take the lump sum you have a new job and a big responsibility = managing the money. I'm in my Seventies and I have no desire to become a financier, so I'd take the annuity and let my kids figure it out.
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