Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
First question: Better to take lump sum, or pay-out over time? Answer: depends on how much of lump sum you get vs. pay-out, taxes, interest rate, etc., etc.
Second question: Assuming lump sum is best options, OK to give $ to JG Wentworth? Answer: If you don't trust yourself to handle your own money, maybe its best to let someone handle it for you for a fee. Is JG Wentworth the best service to do that? I don't know. That is your call.
From the stories I've seen it seems that people who take the lump sum (which is almost all of them) get about 1/3 of it after taxes. Win 20 million, take home 6.5 million.
Depending on the amount I'd assume you'd come out better taking the equal payments, if the annual disbursement is something you are comfortable with. For example if you win 5 million and the annuity pays over 40 years you'd take home $125k per year, which puts you in an upper middle class tax brackets and you are taking deductions/exemptions annually. If you take the lump sum you'd have millions of dollars taxed at the top tax tier.
The California Lottery and Mega Millions both offer a cash payout option for winners. Is it better to take the payout or sell your winning ticket to someone like JG Wentworth?
It's highly likely you are best off sticking with the state. If you are really serious ask an accountant, pay them a few hundred bucks to explain the tax differences if any. IF they are minor then approach JG Wentworth and ask them if they can beat the states offer.
I firmly believe you far better off taking a lottery winning in payments over time then a lump sum.
Lets examine the math. For the NJ state lottery, the prize amount is payable over 20 years of equal payments. This keeps things pretty simple. So lets say you hit the lottery for 6 million dollars. If you take the lump sum, the state takes 50% right off the top, that leaves you with 3 million dollars, then the state takes off another 25% to pay for Federal taxes, that's 750k, that leaves you with 2.25 million. Chances are your will owe additional Federal taxes, but the state only automatically takes out 25%, you can request more. Then the state takes out another 11% for state taxes, or another 330k, now your left with $1,920,000. Lets assume you do not spend a dime and invest the entire amount, assuming a 4% return on your investment after taxes, over 20 years, gives you a total of 2.8 million dollars. This is of course just plain silly to think a winner will not spend some of the money, half would be a pretty good assumption. Then again there are others that firmly believe they can earn a much higher rate of return on there investment.
Let me tell you a secret with the average investor. They are morons. They buy the the hot stock like Google, it's $200 a share and going up I have to get me some of this. Then when Google is losing money, they think Oh my god I'm losing all my money and sell. They do the exact oppose of how your suppose to invest. Or they give all there money to Bernie Madoff cause he's promising them a 10%+ return on there money, guaranteed.
Let's look at just taking the 6 million over 20 years, that's 300k a year, minus taxes, that's 192,000 after taxes. After 20 years they will have collected 3.8 million, without even trying to invest any of there winnings.
Another bonus with taking the annual payments is that it might help ward off leeches. You are just bringing in an upper middle class income, you can't afford to just hand distant-cousin-suddenly-back-in-touch $20,000 because his business is going under.
Here is the correct way to think about lottery prizes. First off the lottery just collects revenues and takes their cut off the top. If there is $100M in tickets bought and the mandate is to give 40% to a winner, they have $40M to pay out. Then they use prevailing market rates to determine how much that would project to if they paid it out over 20 years. That is the amount they declare for marketing purposes. When the winner is determined they offer either amount. If the winner takes payments, they will go out and set up a contract for those payments. There is very minimal cost to do this, it basically is a contract between the winner and a financial institution to pay the winner every year in exchange for the upfront cash amount. JG Wentworth will never come close to paying the same amount in return, they will charge a huge fee to do a transaction. In any case over 95% take the lump sum, which makes sense right now unless a winner really thinks locking in long term rates at the moment makes sense.
I can only speak for myself, I would take the lump sum. Yeah I know that it is better to take the annuity over time because you end up with more money in the long run. But common sense tells me that tommorrow is not promised and everyday is a blessing so I want to enjoy the money while I am still walking, even if it is just one day of being rich. Besides, I hear that taking the anniuty will not allow you to leave the payments to someone else in the even of the your death. I say enjoy it while you can but be smart about it by planning for the future too.
I can only speak for myself, I would take the lump sum. Yeah I know that it is better to take the annuity over time because you end up with more money in the long run. But common sense tells me that tommorrow is not promised and everyday is a blessing so I want to enjoy the money while I am still walking, even if it is just one day of being rich. Besides, I hear that taking the anniuty will not allow you to leave the payments to someone else in the even of the your death. I say enjoy it while you can but be smart about it by planning for the future too.
Where do people "hear" such things? I get a kick out of how anything related to gambling generates just loads of urban myths. This is a simple finance issue. If any of us is so lucky to win the lottery I would hope the first person who would be called is a fee-only financial planner and the second is a tax specialist.
Its a contract, of course the payments continue in the case of death to the heirs of the estate. Now if they died the estate would get valued based on present value of the payments and that would trigger estate tax should there be one in place. All the more reason why you get the planner and tax person quickly.
Where do people "hear" such things? I get a kick out of how anything related to gambling generates just loads of urban myths. This is a simple finance issue. If any of us is so lucky to win the lottery I would hope the first person who would be called is a fee-only financial planner and the second is a tax specialist.
Its a contract, of course the payments continue in the case of death to the heirs of the estate. Now if they died the estate would get valued based on present value of the payments and that would trigger estate tax should there be one in place. All the more reason why you get the planner and tax person quickly.
Yeah, I have heard "such things" but it does not matter to me whether or not its true because I would still take the lump sum option. As far as the financial planner, I would be a fool not to have one with such a large lump sum of money.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
