The initial investment of the $2 lottery was a bad one. Then again if I made the bad investment and won anyway I'd be more than happy to flip a coin to determine lump sum or annuity.
9
Pretty much a NYT opinion. You can't trust yourself with your money, best to let someone else hold it, the income tax rate will NEVER change despite you being in the highest possible bracket the next 20 years if you take the annuity, and the government will NEVER find a reason not to send that yearly check. Interesting seeing the other comments that also hold that a individual cant be trusted with money. No need to put it in risky investments. A good financial guy and solid (not aggressive) investments in a mixture of assets should protect you from inflation, a crash and income tax fluctuations and you should be able to beat the annuity rate, especially subtracting inflation. Horrible advice, unless you refuse to get a financial manager and have never balanced a checkbook.
24
Inflation. Take the lump sum and put it in off-shore accounts like the 1% do.
14
I agree with this article's conclusion that generally, most winners are best served by taking the annuity. I quibble with some of the article's details, such as being "taxed twice" (a scary term that never happens... what happens is the tax you have to pay earlier rather than later does not get to accrue additional earnings that are accrued if you get to defer your taxes, but all money related to the power ball winnings and its additional earnings is taxed only once) and of lesser importance, that it pays out over thirty years (it's actually over 29 years, with the first payment being now, and the second payment being at the end of the first year, and so on). I think the best solution to this option "dilemma" is for the power ball and other major lotteries to offer a third option of cashing out a portion of grand prizes -- say, one-third or one-fourth of the total annuity value, or even winner's choice up to 50%, etc. -- discounted to present value at current interest rates, with the balance paid as an annuity over the ensuing 29 years. The choice should be irrevocable; if a winner changes his mind, he will have to deal with structured settlement purchasers. With a third option every winner should be able to find a comfortable path to take.
20
Isn't the central argument Mr. Barro is making here simply wrong? He's saying the lump sum is $930 million, which if invested in a way to produce $1.5 billion after 30 years would yield taxable gains, whereas there is no capital gains tax on the "return" if you take it as an annuity. But that ignores that every penny of the $1.5 billion will be taxed as ordinary income! That is a higher tax rate than the rate on the gains if you invested the $930 million. Am I missing something here?
16
Nope. You are correct. Mr Barro missed several things in the article.
You could always take tip from Romney and Buffet, and invest in some tax-free muni bonds to generate income.
You could always take tip from Romney and Buffet, and invest in some tax-free muni bonds to generate income.
14
You would never get the opportunity to invest the $930 million. You would only invest the after-tax amount of perhaps half that much, depending on your state tax bite.
10
Look, we're all just gonna get a load of cocaine and hookers, so who cares? Lump sum, baby!
34
How did the author get $22.6 million a year for 30 years? That would total $778 million over 30 years before taxes. What happened to the other $722 million of the 1.5 billion prise? In any case I would be givining all but 10 million or so to others. I really don't need more than I already have to be happy and if I help our children buy a house in San Francisco I'll have done enough for them. $10 million should cover that. SO, what is best for giving the most to support others now and over time.
16
This whole thing is about risk/reward. I'm sorry, but if I were the one who was promised $50,000,000 per year for 30 years, I would take it over the idea of taking $900,000,000 now (man that is a lot of zeroes) for exactly the reasons Josh Barro outlines.
Once you have the big bucks guaranteed to come in, why put it in the stock market for investors to sell like crazy when China's economy tanks? You'd be crazy to take the cash. That's how strongly I feel. Crazy. Take the annuity, invest a fair amount of it in very diverse but safe vehicles (stocks, bonds, real estate) and live on the rest.
Once you have the big bucks guaranteed to come in, why put it in the stock market for investors to sell like crazy when China's economy tanks? You'd be crazy to take the cash. That's how strongly I feel. Crazy. Take the annuity, invest a fair amount of it in very diverse but safe vehicles (stocks, bonds, real estate) and live on the rest.
14
Is it possible to NOT take possession of the lump sum, and sign it over to a charity? If so, could the charity get the whole amount, without paying taxes??? I've always wondered this...
20
Josh has a psychology degree..............enough said.
Take the lump sum. Given our federal deficit taxes will rise as well as inflation. Taxes are historically low but have been as high as 80% or so in the past. Inflation is also historically low but could really devalue the money if the Federal Reserve has to monetize the debt by driving inflation which appears to be the case at some point.
Then you can rent yourself a hotel room in Vegas, pee into glass bottles to collect your own urine, grow your hair and fingernails long and wear tissues on your feet.
Take the lump sum. Given our federal deficit taxes will rise as well as inflation. Taxes are historically low but have been as high as 80% or so in the past. Inflation is also historically low but could really devalue the money if the Federal Reserve has to monetize the debt by driving inflation which appears to be the case at some point.
Then you can rent yourself a hotel room in Vegas, pee into glass bottles to collect your own urine, grow your hair and fingernails long and wear tissues on your feet.
7
Decisions, decisions! Now I am not going to get to sleep.
8
Mr Barro, this is some poor financial advice. Contrary to what you state, your tax is deferred, not avoided, by accepting the annuity. Just as the nominal amount of the annuity payout will be higher than the lump sum, so too will be the nominal amount of taxes paid on the annuity, all other things held constant.
The optimal decision comes down to two questions, 1) Do believe the embedded interest rate paid by the lottery is higher or lower than what you could otherwise invest the money in should you instead take the lump sum, and 2) Importantly, where do you believe the highest marginal income tax rate (which the majority of your payout will be subject to) will be in the future, higher or lower than the current one. (By the way, given public finances, I would be careful about taking the view that the highest marginal tax rate will be coming down any time soon.)
The optimal decision comes down to two questions, 1) Do believe the embedded interest rate paid by the lottery is higher or lower than what you could otherwise invest the money in should you instead take the lump sum, and 2) Importantly, where do you believe the highest marginal income tax rate (which the majority of your payout will be subject to) will be in the future, higher or lower than the current one. (By the way, given public finances, I would be careful about taking the view that the highest marginal tax rate will be coming down any time soon.)
4
I agree. Barro's analysis is incoherent. Assuming tax rates don't change, the fact that the lump sum is immediately taxable is irrelevant to the financial analysis since you are comparing an after tax present value with an after tax future value. The only question is whether you can invest the lump sum at a higher after tax rate of return over the average life of the annuity than the implied discount rate. I find it hard to believe that you cannot beat a less-than-3% discount rate over such a long investment horizon. I guess this is why Barro is a journalist and not a financial advisor.
13
At nearly 72, I'm not likely to be around 30 more years to collect the full $1.5 bil. So when my ticket takes the top prize, $930 mil will just have to do....
18
In Texas, and I presume elsewhere, you must make the lump sum/annuity choice when you fill out your game ticket. So advice about what to do with the money if you win seems irrelevant.
4
Just FYI, in Louisiana, the choice is made within 60 days of claiming your winnings.
5
I agree that generally, people who buy lottery tickets are probably not our generations great financial minds. But to put it in writing? What an insult. Wait. I just did.
8
You're telling us to give congress 30 years to figure out a way to steal the prize, no thanks.
12
As an annuity certain, as needs dictate, you can always borrow against it.
5
Take the lump sum, live it up, help your family, give some to your favorite charities, buy an island, or two...cause if you happen to in your "senior years", you likely won't live another 20 years to collect that annuity. Dumbest financial advice I've ever heard.
8
You don't have to be a "senior" now, death can be just around the bend however young you are -- so yes, grab it and spend it now.
9
Just take the annuity to insure against your own stupidity, and if you discover cure for cancer and want to fund your start-up, borrow against it.
8
I love dreaming about what I could do with a juicy lottery payout. Of course, I can do this without spending a single dollar, because my chances of winning are essentially identical whether or not I buy that ticket.
23
I share other people's distrust of the government/Powerball to still be paying me thirty years from now. I also can foresee the taxes for the highest income levels going up. Besides that, I'm 51, and given the ability to afford as much pecan pie, jumbo deep-fried shrimp, and Ben & Jerry's Ice Cream as I could ever want, I doubt I'll live another 30 years.
In addition, I want to create a foundation. I have a lot of ideas, but one of my pet projects would be to provide decent schools to students who live in poverty. I'd also like to provide vocational training to grown ups who are stuck in minimum wage jobs so they can work their way into the middle class.
Then there's the devilish part of me who would want to see how many Senators and Congresspersons I could buy. Then we could FINALLY get some moderates in Congress and get some real work done!
In addition, I want to create a foundation. I have a lot of ideas, but one of my pet projects would be to provide decent schools to students who live in poverty. I'd also like to provide vocational training to grown ups who are stuck in minimum wage jobs so they can work their way into the middle class.
Then there's the devilish part of me who would want to see how many Senators and Congresspersons I could buy. Then we could FINALLY get some moderates in Congress and get some real work done!
19
Buy Enron. Actually good luck to everyone. I have noticed that this uge jackpot amount is having a positive effect on people. They are actually talking again to each other and to strangers. Like being a kid at Christmas again.
4
Why all this nonsense about paying taxes on this windfall. Would gladly pay NY taxes because I have had a good life for several decades in this state, provided by other taxpayers, myself included, and a return of "found money" is not cause for distress. Same for the national government, even though I had to do a stint in the Navy. There mght be other countries where life might have been marginally better, but it has not been hell here. Beside, I'd be giving most of it away to colleges, universities, cultural institutions, etc. Keep a lousy million ot two for myself.
19
For a big jackpot of $1.5b, taking annuity over 30 years isn't so bad, with $31m a year, give or take. Most folks should be able to live with that.
Ah well, this is perfect publicity for powerball, and it's totally free for the organizer, allowing anyone to fantasize just for 30 secs what it might be like to be a billionaire. It's a better escape from daily dread than a hollywood movie.
Ah well, this is perfect publicity for powerball, and it's totally free for the organizer, allowing anyone to fantasize just for 30 secs what it might be like to be a billionaire. It's a better escape from daily dread than a hollywood movie.
10
"like letting the government hold onto part of your prize for a while and invest it for you"
Like Social Security?
Like Social Security?
6
I take issue with the comment about paying income tax twice on the winnings if you take the lump sum payment and invest it. If you take the annuity option, you pay taxes on each and every payment, including the amount invested that accounts for the 30 year payment structure. In short, it's a wash - assuming you can earn exactly as much in investments as the lottery commission can with the annuity. If you can earn more, it's to your benefit. If you don't, well, that's the risk you take in investments. If the tax rates go up in the future, that makes the author's analysis even more questionable. As far as risk is concerned, who's to know what the risk of the the annuity company's failure is? It's probably pretty safe, but can you say Lehman Brothers?
4
Folks, the payout on the $1.5B over for 30 years is around $50,000,000 a year and if you can't live on that, you better just kill yourself
12
When I have won something, I have always donated at least half to a charitable group and would do so if I won something as large as a powerball jackpot. As to giving it away to friends and neighbors, make sure to understand the gift tax limitations. The real issue is to get a competent accountant and tax attorney.
13
It's all academic to me, but interesting.
2
Hmmm, standing in line for hours to buy lottery tickets with virtually no chance of winning. Then you lose and go back to complaining about how Republicans cheated you out of life's opportunities.
4
1. Take the lump sum.
2. Buy hotel.
3. Have concierge direct all pretty foreign travelers to your penthouse suite when hotel full.
2. Buy hotel.
3. Have concierge direct all pretty foreign travelers to your penthouse suite when hotel full.
5
Terrible advice, IMO...
First off, time value of money...money received tomorrow is worth less than money received today. You don't think the government figures that into their payouts? While the discount rate they use (apps 2.8%) is not terrible, it's certainly not advantageous to the lottery winner.
Second, do you really want to trust your fortune with the government? I'd worry about solvency issues. Nah, give me the lump sum any day, I'll hire a team of investment professionals, accountants, and lawyers, and I don't think I'll be any worse for the wear.
First off, time value of money...money received tomorrow is worth less than money received today. You don't think the government figures that into their payouts? While the discount rate they use (apps 2.8%) is not terrible, it's certainly not advantageous to the lottery winner.
Second, do you really want to trust your fortune with the government? I'd worry about solvency issues. Nah, give me the lump sum any day, I'll hire a team of investment professionals, accountants, and lawyers, and I don't think I'll be any worse for the wear.
11
I'm reminded of the adage in the old "BC" cartoon:
"Never take investment advice from someone who's working."
"Never take investment advice from someone who's working."
19
Lump sum. Never trust a government entity to pay you off over 30 years. Illinois has recently had trouble paying out their lottery winnings.
12
Crazy. The government could renege on the promise to pay any time they feel like it. Take the cash.
8
Take the annuity because you will pay tax on any investments you make?!?! Who the heck invests that kind of money?!?! Give all but a million or two away to all the underfunded worthy causes out there. Make the world a much, much better place. And then, take yourself on a nice vacation.
5
Isn't the annuity an unsecured obligation so if Powerball can't pay then you lose.
7
It's interesting that most commentators seem to know exactly what to do with the money, but there is clear divergence on what that right thing is.
1
I'm curious if Bernie Sanders or any of the other candidates for POTUS have purchased any tickets?
If Bernie did and if he would win the jackpot, I wonder if he wonder equally distribute the winnings to everyone if the US, which would be around a $1.75....
And if Trump would win the jackpot, he could really build that wall....
If Bernie did and if he would win the jackpot, I wonder if he wonder equally distribute the winnings to everyone if the US, which would be around a $1.75....
And if Trump would win the jackpot, he could really build that wall....
2
I'm taking the lump sum and dumping it into charitable trusts and a stock index fund. Make money with money.....
7
One strategy overlooked. Take the lump sum. Put in a secure account that earns nothing. Pay the tax once, then when you file your taxes each year you have the privilege of reporting zero income. The government doesn't get to steal any more money and if you can't live the remainder of your life on several hundred million dollars, you have bigger problems.
19
Josh, I'm 64, make my cardiologist nervous now, and neither of us can reasonably expect to be here in thirty years. In short, are you crazy? I would be if I took free advice like yours, advice that's worth what it cost. One-size-fits-all simple solutions simply don't work, even as fodder for a column. No one, for instance, needs to have relatives seeking handouts coming out of the woodwork, or even, say, pay all of NY and NYC's taxes, or in some states ever let their names be known publicly if they have the ability and patience needed to keep their mouth shut, consult some experts (who might, among other things, suggest establishing residency in a different city or state), and keep the winning ticket in a safe place until it's redeemed by their lawyer on behalf of the trust they've established. OTOH, it's a lot more than I have now, so why would I mind seeing that the bridges are fixed and the streetlights stay on by paying some taxes? As for the estate tax and depending on one's belief system, it's possible to have far bigger problems than a 55% tax rate after leaving this world, but paying it isn't one of them: I won't be signing the check.
7
In addition to what future taxes might be imposed upon the new .0001%'er in the future, who's to say what 22.6 million dollars will be worth 30 years from now? Even in the USA where the dollar has been the global king for a long time, what a dollar could buy you 30 years ago costs you 3 bucks today.
3
I would take the lump sum payout, keep about 50 Million and give the rest to the poor. There's no guarantee that the US has 30 yrs left. I know I don't.
5
Take the 930 - this is the prize.
The higher amount is a promissory note.
And literally the very definition of keeping all your eggs in one basket...
Spread it around - -real estate, etc...
Can always put rest in Government Bonds later...
Diversify and control...
And don't trust government reporters...
The higher amount is a promissory note.
And literally the very definition of keeping all your eggs in one basket...
Spread it around - -real estate, etc...
Can always put rest in Government Bonds later...
Diversify and control...
And don't trust government reporters...
10
$1.5B is a lot of money, but I didn't even go to a store to get a ticket. How can one win when the chances are rigged to 1 in 290 million and when some syndicate has bought all the possible numbers anyway? I don't get it.
1
Given the fact that Illinois still has not and continues to not pay large lottery winners (they get IOU's) taking the lump sum is the only course.
7
The game is run by the government, who likes to bankrupt various services. I'm not trusting that the government is still going to pay me in 20 years, let alone 30.
4
Oddly though this article does not consider if the winner decides to donate most of the money if they took a slump sum in cash. But then again, a person donating the majority of the winnings wouldn't really care about future earnings and tax strategies etc...
1
Result already out but I haven't check yet. If I won, I am sure someone will tell me someone in my area won and I can find out then.
All this talk of you-cannot-handle-this-much-money reminded me of a story from about 200 BC. The founder of Han Dynasty asked one of his most trusted and capable strategist "how many troops I can manage?" and the strategist say 100,000. The not-emperor-yet then ask "how many troops can you manage?" and the strategist say the more the better showing off his fame and skill.
Years later after the empire has been won and the emperor died of old age, the empress dowagers had the strategist (now a grand duke) killed becuase he is a potential threat being too good with war. The emperor never have the heart to kill him becuase he remember their earliest days.
Lesson here. If you won the lottery, don't get too good an investment adviser. He might make your money his.
All this talk of you-cannot-handle-this-much-money reminded me of a story from about 200 BC. The founder of Han Dynasty asked one of his most trusted and capable strategist "how many troops I can manage?" and the strategist say 100,000. The not-emperor-yet then ask "how many troops can you manage?" and the strategist say the more the better showing off his fame and skill.
Years later after the empire has been won and the emperor died of old age, the empress dowagers had the strategist (now a grand duke) killed becuase he is a potential threat being too good with war. The emperor never have the heart to kill him becuase he remember their earliest days.
Lesson here. If you won the lottery, don't get too good an investment adviser. He might make your money his.
5
Don't buy this advice. You get what you pay for and this advice is worth nothing - exactly what you paid for it.
Take the lump sum and hire and top notch attorney to structure your trust and an honest financial advisor who understands the meaning of "fiduciary" and can lead you through the myriad of investments available that will return substantially more than 10 year Treasuries.
You and your heirs, assuming you like your children and grandchildren, are set and can do some very good work for your community and favorite charities in the coming years.
Don't be impressed or settle for a mediocre $22 million per year annuity payout proposed by someone who writes newspaper columns for a living.
Take the lump sum and hire and top notch attorney to structure your trust and an honest financial advisor who understands the meaning of "fiduciary" and can lead you through the myriad of investments available that will return substantially more than 10 year Treasuries.
You and your heirs, assuming you like your children and grandchildren, are set and can do some very good work for your community and favorite charities in the coming years.
Don't be impressed or settle for a mediocre $22 million per year annuity payout proposed by someone who writes newspaper columns for a living.
9
Quoting the article: "Or maybe you want to buy the biggest house in the Hamptons, and the $22.6 million first-year annuity payment isn’t big enough to do that."
Response: Wait a minute. Who purchases a house with all cash. Certainly $22.6 million is enough to make the down payment, first year mortgage payments and pay the taxes and insurance on "the biggest house in the Hamptons."
And if you had to settle for the second biggest house in the Hamptons, would that really be so terrible? ;-)
Response: Wait a minute. Who purchases a house with all cash. Certainly $22.6 million is enough to make the down payment, first year mortgage payments and pay the taxes and insurance on "the biggest house in the Hamptons."
And if you had to settle for the second biggest house in the Hamptons, would that really be so terrible? ;-)
The odds of winning this "jackpot" are so vanishingly small that one is basically throwing his or her money away by buying a ticket or even 100 tickets.
Besides, if there's 1.5 billion sitting around to be given to one person in a game of chance, why can't we use that money to take a big chunk out of poverty (if we divided it equally among all U.S. residents, every individual would receive more than $4 million) or fix our under-funded schools or provide healthcare to under-served communities or invest in important scientific research or repair some bridges and roads or give our struggling rural areas high speed Internet access or make sure our veterans don't suffer homelessness or . . .
This whole thing is a travesty. it's an indictment of the nation's character. Gambling was once thought to be an unacceptable practice. Too bad our politicians have forgotten that wisdom.
Besides, if there's 1.5 billion sitting around to be given to one person in a game of chance, why can't we use that money to take a big chunk out of poverty (if we divided it equally among all U.S. residents, every individual would receive more than $4 million) or fix our under-funded schools or provide healthcare to under-served communities or invest in important scientific research or repair some bridges and roads or give our struggling rural areas high speed Internet access or make sure our veterans don't suffer homelessness or . . .
This whole thing is a travesty. it's an indictment of the nation's character. Gambling was once thought to be an unacceptable practice. Too bad our politicians have forgotten that wisdom.
6
1.5B is not nearly the $ you think. More like $5 per person in US. As for funding schools, it would be a nice start for Denver -- hardly an effect on the country as a whole, sad to say.
2
I honestly can't tell if you're being serious, but here goes. 1.5B spread among 320M (the population of the US) is $4 each not $4 million each. As far as all the better ways to use the payout money (watch out here, I'm about to blow your mind), the lottery is a government fundraiser! If they used the payout money for other stuff, they never would have raised it in the first place. Now for that moral high ground you scrambled onto in the last paragraph, seriously? What kind of weird puritan are you that you're offended by the powerball? You could point out the dangers of gambling addiction, but obesity doesn't make eating wrong. Buying a powerball ticket is a way to pay for entertainment, like buying a movie ticket, in fact the powerball ticket is around $8 cheaper. I'd just like to close by saying better luck next time and make sure to count out the zeroes real careful like on your calculator because they can be tricky.
7
Your're getting your numbers wrong there. First of all, the 1.5 billion is not "sitting around" ... it got to that point from people buying tickets and nobody winning the original jackpot which got rolled over for 19 or so consecutive times. Secondly, if the money is distributed equally to all the US residents, that would amount to around $4-$5 per person ... not enough for a decent lunch?
2
The amount of this jackpot is so incredible that none of us in the 99% can really imagine what to do if we won. I know I wouldn't claim the prize until I consulted an investment advisor that I already trust and an attorney they recommend along with another attorney that will give a second opinion.
Since my wife and I are close to retirement a large share would be given to charities via a charitable trust to make sure it is given to appropriate organizations and is used only in the spirit it was given. I'm not a tax expert but set up properly this might reduce the tax liability.
We have an 18-year old daughter who doesn't make the best money decisions. We would set up a trust for her that will be managed by a trustee that will make sure she has the income she needs over time without the risk of her blowing it all at once.
We would give small gifts of equal amounts to family members going to the level of great niece and nephew. No loans.
My wife and I would live comfortably and travel as we please. Nothing luxurious, just comfortable and better than what we're used to.
I might spring for that gold Apple Watch and ask if Tim Cook would be willing to meet me and hand it to personally.
Since my wife and I are close to retirement a large share would be given to charities via a charitable trust to make sure it is given to appropriate organizations and is used only in the spirit it was given. I'm not a tax expert but set up properly this might reduce the tax liability.
We have an 18-year old daughter who doesn't make the best money decisions. We would set up a trust for her that will be managed by a trustee that will make sure she has the income she needs over time without the risk of her blowing it all at once.
We would give small gifts of equal amounts to family members going to the level of great niece and nephew. No loans.
My wife and I would live comfortably and travel as we please. Nothing luxurious, just comfortable and better than what we're used to.
I might spring for that gold Apple Watch and ask if Tim Cook would be willing to meet me and hand it to personally.
5
Why take the money and run? Here are some real life examples:
1. A few years ago, the city of Riviera Beach, FL was planning to do a major redevelopment of the waterfront. Wayne Huizenga's son was interested in buying some property from the affected landowners.
He offered the owner of a tee shirt and souvenir shop $1,000,0000. (I remember this place from my youth. It was not in the best neighborhood).
The owner turned him down, wanting to hold out for more money (unlike some of his neighbors).
The redevelopment projects ran into so issues but Huizenga still wanted to buy the land where the tee shirt shop was located. But, he offered less money the second time around.
2. There was a guy who played basketball for Georgia Tech during the days of Bobby Cremins back in the 90s. This guy was Mr. Basketball and seemed to be destined to play for Tech. He had the chance to come out early and make a boatload of money. For whatever reason, he decided to come back for another year. He got hurt and those millions and millions went bye-bye.
3. A friend of mine's and several of her co-workers were offered a buyout by their employer. I told her to take the money and run. She did. Others did not, hoping the company would sweeten the pot. Well, the pot was not sweetened. The next offer was for less money and less benefits.
Always take the money and run. Even if you 25 years old. Even a young person can die of a sudden heart attack.
1. A few years ago, the city of Riviera Beach, FL was planning to do a major redevelopment of the waterfront. Wayne Huizenga's son was interested in buying some property from the affected landowners.
He offered the owner of a tee shirt and souvenir shop $1,000,0000. (I remember this place from my youth. It was not in the best neighborhood).
The owner turned him down, wanting to hold out for more money (unlike some of his neighbors).
The redevelopment projects ran into so issues but Huizenga still wanted to buy the land where the tee shirt shop was located. But, he offered less money the second time around.
2. There was a guy who played basketball for Georgia Tech during the days of Bobby Cremins back in the 90s. This guy was Mr. Basketball and seemed to be destined to play for Tech. He had the chance to come out early and make a boatload of money. For whatever reason, he decided to come back for another year. He got hurt and those millions and millions went bye-bye.
3. A friend of mine's and several of her co-workers were offered a buyout by their employer. I told her to take the money and run. She did. Others did not, hoping the company would sweeten the pot. Well, the pot was not sweetened. The next offer was for less money and less benefits.
Always take the money and run. Even if you 25 years old. Even a young person can die of a sudden heart attack.
2
No, you always consider the lives of others. You have family and friends and with those attachments you also accept some responsibility for their comfort and survival. If nothing else, as a citizen of such-and-so you owe it to that place to get something positive.
No man is an island despite the old Simon and Garfunkle album.
No man is an island despite the old Simon and Garfunkle album.
After discovering that Illinois had failed to pay Powerball winnersdue to budget disagreements, I couldn't help but wonder if hopelessly indebted Puerto Rico might follow suit at some point. As the payouts are under control of the states (or commonwealths) there may be a real danger of payment problems from one that is trying to declare bankruptcy and at risk of innumerable federal lawsuits. And is the author of this piece aware that annuities are invested in government bonds? Anyone want to buy some Puerto Rican bonds?
7
What about Inflation?
We live in an era where homes that were $45,000 out in flyover country are today $200,000. I do not live in NYC, but what does a Brownstone in Brooklyn go for versus what it cost in 1985?
Next, most states and the Federal Government have financial liabilities that are significantly underfunded- note the Illinois Pension System, note the numerous private sector pensions dumped on the PBGC after the Robber Barons of Wall Street raped and pillaged company after company's pension plan before larding it with debt and walking away.
Our infrastructure is also woeful in need of a refresh.
What it all adds up to is taxes are very likely to go up over the next 30 years- significantly on the wealthy. Factor in inflation and my bet- with decent financial management- it will be better to take the money, pay the taxes and then watch your money managers like a hawk.
We live in an era where homes that were $45,000 out in flyover country are today $200,000. I do not live in NYC, but what does a Brownstone in Brooklyn go for versus what it cost in 1985?
Next, most states and the Federal Government have financial liabilities that are significantly underfunded- note the Illinois Pension System, note the numerous private sector pensions dumped on the PBGC after the Robber Barons of Wall Street raped and pillaged company after company's pension plan before larding it with debt and walking away.
Our infrastructure is also woeful in need of a refresh.
What it all adds up to is taxes are very likely to go up over the next 30 years- significantly on the wealthy. Factor in inflation and my bet- with decent financial management- it will be better to take the money, pay the taxes and then watch your money managers like a hawk.
2
Here is a document of NYC Housing appreciation. Makes my point about inflation perfectly.
http://furmancenter.org/files/Trends_in_NYC_Housing_Price_Appreciation.pdf
http://furmancenter.org/files/Trends_in_NYC_Housing_Price_Appreciation.pdf
I really do think Mr. Barro should be forced to reply to some of the conflicting arguments here, particularly those that suggest passing the annuity on to heirs could be a major burden. He's been all over the TV today pushing this argument, which only reveals his politics as being right of taxes.
When you're turning yourself into a financial advisor as he is doing here, there should be some liability.
When you're turning yourself into a financial advisor as he is doing here, there should be some liability.
2
Forgiving the evident condescending snark of this piece -- really, NY Times? -- the advice itself is absolutely abysmal. I found myself turning to the Times to get something akin to at least a smidgen of real advice from an alleged expert only to find a dismissive temper tantrum written by an obviously bitter person who had nothing helpful to offer.
Thank god for the Comments section.
Thank god for the Comments section.
10
"Evident condescending snark." "A temper tantrum'? The writer is "bitter"? Really. . . ? The writer made one joke (and a pretty funny one, I thought) implying that no one who buys lottery tickets could be considered a financial genius.
I can't believe the number of people in these comments who seem to feel personally stung by this little jab. There's clearly only one reason for that: They know that it's true. They're not going to win. And THAT is a certainty--or asymptotic to a certainty.
To which I'm certain they'll reply with the standard, "Somebody has to win!" And the answer to that is. "True. It just won't be you--or any other single individual you might name."
Many people defend buying lottery tickets because they say this allows them "to dream." I don't know why anyone needs to buy a ticket to do that, but of course, that's your choice.
Personally, I find reading a good newspaper article more rewarding than daydreaming, and I thought this one was well written and quite funny--even if I disagree with the advice.
Sorry if the joke was on you, but I have a remedy for that uncomfortable feeling: Just close your eyes and dream that the writer was talking about someone else.
Feel better . . . ?
I can't believe the number of people in these comments who seem to feel personally stung by this little jab. There's clearly only one reason for that: They know that it's true. They're not going to win. And THAT is a certainty--or asymptotic to a certainty.
To which I'm certain they'll reply with the standard, "Somebody has to win!" And the answer to that is. "True. It just won't be you--or any other single individual you might name."
Many people defend buying lottery tickets because they say this allows them "to dream." I don't know why anyone needs to buy a ticket to do that, but of course, that's your choice.
Personally, I find reading a good newspaper article more rewarding than daydreaming, and I thought this one was well written and quite funny--even if I disagree with the advice.
Sorry if the joke was on you, but I have a remedy for that uncomfortable feeling: Just close your eyes and dream that the writer was talking about someone else.
Feel better . . . ?
5
So many people are focused on maximizing profit... but when you are talking about such a massive monetary figure, what matters more is about security.
It is true that an annuity will pay out more in the long run, but that presumes everything remains as it is currently. What if there is a financial scandal that rocks the lottery system? What if your state of residence where you collected your prize changes its tax rules? What if you want to move out of the country at some later date?
The lump sum gives the winner full control, but those concerns about an annuity are very unlikely to happen. If there were lottery winners on annuities having trouble, you can be sure we would be hearing about it. The security of an annuity means complete comfort for the rest of your life. Plus, if you die before the final payments, they become part of your inheritance. This works out great, unless you plan to make a huge purchase that requires a tremendous amount of money, like a small island or building a fortress.
It is true that an annuity will pay out more in the long run, but that presumes everything remains as it is currently. What if there is a financial scandal that rocks the lottery system? What if your state of residence where you collected your prize changes its tax rules? What if you want to move out of the country at some later date?
The lump sum gives the winner full control, but those concerns about an annuity are very unlikely to happen. If there were lottery winners on annuities having trouble, you can be sure we would be hearing about it. The security of an annuity means complete comfort for the rest of your life. Plus, if you die before the final payments, they become part of your inheritance. This works out great, unless you plan to make a huge purchase that requires a tremendous amount of money, like a small island or building a fortress.
As noted by others, having the annuity become part of your estate will leave your heirs with a tax bill based on the present value of the annuity and no cash to pay it. Take the money up front.
3
You've asked the wrong question! The question should be; which option allows me to enjoy my life the most? Can I have a terrific, fun-filled live on $22.6 Million per year or isn't that enough? And why is it $22.6 Million by the way and not $1.3 Billion divided by 30 years minus taxes? Which should be more than a measly $22.6 large. Just goes to show that I am not a financial genius, although I hear that most of my peers are (at least according to them). Then again, I also hear that the tax on the lump-sum is only 25% and the state tax is 8+% (in Maryland anyway). Is that correct? And can I move to Puerto Rico and avoid all but 5% of that tax? Or to St. John's and open a hedge fund. Questions, questions, it makes me think that maybe I won't win the lottery. Too much work.
4
It starts out at $22.6 million and grows 5% per year so that the total of 30 payments is $1.5 billion.
1
A bird in the hand is worth two in the bush, especially if you don't expect to live another 30 years.
6
As an investment advisor and CFP (30 years) my advice is to take the lump sum, BUT hire competent advisors who are familiar with "Sudden Wealth Syndrome" and allow yourself to be guided into things like philanthropy and charitable giving and wise management. A lot of other people have already hit the high points of today's low tax rates on the winnings.
Taking an annuity is just submitting to the idea that you can't be trusted to handle your own money, a decision that is made by a lot of people who retire and choose to take the annuity over the lump sum pension payout.
When I used to do financial classes I would ask the class (middle age people with good $ to invest) "how many would be willing to pay $1,000,000 per year in income taxes? NO one raised their hands. The I would explain that it meant they were grossing about $3MM per year and netting $2MM...don't let tax tail wag the investment dog! Always take the lump sum of anything, unless you cannot trust yourself and/or are unwilling to educate yourself.
Taking an annuity is just submitting to the idea that you can't be trusted to handle your own money, a decision that is made by a lot of people who retire and choose to take the annuity over the lump sum pension payout.
When I used to do financial classes I would ask the class (middle age people with good $ to invest) "how many would be willing to pay $1,000,000 per year in income taxes? NO one raised their hands. The I would explain that it meant they were grossing about $3MM per year and netting $2MM...don't let tax tail wag the investment dog! Always take the lump sum of anything, unless you cannot trust yourself and/or are unwilling to educate yourself.
7
I have had two business fail, Lost every dime I invested in the stock market. I'll be taking the annuity.
1
Well I'm sorry I would still take the cash option. The United States has basically been crashing for a while now. And with Obama as our president , yes I am blaming Obama. I think the government is going to crash and then all your money sitting in government bonds will be worthless and you will then get no money what so ever. So sorry Government I think I would take my cash option now and enjoy the money while I can before this world comes to and end.
2
So Obama is to blamed 30 years from now?
If the govt fails, anything invested in the stock market or in the banks will be gone too. If you take the lump sum because we are going kaput you better invest heavily in food stocks, water reserves, guns and ammunition.
2
Well in your scenario Dollars would useless too. I assume you mean to buy gold?
1
And what if the government goes broke? And how about when 22.6million is no longer worth as much as it is now? Yes you pay more tax (a ridiculous amount, like oh my god), but you also get the opportunity to put it in a bank account or a long term deposit and accrue interest on it.
1
I'm in my 70's so, I'd take the cash and run. That is if I survive the news of winning.
9
I'm almost there, too. I would prefer the annuity so I could set up an estate to do some of the charitable things I'm interested in for a long period of time. Giving them annual gifts would enable me to insure they are using the money wisely. If they weren't, I could re-direct it before I shuffle off.
4
At age 61, assuming I'll live another 30 years is almost as optimistic as buying a lottery ticket. Any leftover annuity would go to charities since I don't have children, so they will also be the only ones to rue my choice: I'd take the lump sum.
3
Only suckers take the annuity. If invested properly, you'll net well over $1.5 billion if you take the lump sum.
1
Now I'm so confused about what I option I should take tomorrow. Oh my . . .
5
The other thing you need to do, I'm told, is to set up a charitable trust that you control and have the trust turn in the ticket in order to mitigate state and federal tax liability to the winner.
5
I don't trust the annuity option. States go broke. Politicians appropriate the money "temporarily." Tax laws change.
If you are heirless there is even a greater reason to take the lumps sum.
If you are confused, mail me the ticket. I'll handle everything for you.
Your new friend,
Eric
If you are heirless there is even a greater reason to take the lumps sum.
If you are confused, mail me the ticket. I'll handle everything for you.
Your new friend,
Eric
10
What the article is not telling you is that in about ten years an average weeks pay will be one million dollars thanks to hyper inflation ! Also the company responsible for paying the annuity will probably be bankrupt and you will get nothing !
1
Taking the annuity is fine if you are in your 20'sor 30's. Anyone over 50 runs the risk of dying before getting all the annuities.
1
Love that someone in the media finally bucked the long standing advice of taking the Lump Sum.
If most people take the lump sum, AND most people blow the money, then do the opposite.
"Jerry : If every instinct you have is wrong, then the opposite would have to be right."
If most people take the lump sum, AND most people blow the money, then do the opposite.
"Jerry : If every instinct you have is wrong, then the opposite would have to be right."
1
Wasn't that George's wisdom?
After the loss of a cash payout, and the loss of federal, state and local tax, how about giving enough to your family members to just take care of them for the rest of their lives, then placing the remaining many millions of dollars somewhere (cash) so you earn no growth on the money, and telling the federal, state and local governments to leave you alone and pay sales and property taxes only according to how you live.
2
I won't win because I won't play (lottery is a tax on stupidity). But if I won I would probably roll the dice to decide on this and afterwards put all the money in my checking account. That's it. I would never ever think about such trivialities as taxes. I simply would not care if I pay a $ 100 million more or less in taxes or what is a good investment.
1
I expect that a woman in Flint, Michigan will present the winning ticket.
That aside, my 2 tickets are purchased with the annuity option, and that option is chosen at the point of sale. It's rather silly to write to the people who have already purchased their tickets, have most likely chosen the cash option, and tell them to change their choice when they have no choice.
That aside, my 2 tickets are purchased with the annuity option, and that option is chosen at the point of sale. It's rather silly to write to the people who have already purchased their tickets, have most likely chosen the cash option, and tell them to change their choice when they have no choice.
The analysis is faulty. The factors that matter are:
1. Tax rates today vs the future. The point about double taxation on the lump sum vs the annuity is the wrong way to look at it. You need to look at the present value of both options on an after tax basis. If you do that you will see that there is no tax advantage of the annuity.
2. The investment rate on a 29 year investment vs the rate that is implied in the lump sum (around 2.7% to 2.8%). It doesn't have to be a risk free investment. A diversified portfolio of various mutual funds across many asset classes would most likely produce a return in the 5-6% range with some volatility which the winner should be able to withstand. For the truly risk averse, put $100 million in Treasury bonds and invest the rest in a diversified portfolio.
3. The risk of default of the state entity. I guess if I won, I could hire a team to analyze the chances of default but why take the chance at all.
I would also point out that the Powerball website is misleading in that it indicates that the annuity is increased by 5% per year to keep up with inflation (does Janet Yellen know about the 5%). In order to do this, the annuity does not start at $50 million per year, it starts at around $21 million a year and that grows 5% per year. That is hardly a gift.
1. Tax rates today vs the future. The point about double taxation on the lump sum vs the annuity is the wrong way to look at it. You need to look at the present value of both options on an after tax basis. If you do that you will see that there is no tax advantage of the annuity.
2. The investment rate on a 29 year investment vs the rate that is implied in the lump sum (around 2.7% to 2.8%). It doesn't have to be a risk free investment. A diversified portfolio of various mutual funds across many asset classes would most likely produce a return in the 5-6% range with some volatility which the winner should be able to withstand. For the truly risk averse, put $100 million in Treasury bonds and invest the rest in a diversified portfolio.
3. The risk of default of the state entity. I guess if I won, I could hire a team to analyze the chances of default but why take the chance at all.
I would also point out that the Powerball website is misleading in that it indicates that the annuity is increased by 5% per year to keep up with inflation (does Janet Yellen know about the 5%). In order to do this, the annuity does not start at $50 million per year, it starts at around $21 million a year and that grows 5% per year. That is hardly a gift.
3
I would advise taking the lump sum. With a 600 mill lump sum after tax payout you could use leverage to purchase 3 Billion dollars in apartment complexes. These would be class A properties that would be stable and well run. Even at a cap rate of 7% and 2% going to debt service you would have 5% coming every year from a 3 billion dollar investment. Giving you an annual cash flow of 150 million dollars.This does not even included equity buildup from the gradual pay down of loans on the appreciation of the properties. This is relatively low risk option and you can diversify by buy buildings in different regions and locals. Yes this may take a couple of years to find and put all these deals together but I feel this your best option.
3
First let's get out of the way that having (let alone winning) that amount of money is obscene on so many levels.
Secondly, if society or governments ever came to their senses for the sake of humanity, then people ( or corporations masquerading as people ) would be taxed appropriately so that any one entity would not hold that amount of power.
A simple model should be that if you make more then you should pay more to the point that it would be incredibly hard to make more than say ( an arbitrary number of 100 million ) . I personally think it should be around 5 million. Even at that amount you could live comfortably.
A billion dollars ?
I would travel the globe (economy of course ) and search for the best and brightest of our world, that for circumstance of birth or environment are trapped into a life of poverty and mediocrity. I would give 1000's , tens of thousands money for their ideas and education. I would provide them resources without fanfare or front page glamorous puff pieces about what trust ( tax dodge ) I have set up.
This next generation would affect the world in a way that would finally bring about an end to war, poverty, the pillaging of the environment and promote true equality for all.
I might save about a million for myself . ( Maybe splurge on 40 acres and a mule somewhere. )
Yeah , I am dreamer and even if I don't win , any billionaire out there seeing this can contact me if they like my idea and want to put it into motion.
Call me
Secondly, if society or governments ever came to their senses for the sake of humanity, then people ( or corporations masquerading as people ) would be taxed appropriately so that any one entity would not hold that amount of power.
A simple model should be that if you make more then you should pay more to the point that it would be incredibly hard to make more than say ( an arbitrary number of 100 million ) . I personally think it should be around 5 million. Even at that amount you could live comfortably.
A billion dollars ?
I would travel the globe (economy of course ) and search for the best and brightest of our world, that for circumstance of birth or environment are trapped into a life of poverty and mediocrity. I would give 1000's , tens of thousands money for their ideas and education. I would provide them resources without fanfare or front page glamorous puff pieces about what trust ( tax dodge ) I have set up.
This next generation would affect the world in a way that would finally bring about an end to war, poverty, the pillaging of the environment and promote true equality for all.
I might save about a million for myself . ( Maybe splurge on 40 acres and a mule somewhere. )
Yeah , I am dreamer and even if I don't win , any billionaire out there seeing this can contact me if they like my idea and want to put it into motion.
Call me
5
People make bad investments. They get cheated and duped out of money. They get stupid.
With the annuity, you can make your mistakes in the first few years, and still be insanely rich for life. Even if you screw it up for 29 years, you get tens of millions of dollars on year 30, and are still stupid rich.
To look at 900 million dollars and say "I think I can do better than that" is kind of stupid.
With the annuity, you can make your mistakes in the first few years, and still be insanely rich for life. Even if you screw it up for 29 years, you get tens of millions of dollars on year 30, and are still stupid rich.
To look at 900 million dollars and say "I think I can do better than that" is kind of stupid.
5
The problem with annuity is that if you die in a few years, you not only would fail to enjoy the money, but you would give your heir a huge tax bill. In the eyes of IRS, you already won the $1.5 Billion and you will be taxed accordingly based on this amount. If you borrow the tax bill or make installment payments, your heirs will find out the installment payments will be larger than the annuity payments.
1
Why is the premise always to maximize your gain? If I win, and it's almost impossible for me to win as I don't play, I would give away 99.9% of it--there are those who need it more than me.
5
The annuity does not make sense from a tax standpoint, period. But if history is our guide, and previous winners truly did blow their winnings, then that is the sole reason to choose annuity. And that would have made for a far more interesting article, and offered advice that could apply to nearly everyone.
2
It's a complicated decision, but it's hard to take the writer seriously when there are some fundamental errors. $1.5B / 30 = $50 million per year. Where does his $22.6 million figure come from? Even after-tax that's way off. That could be last week's week's figure after 25% withholding--if so, it needs updating and explanation, since a 25% withholding rate may not be sufficient to cover actual taxes due.
Secondly, there is no double taxation. If you take the lump sum, yes, you are taxed on the earnings it generates, but you can take out the principal on which taxes have already been paid without additional tax. You aren't taxed on recouping money you've invested.
As others have said, today's interest rates are historically low, and the annuity payout reflect that. Higher future rates won't increase the annuity payout. And keep in mind that tax rates on "the rich" may go up in the future. So the annuity choice could involve higher taxes on all amounts received after taxes are raised, with today's lump sum would be taxed at a lower rate. That's IF tax rates are raised, which is not a sure thing.
Lastly, keep in mind that if earnings come from long-term capital gains, under current law they are taxed at a lower rate than interest earnings. So while risky, over a 30-year period many advisors would expect equities to be a better investment.
Secondly, there is no double taxation. If you take the lump sum, yes, you are taxed on the earnings it generates, but you can take out the principal on which taxes have already been paid without additional tax. You aren't taxed on recouping money you've invested.
As others have said, today's interest rates are historically low, and the annuity payout reflect that. Higher future rates won't increase the annuity payout. And keep in mind that tax rates on "the rich" may go up in the future. So the annuity choice could involve higher taxes on all amounts received after taxes are raised, with today's lump sum would be taxed at a lower rate. That's IF tax rates are raised, which is not a sure thing.
Lastly, keep in mind that if earnings come from long-term capital gains, under current law they are taxed at a lower rate than interest earnings. So while risky, over a 30-year period many advisors would expect equities to be a better investment.
1
I thought the same thing re $22.6 M vs $50M in the first year but another commenter poitned out that the annuity payouts go up 5% each year to account for inflation so the first payment would be 22.6M, then 23.7M in 2017, 24.9 in 2018 and so on until a final 93.06M payout in 2045
2
I would think a gasoline-drunk homeless person who's name you don't know would be a better steward of your money than the government.
1
After the fiasco that occurred in Illinois with them not paying out any jackpots above $500, why would I ever trust annuity payments?
2
If I were 30, I would take the annuity. But I'm nearly twice that and I have no children to leave my money to and so there is no way I would even consider taking the annuity.
You probably also believe that nonsense about waiting until you're 70 to start collecting Social Security.
You probably also believe that nonsense about waiting until you're 70 to start collecting Social Security.
1
Not a very convincing argument. There is no mention of your life expectancy. If you are aiming to maximise your welfare, and not your inheritance, how much longer you can expect to live must enter into the equation. If I only have a few years to live I want to have MY money available to ME. Maximising the income stream for the next twenty years is completely irrelevant.
4
Sounds good until the State tells you due to budget restrains, we no longer have the funds to pay you, Here's an IOU to go along with the Social Security IOU.
Have a nice day.
Have a nice day.
3
I think all of this proves one thing: the lottery needs to offer a third option that involves a large payout (%25 of the pot?) now, and the rest as an annuity. This would offer the lottery winner (me--you'll see that later!) the best of both worlds! And why not ask for the best of both worlds--after all, I'll have just won over a billion dollars!
7
Take the lump sum and purchase an annuity, problem solved.
2
Your advice requires a level of trust in the Pols in Albany that not even a dunce could generate.
2
I've changed my mind. Take the entire bundle, go to a casino, and put it on the number 35 on the big wheel. Now we're talking money.
4
Solution: Play the same numbers twice, once for the lump sum and once for the annuity.
7
Major flaw in his assessment. If you were to take the annuity and pass away, yes the estate will receive the balance. As I recall, any CPAs CFPs here, that means the estate would have to pay the tax on that balance within 90 -180 days, on the balance above $5M. Yes there are companies that will loan you that money, at a very nice interest rate.
The difference in life between us mere middle class and the near billionaires, the effort made to minimize the estate tax.
The difference in life between us mere middle class and the near billionaires, the effort made to minimize the estate tax.
1
Take the Annuity and use the first year to set up everything else. If you can't live on nearly one million per month, every month for the next 30 years, something is wrong. Really, I would have a hard time spending that much, and I would constantly be worried that someone would take it away if I had a larger amount. Also, set up a good security system to protect your children and grandchildren.
2
Take the lump sum then either (1) find out the meaning of Life or (2) live a life of hedonism.
2
With $600 million or more after taxes, who cares about investments or annuities or maximizing your return? Spend $200 million on having a good time for a few weeks, put the rest somewhere safe like gov't bonds or even in your mattress. You'll still have more $$ than you could ever spend in your lifetime.
1
Follow in the footsteps of Buffett and Gates and others - find a problem you feel deeply about solving and throw a ton of money at it. I just finished reading the NYT article about DuPont's hubris ("The Lawyer Who Became DuPont's Worst Nightmare") right before reading this article. I'm feeling pretty good about throwing Powerball winnings at a boatload of lawyers, scientists and political activists and seeing if we can't get to an agreement that testing chemicals before we expose the entire world to them might be a good idea.
4
Great article and perspective. Here's hoping it changes someone's life for the better!
Barro is a piker; it is clear he knows zilch about wealth management. With 1.5 Billion you never have to pay taxes again in your life. You could buy yourself at least one Ted Cruz, several Max Baucuses, two to three of the supremes, the chairmanship of FIFA, and the entire law firm of Dewey, Cheatham and Howe. Put your money in the Caimans -- heck, buy one of the banks over there -- and set up a foundation to rid the world of cancer. Before you know it, you will find yourself a fixture on the charity gala circuit, the subject of a cover story in People magazine, giving advice to the Fed chairman on interest rates, and the commissioner of the IRS will be invoking the fifth in front of the senate special subcommittee investigating why your think tank was audited. Even your cat could feast on caviar and bluefish tuna for the rest of its life.
3
Good advice - would be that I'll get to use it. If I do, my very first order of business will be to establish a SuperPac focused solely on running anti-Trump, Cruz and Rubio ads and then donating to Bernie Sanders.
Then, for once, I'd be putting my money where my mouth is.
Then, for once, I'd be putting my money where my mouth is.
7
The premise of this article is to maximize the overall amount of money won. But other considerations matter, too. What do you want to spend the money on? 22 million is a huge annual income for one person, but it is not a lot of money if your dream is to, for example, buy thousands of acres in the Amazon and turn it into a national park, or to establish an international malaria eradication program on the scale of the Gates Foundation, or to buy up a manufacturer in your hometown in the hopes of keeping jobs in the community. Significant lump sum capital can achieve things that steady income cannot. I hope that the winner happens to be a person with some ambitious goals and the skills and good advisors to achieve them.
40
Josh put down the booze and go to bed...Taxes could increase...lottery could go bust when states and territories start to file for bankruptcy like Puerto Rico, Illinois, Michigan etc.... which the risk of solvency of these could be in question over the next 30 years A.K.A. Detroit ask all the city workers about their pensions...I mean annuities... No thanks I say take the money and run....
1
None of these arguments against annuity discuss the 10 million of the first payment I would invest and the 10 from the second.... So I would not just get the income from the government money on my behalf but by the end of 10 years I have 100 million earning income at ten years etc..
1
But if you take the lump-sum cash prize, you’ll pay tax twice: on the prize when you win it, and on the income you get by investing it.
That's not paying taxes "twice"
Income you make on investments is "addition income"
Do your research
That's not paying taxes "twice"
Income you make on investments is "addition income"
Do your research
6
I would take it all in one lump sum... There is NO WAY I would allow our government to keep MY money again.. Look what they did to our Social Security. They would convieniently LOOSE my money.. I would rather loose it on my own.
2
Create a blind trust and take the lump sum!!!
1
Barro was born in 1984. I was born in 1942. I think that any decision about how to take the payout of this ridiculously large sum of money would depend on how old you are. Maybe I want to be magnanimous and give most of it to charity while I am still alive. I would want control over how the money is spent.
3
There are some mistakes in your math. I am not sure where you go the Annuity rate from, but the actual rate of return they are earning on the 930,000,000 invested to come up with 1.5B prize is 2.7143%. Powerball pays out on a scheme that increases the payment by 4% a year so the winner will see the same or better income each year based on historic inflation rates (this may be where you made your mistake). Moving the bulk of the payments to later years actually has the effect of further reducing the present value of the money.
In excel you could have used a formula like this: PMT((1+AnuityInterest)/(1+4%)-1,30,-Cash_Value,0,1) to calculate the first payment and then used a FV calculation for each year subsequent year, add up the payments and you will get 1.5 billion with a rate of 2.7143%. I have seen some reporters say it is 30 payments over 29 years, the 1 in the end of the formula there has the payment being at the front of the period and should get you to the point of 30 payments in 29 years.
If you can earn an after-tax return of 3.2% over the next 30 years then you win with the cash-value option. Given historically low interest rates and the not insignificant risk of taxes going up on top income earners, it does not make much financial sense to take the annuity.
In excel you could have used a formula like this: PMT((1+AnuityInterest)/(1+4%)-1,30,-Cash_Value,0,1) to calculate the first payment and then used a FV calculation for each year subsequent year, add up the payments and you will get 1.5 billion with a rate of 2.7143%. I have seen some reporters say it is 30 payments over 29 years, the 1 in the end of the formula there has the payment being at the front of the period and should get you to the point of 30 payments in 29 years.
If you can earn an after-tax return of 3.2% over the next 30 years then you win with the cash-value option. Given historically low interest rates and the not insignificant risk of taxes going up on top income earners, it does not make much financial sense to take the annuity.
3
If you win, donate to as many animal rescue shelters as you can find.
All could really use major gifts.
Thank you.
All could really use major gifts.
Thank you.
8
And to combatting trafficking in wild animals: dolphins, elephants, lions etc.
Or consider that some of the world's starving people could use some help.
2
1) Who would ever invest in the stock market when they have $920 million???
2) Invest in the next Star Wars movie... you will do just fine.
3) Invest in "off the books" items, such as jewelry, artwork and wine.
4) Pay yourself $8k per week in cash. Take that physical cash, ~$400k per year, and place in safety deposit boxes spread across the United States. Thus leaving ~$12m in pure cash to whomever, death tax free.
5) This is the most important, before claiming anything, move. Make your legal mailing and residence of that in Florida or Delaware. Making your taxes much less off the bat.
6) Buy an island and create your own government/laws. Thus all financial decisions would be left to you. Including how you leave your money to future generations.
6)
2) Invest in the next Star Wars movie... you will do just fine.
3) Invest in "off the books" items, such as jewelry, artwork and wine.
4) Pay yourself $8k per week in cash. Take that physical cash, ~$400k per year, and place in safety deposit boxes spread across the United States. Thus leaving ~$12m in pure cash to whomever, death tax free.
5) This is the most important, before claiming anything, move. Make your legal mailing and residence of that in Florida or Delaware. Making your taxes much less off the bat.
6) Buy an island and create your own government/laws. Thus all financial decisions would be left to you. Including how you leave your money to future generations.
6)
1
This is bad advice. If you choose the annuity and the government holding the cash for the annuity goes broke, like Illinois did, you may not receive payments for subsequent years. You may just receive IOUs. Take the lump sum.
3
Good advice if the idea is to have the most money in 2045 - assuming you're still alive then (I'm 66, so not very likely). But you forgot an important part of that - don't spend any of it until then.
"A bird in the hand is worth two in the bush."
Always take the lump sum.
Always take the lump sum.
4
Money is simply energy in physical form. Think of all the things you can accomplish with all that "energy". Start a free merit school; pay off your friends' mortgages; start an ad agency that has the courage to create real ads against drugs and other social ills...so many things to accomplish. So, I'll take the money in a lump sum and enjoy using that energy for good. As it is now, I have everything money can't buy.
7
When I win that jackpot tonight I'm going to take the lump sum and spend it all at once by giving it away to the most needy. I can't imagine anything more terrifying than sudden wealth.
4
Yea, it must be torture.
2
I don't think a single person has taken the annuity since they started offering it. Why? First, do you really trust the government to pay you every year for 29 years? Second, do you want to live a year between paychecks? That's where most people get in trouble moneywise.
Tale the lump sum and manage it well.
Tale the lump sum and manage it well.
5
There have been many cases in the Tax Court concerning lotto annuities with remaining payments when the annuitant died. They end up in Tax Court because the full value of the remaining payments is taxable (subject to a discount rate) even though there is no cash to make the tax payment, and won't be for years.
It may be that all these cases were state lotteries, not the PowerBall, but it certainly has happened that people have chosen the annuity--which is the wrong way to go.
It may be that all these cases were state lotteries, not the PowerBall, but it certainly has happened that people have chosen the annuity--which is the wrong way to go.
2
This advice assumes that one plans to spend all of that money on oneself or one's heirs/family, or that one cannot live on $900 million or half that (taxes) for several lifetimes. But we all can. And anyway, I'm going to need a lump sum upfront if I'm going to build a foundational trust to fund all of the philanthropic projects I have in mind. More libraries and full-ride college scholarships, just for a start...
4
I'd take the annuity. I would not want to worry about making "right" investments or in finding the "right" advisers for the whole pot. I'd also watch reruns of "The Millionaire." Always liked that show, and it would teach me how to share. I'd also want to make a single, large demonstrable change. That would take research. BTW, when I win the lottery, it won't be a surprise to me. I deserve it. Most I ever won so far was an NFL football and a hot dog cooker, and I've worked hard as an under-paid public service worker.
2
Why would anyone have enough trust in the US government to pay them an annuity the next 30 years. These are the same indigents who steal the American people's social security.
4
Steal? "The answer largely depends on when you retire and how much you've earned over your lifetime. Consider a single man who earns the average wage throughout his career ($43,100 in 2010 dollars), works every year from age 22 to 64, and then retires at age 65 in 2010. Over his lifetime he has paid $345,000 into the system. But he is likely to get back $72,000 more than that, or $417,000 in Social Security and Medicare payouts, according to recent Urban Institute calculations. A single woman with the same work and tax history will come out even further ahead due to her longer life expectancy, likely netting $464,000 in lifetime benefits, which is $192,000 more than she paid into the system...Married couples generally benefit the most from Social Security and Medicare payments, especially when one spouse earns significantly more than the other. A two-earner couple with one spouse earning the average wage each year ($43,100 in 2010) and the other spouse earning 45 percent of the average wage annually ($19,400 in 2010) who both retire in 2010 will get back $300,000 more in retirement benefits than they paid into the system. A couple with this earnings history would pay $500,000 in taxes over their lifetime, but get back $800,000 in benefits."
4
Social security is broken. They won't be able to make too many more years worth of payments. Politicians have raided it and bankrupted it.
1
What if you are like me and are 70 years old?
Annuity?
Don't think so.
Annuity?
Don't think so.
5
"Eat, drink, and be merry, for tomorrow we die."
2
Your $22.6 first year annuity figure which you characterize as pre-tax is less than 1/2 the pretax payout of $50 million and I can't imagine anyone paying more than 405 in taxes on that amount even if they resort to H & R Block
2
Assuming that once someone wins the $1.5 billion that they still have a greedy, unhealthy lust for even more cash, because heaven forbid people not still be greedy after winning this huge fortune and decide it's enough...
The sickness with the uber wealthy is that more is never enough when they already have too much. It's what's crushing American society, and now we have "experts" telling us how to ruin it even more and become one of the pack.
The sickness with the uber wealthy is that more is never enough when they already have too much. It's what's crushing American society, and now we have "experts" telling us how to ruin it even more and become one of the pack.
4
I just want Josh Barro to tell me whether the annuity or the cash prize will make me too big to fail. I've always wanted to be too big to fail.
7
It does not. Lehman Brothers was much bigger than that, and they were allowed to fail.
1
In theory, both the stream of payments (annuity) and the lump sum are of equal value - the lump sum is the "present value" of the annuity at today's interest rates. In other words, the lump sum, invested at a constant return generated by today's rates, will generate the annual payments equal to what the annuity will pay. The key is "today's interest rates". Because interest rates are at historic lows, the present value of the stream of payments is as high as it's ever going to be. So the lump sum is most likely going to be more valuable than the stream of payments over time, assuming interest rates rise over the next 30 years....
3
Didn't read the article. The best advice for me is ignore the advice of others, especially the likes of the NYT!
7
I'm ignoring your advice.
2
To be honest, I don't need that much money. I certainly don't need to turn it into MORE money. I'd rather just pay the taxes and let them go to fund programs and then invest very cautiously and live a life where I can always pay my bills and it's no big deal.
I don't need to be a billionaire. $500 million is already more money than any person needs.
I don't need to be a billionaire. $500 million is already more money than any person needs.
5
Taking the annuity is like locking in a 2.8% return for 30 years. That's abysmal. Even if you wing up paying an enormous fee on someone managing your lump sum you're almost certain to be in better shape. Plus you have the benefit of opportunity, should you desire.
So, when i don't win, i will not be taking the lump sum.
So, when i don't win, i will not be taking the lump sum.
2
Regardless whether you choose lump sum or annuity, you'll never live long enough to spend it all. So, my opinion go with the lump sum.
1
A person's age is a major factor. Seniors or retired people should take the lump sum - that's a no-brainer.
In either case, the number one factor is who you choose as a tax accountant, trust administrator and financial adviser. Lots of pitfalls that need to be safely navigated by honest professionals. In fact, I would get proposals/input from a number of accountants, administrators and financial advisers.
Barro's points are well taken for a younger person and should be considered but there are no guarantees no matter your course of action going forward.
For me, I could live like a king and want for nothing on a nest egg of 50 million going forward, so the rest is play money.
In either case, the number one factor is who you choose as a tax accountant, trust administrator and financial adviser. Lots of pitfalls that need to be safely navigated by honest professionals. In fact, I would get proposals/input from a number of accountants, administrators and financial advisers.
Barro's points are well taken for a younger person and should be considered but there are no guarantees no matter your course of action going forward.
For me, I could live like a king and want for nothing on a nest egg of 50 million going forward, so the rest is play money.
2
"If you invested all your prize money in the same way Powerball does (essentially by putting it in government bonds), you’d end up with 20 percent more cash in 2045 if you took the annuity option rather than the cash option, thanks to the tax savings."
Translated to English: "I'll gladly pay you Tuesday for a hamburger today." ;)
Translated to English: "I'll gladly pay you Tuesday for a hamburger today." ;)
4
I can't dream in annuities.
6
My uncle took the annuity and never regretted it. He was one of 4 winners who split $44 million about 25 years ago. He was also an AT&T lineman, and he humbly worked the 7 months remaining in his tenure there to secure that retirement check, too. The annuity after taxes was an excellent income but not outrageously different from others in the family. Over time, he was able to help and heal his splintered family in a number of ways, and he had the time to make careful choices about who and how he helped. He put a good bit of it away and is still secure and helping his family, with 4 grandkids now living with him and his wife. He's sick now and may not live much longer, but he has had a quarter century of financial security and loving memories with his family. That's a pearl beyond price.
27
One way to think of this: your alma maters and other charitable donees just got lucky. You can’t possibly spend the cash any other way and be happy.
3
I think all this lottery happening the govt is desperate for money its weird how 1.5 billion lotto being advertised so we can all contribute in to it then sears is shutting down some kmart stores around the states I think we should be prepared for the next economy collapse 2016 if you can Just analyze the events are happening
3
bird in the hand
6
I appreciate the humor of your column and that you recognize that the answer to what is best, lump-sum or annuity, depends on what one wants to do with the money. A better-posed question would be "which variant gives you more money in the end, the lump-sum fully invested over 30 years or the annuity ?". Indeed, the answer is the annuity but not for the reason which you identified: the tax-free interest of Powerball's investment is relevant for Powerball, not for the winner. If you go through the calculation of the 30-year end money (in today's buying power) for both variants (annuity and lump-sum), you'll see that inflation and interest have a lesser effect than the "initial condition" of the lump-sum being only 62% of this jack-pot. The last is the main reason for which annuity is better than lump-sum, unless the winner can invest the lump-sum with an annual interest of about 20% over 30 years (in which case, lump-sum would be better).
1
But would $22.6 million be enough to start building my giant "laser beam" with which to threaten the world..?
2
Hey folks, don't discount the "little prizes" one might win. I bought one - count 'em, one - ticket last Friday when the Powerball jackpot was a mere $900 million or so. I splurged on the $3 ticket, which is called 'Powerplay' and multiplies the lower prizes (under $1 million) by 1 to 5, instead of the regular $2 ticket. I asked for a $3 'Powerplay' ticket and I let the computer pick the numbers.
I matched two of the five first numbers plus the one Powerball number. Turns out that's normally worth $7 but because I bought the 'Powerplay' multiplier and the multiplier number chosen Saturday night was 3, I won $21. I never win anything, so I was quite pleased. Beggars/choosers and all that.
I bought one - count 'em one - for tonight's drawing when I went to the grocery store to collect my $21 'jackpot'. But if someone wanted to buy more tickets than that or buy any at all, I don't judge. Think about how much money people spend at Starbucks every day!
I matched two of the five first numbers plus the one Powerball number. Turns out that's normally worth $7 but because I bought the 'Powerplay' multiplier and the multiplier number chosen Saturday night was 3, I won $21. I never win anything, so I was quite pleased. Beggars/choosers and all that.
I bought one - count 'em one - for tonight's drawing when I went to the grocery store to collect my $21 'jackpot'. But if someone wanted to buy more tickets than that or buy any at all, I don't judge. Think about how much money people spend at Starbucks every day!
9
The problem with waiting any amount of time to turn in your ticket is that the only safe place to keep the ticket is in a safe deposit box (not even a personal safe). However, I distinctly remember that the safes and safe deposits of at least one bank were obliterated from the 9-11 terror attacks in NYC.
What the chances that a calamity would obliterate the safe where you've decided to safeguard your ticket? The odds are probably BETTER than the odds that landed you the ticket, lol.
What the chances that a calamity would obliterate the safe where you've decided to safeguard your ticket? The odds are probably BETTER than the odds that landed you the ticket, lol.
6
Some have said that (in some states) anonymity is not extended by the lottery folks: you have to identify yourself to claim.
But you can easily preserve anonymity: have a bank or trust company submit the ticket in its name, and deposit the funds in your account(s).
By all means, absolutely do not go public; you don’t want to attract the swarm of people who will hound you offering to manage your money, sell you things, swindle you, seeking handouts, etc., etc.
No hurry on all this, you have plenty of time to consult with advisers and plan carefully.
And you’ll probably be happiest if you give most of it away: to your alma mater and other charitable donees, etc.
But you can easily preserve anonymity: have a bank or trust company submit the ticket in its name, and deposit the funds in your account(s).
By all means, absolutely do not go public; you don’t want to attract the swarm of people who will hound you offering to manage your money, sell you things, swindle you, seeking handouts, etc., etc.
No hurry on all this, you have plenty of time to consult with advisers and plan carefully.
And you’ll probably be happiest if you give most of it away: to your alma mater and other charitable donees, etc.
5
If you opt for the annuity and need a bit more that the $22.6m annual payout- well you do have a risk free investment worth over a billion dollars which any bank will accept as collateral in order to lend you hundreds of millions to tide you over ;-)
1
I believe that the rules absolutely prohibit using PowerBall winnings as collateral for loans.
And either a President of a Democratic bent may well confiscate by enacting a 96% tax rate, so for the next 30 years you would be financing the free phones, internet, housing, cable, transportation for those who did not win the lottery.
I would take the money and run, and legally keep the principal out of government's hands, just in case the sky does fall.
I would take the money and run, and legally keep the principal out of government's hands, just in case the sky does fall.
4
I admit this is a great problem to have- ad for the cost of $2 ticket, I get to play fantasy for a little while.
I do however disagree with Josh Barro. I would have agreed with him to take the annuity a few months ago- but in light of the Illinois lottery debacle, I would not trust any state not to default. In fact, Pa. has not passed a budget yet- but Pa. is still paying lottery winners unlike Illinois.
The point is you don't know what you don't know. the 21st century has so far not been great; we continue to have destabilizing terror attacks, a huge recession and who knows what effect global warming will have on institutions in the next 30 years.
I would say to take the cash payout and spread it out to maybe ten solid financial institutions. I would NOT go near the stock market. I would split with family and also gift to certain friends, charities, real estate- and then bank the rest and live off the interest. I would not touch the principle. The interest alone would be several million a year- more than I could ever spend. I would never risk investments or stock market. I am risk adverse and like the sure thing. I have worried about money my whole life and still do. I would keep it simple and not involve risk. The biggest problem would be personal security and trying to maintain anonymity as much as possible.
I do however disagree with Josh Barro. I would have agreed with him to take the annuity a few months ago- but in light of the Illinois lottery debacle, I would not trust any state not to default. In fact, Pa. has not passed a budget yet- but Pa. is still paying lottery winners unlike Illinois.
The point is you don't know what you don't know. the 21st century has so far not been great; we continue to have destabilizing terror attacks, a huge recession and who knows what effect global warming will have on institutions in the next 30 years.
I would say to take the cash payout and spread it out to maybe ten solid financial institutions. I would NOT go near the stock market. I would split with family and also gift to certain friends, charities, real estate- and then bank the rest and live off the interest. I would not touch the principle. The interest alone would be several million a year- more than I could ever spend. I would never risk investments or stock market. I am risk adverse and like the sure thing. I have worried about money my whole life and still do. I would keep it simple and not involve risk. The biggest problem would be personal security and trying to maintain anonymity as much as possible.
3
If I hit the jackpot I will take the lump sum for two reasons:
First, at my age the chances of my living to collect all 30 payments are probably about the same as my hitting the jackpot in the first place.
Second, I may be wrong on this, but I believe that when a person dies owed a stream of future payments the government reduces the value of the future payments to a present value and then taxes the present value. The tax on the present value is due immediately. If the winner dies soon after hitting the jackpot the payments made will not be sufficient to pay the tax. The heirs may be able to pay the tax over time but the government will charge interest on the amount due but unpaid. Hence, the government will be the beneficiary of the payments after the death of the jackpot winner until the tax due, plus interest, is paid. That may take several years. In the meantime the heirs of the jackpot winner will be dining at McDonald's.
First, at my age the chances of my living to collect all 30 payments are probably about the same as my hitting the jackpot in the first place.
Second, I may be wrong on this, but I believe that when a person dies owed a stream of future payments the government reduces the value of the future payments to a present value and then taxes the present value. The tax on the present value is due immediately. If the winner dies soon after hitting the jackpot the payments made will not be sufficient to pay the tax. The heirs may be able to pay the tax over time but the government will charge interest on the amount due but unpaid. Hence, the government will be the beneficiary of the payments after the death of the jackpot winner until the tax due, plus interest, is paid. That may take several years. In the meantime the heirs of the jackpot winner will be dining at McDonald's.
3
I put a copy of this article on everyone's desk this morning. I am the oldest person who has played the lottery and the only one who would take the annuity! Everyone else wants the cash.
2
This is bad advice all around. First, lets not forget about the time value of money and his assumption of no inflation. But even beyond that he has some major critical flaws in his reasoning.
First, he touts that the annuity, will be paid out over thirty years and if you die, becomes part of your estate. Why in the world would I want my heirs to lose at least 40% of the remaining annuity, the current highest federal estate tax rate, not even counting the state rates. The lump sum could be protected today by trusts and other forms that would shield it.
Second he says that if you take the lump sum, you pay taxes twice, once on the prize and second on any income earned from investment. Income earned on investments is above and beyond the lump sum, so the prize only gets taxed once, the income earned on investment, IS ADDITIONAL INCOME. And depending on how its invested, many municipal bonds are tax free. Even if the lump sum is invested in stocks, the capital gains rates, both long and short term, are lower than the tax rate applied to the annuity. The current long term rate, more than 12 months, is 15% for christ sakes. That is why Warren Buffet always says he pays a lower rate than his secretary, because all his income is from capital gains. Do yourself a favor, take the lump sum, buy some municipal bonds and exercise a little self control.
First, he touts that the annuity, will be paid out over thirty years and if you die, becomes part of your estate. Why in the world would I want my heirs to lose at least 40% of the remaining annuity, the current highest federal estate tax rate, not even counting the state rates. The lump sum could be protected today by trusts and other forms that would shield it.
Second he says that if you take the lump sum, you pay taxes twice, once on the prize and second on any income earned from investment. Income earned on investments is above and beyond the lump sum, so the prize only gets taxed once, the income earned on investment, IS ADDITIONAL INCOME. And depending on how its invested, many municipal bonds are tax free. Even if the lump sum is invested in stocks, the capital gains rates, both long and short term, are lower than the tax rate applied to the annuity. The current long term rate, more than 12 months, is 15% for christ sakes. That is why Warren Buffet always says he pays a lower rate than his secretary, because all his income is from capital gains. Do yourself a favor, take the lump sum, buy some municipal bonds and exercise a little self control.
6
And inflation? After 30 years there would be nothing left.
1
bond yields would rise with inflation thus protecting you
Stock appreciation and the values of precious metals vs the dollar would likely protect you far more than bond yields in such a scenario. Better to view bond yields as sources of income rather than investments or hedges against inflation.
1
Yes, because 500 MILLION dollars just isn't enough for one lifetime (and that of your kids), you should do all you can to maximize it further...
trusting that in 30 years we won't suffer any kind of national or financial catastrophe that would wipe us out and leave you with no further payments.
trusting that in 30 years we won't suffer any kind of national or financial catastrophe that would wipe us out and leave you with no further payments.
1
If you win, you'd better not claim it until at least 6 months later if you want any change of privacy. GL
I like reminding myself one is 264 times more likely to be struck by lightning than win the Power Ball...and have you ever once in your life legitimately worried about being struck by lightning?
I like reminding myself one is 264 times more likely to be struck by lightning than win the Power Ball...and have you ever once in your life legitimately worried about being struck by lightning?
4
I went to school with a guy who was struck and killed by lightning.
1
People are overthinking this. With a Jackpot this large, take the lump sum option and start a bank.
3
Maybe 10 years ago. Nowadays, you won't want the headaches and risks Dodd-Frank imposes by starting a small bank with your $500 mil. Trust me - small banks are folding up like cheap chairs since DF was imposed.
1
Too big to fail has destroyed small banking. A great loss for the country.
1
Dear Powerball Ticket Purchaser: Take My Advice and Don't Buy the Ticket
You'll wind up with more money in your pocket.
You'll wind up with more money in your pocket.
4
I love it when other people tell you what you should do with your money.
At my age I can put something like 20% of my income in a Roth 401k. that's 110,000,000 after taxes. and no one can get to it. So no matter how stupid I am. $450,000 Lambo. MMM I can still live on my 401k. Trust no one when it comes to this kind of money.
At my age I can put something like 20% of my income in a Roth 401k. that's 110,000,000 after taxes. and no one can get to it. So no matter how stupid I am. $450,000 Lambo. MMM I can still live on my 401k. Trust no one when it comes to this kind of money.
You can put earned money (wages, salary, commissions, tips) into the Roth. I don't think lottery prizes count.
3
And 401k's have contribution limits. http://www.investopedia.com/ask/answers/102714/what-are-roth-401k-contri...
1
John if you win, you are clearly going to have to take somebody's advice.
2
Great waste of time and effort. Hope you realize that you wrote this piece for one person.
It's educational
How the heck am I supposed to get by on a measly $22.6 million a year? Nawww, I'll take the cash. Or maybe not. I'm too cheap to buy a lottery ticket.
4
The New York Times fails to present readers a very important angle when considering lottery winnings. 2045 is a ways away and we cannot see the future until it gets here, right? Lottery winnings are paid in US Dollar units. We can all be pretty sure that by 2045 the value of the US Dollar will be significantly less than it is today in terms of purchasing power. As history shows, the USD has lost purchasing power in real terms year-on-year since the first Federal Reserve Note was created back in early 1914. That and the possibility that there will not be a USD by the time 2045 comes around. If you think this is outrageous consider the one world currency trend started even before the introduction of the Euro. How would lottery winners in say Finland feel if they were signed up for annuities only to be cheated when Finland's local currency switched to the Euro? I think having a lump sum during this time of economic uncertainty is the safest bet you make. Judging also by some state lottery systems unable to pay winners over the past few years, who could argue that payments are guaranteed? It comes down to this - if you trust the USD and the lottery system go ahead and take the annuity. If you are concerned about inflation, (and you should be), then it's a no brainer to get immediate use of the money while you can still spend it on the rights assets. QE continues to be on the tip of the Federal Reserves tongue. A dollar collapse is likely in your lifetime.
2
There's a reason they say "Cash is King," and it's not about music. Financially, it's always better to have the cash. I'm all for helping people make good choices; but as financial advice, I cannot agree with the author: The time to have helped people manage their wealth is before they win the lottery.
3
Inflation. How do you beat inflation with the annuity option?
In 20, 25, or 30 years, you will be not be receiving dollars with a 2016 valuation.
In 20, 25, or 30 years, you will be not be receiving dollars with a 2016 valuation.
Before you do anything, sign you winning lotto ticket, make a few copies and stash in a couple different safe spots. Immediately move to a state with no state income tax (like Florida as you would probably be purchasing a vacation home there anyway with all your new found money), round up the best law, accounting and financial advising firms specializing in big $$ clients/lotto winners. Tell your lawyers you want to remain anonymous so in states where the law allows them to publish you name legally you can loophole that by setting up a company to collect for you.....your name will stay hidden from the public. I don't know about you but if I win I am collecting every penny now. I can't trust the government to hold that much money for that long a period of time....no way, Google "Detroit Lottery". I love it when very intelligent people sit it and debate how you should invest 550 million....so you want the headache of figuring out how to make more money because that isn't enough? Just put most of the money somewhere safe where it collects interest, you'll be just fine squeezing by on just the interest alone if you want. Take some money and gamble from time to time....I recommend blackjack seems the ROI is much better that Wall Street most of the time :-)
3
Well written piece. This is actually more complicated in terms of decision process, and I don't necessarily agree with the conclusion, but at least you mention the issues. You need to decide whether the implicit interest rate is something you think you can beat on a pre tax basis, and you have to assess whether you think tax rates are going to increase or decrease over time. There is no one 'right' answer, depends on your views on rates of return, risk, and tax rates. Those are all uncertain....
2
There is a problem with taking the annuity to "protect you from yourself." And that is that you can borrow against your future payments. I have no doubt that anyone taking the annuity will have a line of folks out the door trying to 'loan' them money once they blow their initial payments.
The only smart way to protect yourself from you is to make good choices. The good news is that there are a lot of good choices to do with 930 million dollars.
The only smart way to protect yourself from you is to make good choices. The good news is that there are a lot of good choices to do with 930 million dollars.
5
Firstly, if you are the sole winner, and take the lump sum OR the payments, why would you invest? Seriously...millions upon millions, where are you spending it? Take the annuity...$50 million a year. You don't need any investments. If you can't live ion $50 million a year, you have issues. Then take the lump sum of $930 million then pay taxes. You'll come out with $450 million approximately. If you cannot live off of that, then you have issues. There is no way to blow through that if you take a money management class. Understand the money and do NOT give away money to family and friends who all of a sudden are your best friend. So with that, this article is incorrect in stating that you'll pay taxes twice on the lump sum.
1
Wrong. Whoever is supposed to make the annuity payments could go insolvent and you'll end up with far less. And it's happened. Even major insurance companies have gone belly up. Take the money and run!
4
I would not trust the Lottery to be around that long, and keep paying you, I mean really, that is the biggest risk
Lotto winnings, sitting, paying the Annuities are too big a temptation for any elected official, they could fund a tax cut and my kickback, a win win..
Lotto winnings, sitting, paying the Annuities are too big a temptation for any elected official, they could fund a tax cut and my kickback, a win win..
3
The illusion of possibility is so powerfully broadcast around the nation, it's no wonder the jackpot has reached such a record breaking stratospheric level.
THE ODDS ARE SO INCREDIBLY SMALL... is not what you'll ever see stated in the media. But it is the truth. "What's $5 at the chance of a life change?" Spending that on something you truly need has a 99.99% chance of helping you, over the MUCH less than 00.01% chance of winning.
The lottery system is out of control, fleecing the wallets of the desperate.
THE ODDS ARE SO INCREDIBLY SMALL... is not what you'll ever see stated in the media. But it is the truth. "What's $5 at the chance of a life change?" Spending that on something you truly need has a 99.99% chance of helping you, over the MUCH less than 00.01% chance of winning.
The lottery system is out of control, fleecing the wallets of the desperate.
2
As a Registered Investment Advisor, I have to say that I disagree with the advice given in this article. While the annuity advice isn't bad per se, I would advise my clients to take the lump sum payout. My reasoning can be summed up in a single word: "certainty".
Cash in hand is the one absolute in investing. Cost Basis vs realized gains or losses can look nice on paper, but are effectively just 1 and 0s or ink on a page until you have the actual cash in your hand.
We have absolutely no idea what lies ahead for us over the next year, let alone the next 30 years. Will tax codes change over the next 30 years? I believe taxes will go up, especially for the 1%, which you are now a member of. The ability to control your investments and modify your holdings to change with economic conditions are crucial tools for long term investing.
What about the solvency of the lottery itself? Illinois State Lottery anyone? Can you say with true, absolute certainty that your money will be properly cared for by this faceless entity over the next 30 years?
I believe that even a conservative investment strategy will beat the returns offered by the lottery commission. Will the annuity ensure that your earnings outpacing inflation? With you controlling your winnings, you can diversify in ways of your choosing. Which is unavailable to you if the management of your winnings are outside of your control.
Taking the annuity is not bad advice, but I don't think its great advice.
Cash in hand is the one absolute in investing. Cost Basis vs realized gains or losses can look nice on paper, but are effectively just 1 and 0s or ink on a page until you have the actual cash in your hand.
We have absolutely no idea what lies ahead for us over the next year, let alone the next 30 years. Will tax codes change over the next 30 years? I believe taxes will go up, especially for the 1%, which you are now a member of. The ability to control your investments and modify your holdings to change with economic conditions are crucial tools for long term investing.
What about the solvency of the lottery itself? Illinois State Lottery anyone? Can you say with true, absolute certainty that your money will be properly cared for by this faceless entity over the next 30 years?
I believe that even a conservative investment strategy will beat the returns offered by the lottery commission. Will the annuity ensure that your earnings outpacing inflation? With you controlling your winnings, you can diversify in ways of your choosing. Which is unavailable to you if the management of your winnings are outside of your control.
Taking the annuity is not bad advice, but I don't think its great advice.
61
Keith, As I am sure that I am going to win and I liked your analysis, please give me your contact information so I can be in touch tomorrow!
2
Well said, my good man.
1
Take the lump sum in CASH and put it under your mattress...
2
How many mattresses do you think it would take? You may have to buy the entire mattress store.
3
Awww. You're NO FUN AT ALL.
Well, it's becoming quite obvious that many on these posts don't deserve to have such a large sum of money. "The sky's falling, the government is collapsing, can't trust this, can't trust that, single investment", etc., etc. Some of the most ridiculous responses I've ever read. If you can't even decide how to invest and spend WITHOUT the money, how can you ever decide what to do WITH it? Some are obviously gonna be broke within 10 years with a lump sum. So acknowledge that you're clueless and take the annuity. For the rest who seem to have clear understanding of how to handle large sums of money, you can cash out because you'll be just fine.
If you're fortunate enough to win, then as one of the smarter posters suggests, go find the best AND reputable tax and estate attorney you can afford to hire... and with this much cash, that should be no problem. Sit with him or her every second they're working with your money and take clear and concise notes... listen and learn. Give whatever you want to charity, friends and family... but be sure to take care of you FIRST. Even though you have a lot of spare cash, try NOT to purchase anything that depreciates in value. All cars are leased, not bought. It's JUST A CAR. The dumbest stuff I've read about lottery winners who quickly became losers was all the cars they paid cash for. Dumb. I mean really, you can only drive one car at a time.
So good luck everyone and remember... "A fool and his money are soon parted"
If you're fortunate enough to win, then as one of the smarter posters suggests, go find the best AND reputable tax and estate attorney you can afford to hire... and with this much cash, that should be no problem. Sit with him or her every second they're working with your money and take clear and concise notes... listen and learn. Give whatever you want to charity, friends and family... but be sure to take care of you FIRST. Even though you have a lot of spare cash, try NOT to purchase anything that depreciates in value. All cars are leased, not bought. It's JUST A CAR. The dumbest stuff I've read about lottery winners who quickly became losers was all the cars they paid cash for. Dumb. I mean really, you can only drive one car at a time.
So good luck everyone and remember... "A fool and his money are soon parted"
3
What if the Powerball lottery were to declare bankruptcy and go out of business? Then, do you lose your annuity? A lot of people would prefer the sure thing.
1
Wasn't there a state that froze lotto winnings while they looted the citizens?
Anyway, give me the payoff now.
.
Anyway, give me the payoff now.
.
1
Wouldn't it make more sense to set up a tax-free foundation and transfer the winnings to the foundation before having it cashed in?
3
The lottery is the longest running self-funded study of herd mentality ever devised. Lemmings run over cliffs because they don't know what cliffs are, until too late. What's our excuse?
Greed
All you have to do is trust the government.
1
Here is my concern...how long will Powerball exist? In all honesty I win..I decide to take the annuity then something happens to the economy and for some reason Powerball can no longer pay you. You are screwed. Take the money and run and hope you have some really good advisers.
2
Let's not forget the lesser prizes. They could be worth hundreds of thousands or even a couple of million. I'll take it and be grateful.
2
I have read on several sites, like Zacks Financial, that if you leave an annuity jackpot to your heirs, they may not have enough money to cover the death/estate taxes and could plunge your heirs into severe debt.
1
Take the money and run before the democrats can raise taxes on you!
5
Don,t care who wins ( i wish i do!!) . But $2 helps me day dream ..Well its ain't that bad .. I am already a winner!!!! .
2
This is a stupid article as it may apply to just 1 person in the entire world.
This article assumes that nothing will go wrong and that the govt / lottery entity will pay as promised its lottery jackpot. But occasionally things do happen in this day and age, for example, a city or state may declare bankruptcy protection and as a result your lottery winnings that you are entitle can be renegotiated or stopped completely. As a result you annual payments may be in limbo and may take years to get back in court, settle for a smaller amount, or lose it completely. This has actually happened especially in cities like Detroit. My advice is take the lumpsum and hire an financial wealth advisor.
1
A billion two
security you'd think for me and you
billion five
your mother and her friends be parking in the drive.
security you'd think for me and you
billion five
your mother and her friends be parking in the drive.
2
I'm 75. By 2045 I would be 105. I think I'll just go ahead and take the cash.
2
Either way, you will never be able to spend it all. And you can't take it with you.
To the person who wins this lottery I'd like to invite you to my art show in Vancouver on feb 11th where you could buy a few of my paintings!
I can't imagine what it would be like to win such an enormous amount of money.
The idea of an annuity probably makes sense. It seems that if you had an extraordinary expense come up, ( such as one or two of my paintings for example:) you would be able to get a loan based on your projected yearly income.
I can't imagine what it would be like to win such an enormous amount of money.
The idea of an annuity probably makes sense. It seems that if you had an extraordinary expense come up, ( such as one or two of my paintings for example:) you would be able to get a loan based on your projected yearly income.
So is the adage "you can't take it with you" wrong?
Life is too short. Take it all now and spend wisely on those you love and those in need.
1
Doesn't it rather depend on how old you are? If I won it at 20, then yes, the annuity makes sense. But at 60 and 67, in the highly unlikely event that we win (bought one ticket..!) I'd rather distribute it to family, friends and charities of our own choice now.
1
The assumption of the article is that by playing the lottery, you have demonstrated financial idiocy.
The $10 I spent today on a ticket is less than the $12 I spent on a craft beer at last nights sporting event. Perhaps both could be considered follies, but to assume that I am incapable of managing money simply because I bought a ticket is the height of conceit. Its a nominal outlay in the grand scheme of things. For less than the cost of my lunch, I have the (very, very very) slim chance of becoming a 1%er with the disposable cash from a lump sum payment to jump start the effort to overturn Citizen's United. Thats a hell of an investment in my book.
The $10 I spent today on a ticket is less than the $12 I spent on a craft beer at last nights sporting event. Perhaps both could be considered follies, but to assume that I am incapable of managing money simply because I bought a ticket is the height of conceit. Its a nominal outlay in the grand scheme of things. For less than the cost of my lunch, I have the (very, very very) slim chance of becoming a 1%er with the disposable cash from a lump sum payment to jump start the effort to overturn Citizen's United. Thats a hell of an investment in my book.
6
So you think you should be able to spend your money on a political issue near to your heart. Thank Citizens United for giving you that Freedom.
1
Ah, he's an individual. Don't need to thank Citizen's United for his freedom. Thank CU decision for giving "freecom" to created entities like corporations, who are NOT actual voters and citizens, to be able to influence campaign spending and voting. We thought it was sci-fi when the movies showed corporations controlling the future world. Welcome to the future in the US,at least.
Just imagine how many more gumballs you can buy with the full annuitized Powerball jackpot rather than taking a lump sump payment.
Even if a person kept only half of the lump sum of $930, think of the goodwill generated by giving the other half away to those really in need. For me the true joy is in giving than receiving. But then again, who knows how I will feel after winning tonight . . .
3
What these writers need to do instead of going one way or the other is show the pros and cons of doing one then the other. There are good things about each choice as well as potential pitfalls.
When the amount is this high, it really does not matter.. You are going to pay either way. and you don't invest this large amount, you don't need to.
Long as you have a good tax attorney, it all just goes in the bank..
Long as you have a good tax attorney, it all just goes in the bank..
1
This is the worst advice I've ever heard. Take the 900 million IMMEDIATELY as opposed to 1.5 billion over 30 years unless you are a greedy A-hole who thinks he's immortal. If you die, oops, sorry kids I wanted 1.5 billion because 900 million just wasn't enough for me.
1
Did you read the article? The annuity goes to your kids if you die.
1
Step 1
Take the "cash" option.
Step 2
Set up numerous accounts both in the US and outside the US as your rainy day fund.
Step 3
After setting up trusts, safety deposit boxes, Swiss bank accounts, geocaching enough money / precious metals to support you for the rest of your life, paying off your family's loans (at least those who you were close to BEFORE you won the lottery), creating a corporation to "invest" in that then separates you personally from the cash, legally change your name, switch your SS#, and "disappear".
Have your shell corporation buy an annuity for your new identity.
Take the "cash" option.
Step 2
Set up numerous accounts both in the US and outside the US as your rainy day fund.
Step 3
After setting up trusts, safety deposit boxes, Swiss bank accounts, geocaching enough money / precious metals to support you for the rest of your life, paying off your family's loans (at least those who you were close to BEFORE you won the lottery), creating a corporation to "invest" in that then separates you personally from the cash, legally change your name, switch your SS#, and "disappear".
Have your shell corporation buy an annuity for your new identity.
1
That seems like a lot of work, managing all that money. I'd rather just relax and have it deposited into one account every month.
1
He's absolutely wrong in a state life California, and possibly most others. Here's why:
1. States can go bankrupt.
2.The California annuity on $1.5 billion gross works like this:
First year: $16.9 million
Then, an ever-increasing amount which comes to $69.7 million in YEAR 30.
The way it works, YOU DON'T GET 3/4 OF YOUR MONEY UNTIL AFTER 20+ YEARS. Are you going to trust your money in the hands of a state for THAT LONG?
If it were a relatively small, easily spendable lump sum, like a million or two, then yes, people can go through that amount of money fast. But you would have to hire a pack of spendthrifts to go through $400 million quickly.
You're much better off taking the net after taxes, putting most of it in safe investments, spending $50 million or so in the first couple of years, and letting your good financial planner manage the rest.
As for long-lost friends and family: Out of a pot that size, I'd give my family members a couple million each and promise to pay any medical bills their insurance didn't cover, and that would be it. "No" would be the answer to all other pleas. Anybody who didn't like it: fork 'em.
1. States can go bankrupt.
2.The California annuity on $1.5 billion gross works like this:
First year: $16.9 million
Then, an ever-increasing amount which comes to $69.7 million in YEAR 30.
The way it works, YOU DON'T GET 3/4 OF YOUR MONEY UNTIL AFTER 20+ YEARS. Are you going to trust your money in the hands of a state for THAT LONG?
If it were a relatively small, easily spendable lump sum, like a million or two, then yes, people can go through that amount of money fast. But you would have to hire a pack of spendthrifts to go through $400 million quickly.
You're much better off taking the net after taxes, putting most of it in safe investments, spending $50 million or so in the first couple of years, and letting your good financial planner manage the rest.
As for long-lost friends and family: Out of a pot that size, I'd give my family members a couple million each and promise to pay any medical bills their insurance didn't cover, and that would be it. "No" would be the answer to all other pleas. Anybody who didn't like it: fork 'em.
1
You are assuming that the banks, investment firms, lawyers, money managers are not going to cheat you or have a market crash.
Also, you will have to pay a 40% tax on each large (over $15,000) gifting you do.
In addition, you are going to have to spend many hours watching over your investments and far-flung money instead of kicking back, retired, and collecting the enormous monthly check.
Also, you will have to pay a 40% tax on each large (over $15,000) gifting you do.
In addition, you are going to have to spend many hours watching over your investments and far-flung money instead of kicking back, retired, and collecting the enormous monthly check.
1
Buy and island and spend the most you can till you die...
forget THAT! 29yrs. an annuity company CAN go bk. i would not trust ANYONE with my $$cabbage$$. it is SO MUCH MONEY that what i did not give charitably, i would basically sew into a mattress. by that i mean i would pick the absolute SAFEST place for it to be. there are MANY that agree with this. i read that is what mark cuban would suggest. who wants to be bothered? it is more money than you should be able to spend in your lifetime. if you cannot make the cash payout last even after taxes, you are too stupid to have that much money anyway.
2
Take the annuity is a simplistic approach. If the winner does not outlive the annuity, they can leave their estate/beneficiaries with an inheritance tax nightmare. The federal government will tax them based on the current cash value of the remaining payments, regardless of whether or not they have the money. Which, unless the winner did some elaborate estate planning, they probably won't. If the winner dies in ten years the cash value will still be over $1 billion so the federal tax would be $500 million or more, plus state taxes depending on where you live. The government isn't going to wait the remaining 20 to collect.
2
Change that $1 billion cash value in ten years to about $600 million. Still the same problem for the heirs.
1
"But if you take the lump-sum cash prize, you’ll pay tax twice: on the prize when you win it, and on the income you get by investing it."
No and No!!!!! That's like saying 1) you made a LOT of money at work, but that's bad because you had to pay TAXES on that LOT of money and then 2) you invested your earnings, and BLEEP it, you made a LOT of money on your investments! Shame on you, you foolish foolish person, don't you know taxes are bad?
I am happy to make a LOT of money and happy to pay taxes on that LOT of money!
No and No!!!!! That's like saying 1) you made a LOT of money at work, but that's bad because you had to pay TAXES on that LOT of money and then 2) you invested your earnings, and BLEEP it, you made a LOT of money on your investments! Shame on you, you foolish foolish person, don't you know taxes are bad?
I am happy to make a LOT of money and happy to pay taxes on that LOT of money!
2
Irrelevant. The issue here isn't the morality of taxes, it's maximizing the net return. You can believe taxation to be reasonable without feeling obligated to pay as much as you can.
1
Finally someone who makes sense! With this much money who needs an advisor. Take the annuity and if you have leftover cash simply buy US Government debt and forget about paying any financial advisor. The reality would be to hire either a cpa or a lawyer who can help you draw up a LLC. Good luck you one in a 292 million!!! I have my one ticket, again and again and again....!
Believe it or not, US govt debt is a lousy investment these days.
Take the lump sum not the annuity.How do you know the monies will be there to pay you the annual payment?Do you realy trust a lottery to stay funded forever?I don't.
1
I see from readers' comments, that both options are viable and bring their own reasons to stress and get angry (states going belly-up, dealing with banks. unscrupulous investors, dealing with banks, potentially higher tax rates, dealing with banks, relatives coming out of the woodwork, etc.).
Add the fact that I am 63 years old, with no children to worry about. What am I going to do? I REFUSE TO WIN THE BIG PRIZE, THAT'S WHAT!! (There. I feel better already).
Add the fact that I am 63 years old, with no children to worry about. What am I going to do? I REFUSE TO WIN THE BIG PRIZE, THAT'S WHAT!! (There. I feel better already).
2
This article contains very good advice. I have read that 70%-80% of people who win the lottery big (a cool $1M or more) and take the money in a lump sum go broke. This is backed up by stories of people who have won this large an amount in the lottery being turned down for loans because they don't have the financial means to pay it back. When people who have to budget their money because it is NOT a limitless resource (and that includes the vast majority of Americans) come into money in seven figures or more, there is the human tendency to think of it the way the American settlers first thought of the American wilderness, limitless. It is all too frail human nature to think of a sudden, lump sum monetary windfall of these proportions as endless, and people who get it all at once spend it that way.
1
Anyone remember Enron? Anyone remember the state that is NOT paying their lottery pay outs? Yeah...right...if you believe that you'll see the entire payout you are nuts...lump sum people...don't fall for this annuity thing!!
1
"Again, I don’t know all about you, but I do know you buy lottery tickets, so let’s consider the possibility that you are not one of your generation’s great financial minds. ' lol. Well spoken. Did we listen?
In the words of Tommy Smothers, said in a tone implying injured feelings, "I resemble that remark."
Okay, Josh, if I actually get excited enough to buy a two dollar chance at a billion, and if I win, I'll take the annuity...
... or should I? You know what they say about free advice?
In the words of Tommy Smothers, said in a tone implying injured feelings, "I resemble that remark."
Okay, Josh, if I actually get excited enough to buy a two dollar chance at a billion, and if I win, I'll take the annuity...
... or should I? You know what they say about free advice?
1
"I don’t know all about you, but I do know you buy lottery tickets, so let’s consider the possibility that you are not one of your generation’s great financial minds." Great line! I'm going to steal it!
1
Bad advice. Take the lump sum. Even a mediocre portfolio of investments could do better with the money than the annuity. Being fearful of taxes leads to bad decisions. Yes you will give up more than half in taxes. You will still be left with hundreds of millions of dollars to be rich with for the rest of your life. There are many ways that multi-millionaires and billionaire can (and do) invest their money making huge profits. These ways are virtually unknown to the average person playing lotto or writing this article, so it is unwise to think that interests rates are the only thing that will make your money grow. Taxes can and likely will get worse for the rich. Take the lump sum and you can learn how to navigate that ocean. Afraid you will blow it all in a few years? Ha! Most of the people that blew their lottery fortune in a decade or less won less than $5 mil and spent like it was $50 mil. Get a good team of lawyers and team of experienced, reputable investors who work with large amounts of wealth first and take the lump sum.
3
Worth reading simply for the following:
"let’s consider the possibility that you are not one of your generation’s great financial minds."
"let’s consider the possibility that you are not one of your generation’s great financial minds."
1
The NY Times... thinking the Government can run EVERY aspect of your life better than you since 1851.
1
Nope. ALWAYS take the lump sum, for two reasons.
First, if you die before the entire amount is paid out, the remainder CANNOT be left to or inherited by someone. It is lost forever. If you take the lump sum and die before you spend it, you can always Will it to someone.
Second, depending on your age, the likelihood of living those 30 years can be reasonable to nil. And even if one is young enough to "expect" another 30 years of life, that, too, will be a "gamble," as ANYTHING could happen; one could die much younger than one thinks.
As for "not telling anyone" if you win, that is true: to a point. Lottery winners are given one year to come forward and claim their prize. So you have up to one year of anonymity - time to prepare yourself both personally and financially (including getting a REALLY good financial adviser). However, if you read the small print on the lottery ticket, you will see that you are specifically giving the lottery folks the right to "use" you publicly as soon as you claim your prize.
Good luck!
First, if you die before the entire amount is paid out, the remainder CANNOT be left to or inherited by someone. It is lost forever. If you take the lump sum and die before you spend it, you can always Will it to someone.
Second, depending on your age, the likelihood of living those 30 years can be reasonable to nil. And even if one is young enough to "expect" another 30 years of life, that, too, will be a "gamble," as ANYTHING could happen; one could die much younger than one thinks.
As for "not telling anyone" if you win, that is true: to a point. Lottery winners are given one year to come forward and claim their prize. So you have up to one year of anonymity - time to prepare yourself both personally and financially (including getting a REALLY good financial adviser). However, if you read the small print on the lottery ticket, you will see that you are specifically giving the lottery folks the right to "use" you publicly as soon as you claim your prize.
Good luck!
1
I've run some numbers on PowerBall. The stack of potential winning tickets is about 29¾ Km high. (500 tickets per 2 inches.) Picture that in your mind's eye. From here to there, the bottom of the stack to the top, is almost 18½ miles. How far do you drive to work?
Of those 28½ Km, over 95%, are losers.
We're left with a bit more than 1.2 Km. That's still a bunch of winning tickets.
1.1 Km of those 1.2 Km winners pay $4. We're down to less than 100 meters of winning tickets. 94 meters of that pays $7.
The stack of $100 winners is less than 100 feet high. $50,000? Abut 1¼ inches. $1,000,000? Around 2½ mm, a tenth of an inch. Then there's that one slip of paper out of a stack of 292 million pieces of paper over 18 miles high that you're counting on being chosen.
Of those 28½ Km, over 95%, are losers.
We're left with a bit more than 1.2 Km. That's still a bunch of winning tickets.
1.1 Km of those 1.2 Km winners pay $4. We're down to less than 100 meters of winning tickets. 94 meters of that pays $7.
The stack of $100 winners is less than 100 feet high. $50,000? Abut 1¼ inches. $1,000,000? Around 2½ mm, a tenth of an inch. Then there's that one slip of paper out of a stack of 292 million pieces of paper over 18 miles high that you're counting on being chosen.
2
I always felt that the annual payout was the way to go. You sum it best: "But this leads us to the biggest advantage of the annuity: protecting you from yourself."
Well stated, and undeniably true, particularly when we consider the nightmare stories of lottery winners we often hear about. $22 million a year is a lot of jack. A LOT. EVERY YEAR.
Well stated, and undeniably true, particularly when we consider the nightmare stories of lottery winners we often hear about. $22 million a year is a lot of jack. A LOT. EVERY YEAR.
1
Not sound advice. No financial advisor would tell someone to put ALL their money in US Treasurys. You'd certainly diversify enough, no matter what your age, to earn more than 2.8% per year. Second, if you want to protect yourself from yourself, put most or all of it in a living trust (like OJ had) that pays you 3-5% of the principal for life.
Which - third - also accumulates free of taxes until it is withdrawn. And fourth - if you structure all your investments outside the trust as taxable as capital gains, you still won't pay taxes until you sell. And fourth - and this is VERY important and I am shocked Josh does not know this - any of the investment NOT in the trust can be borrowed against in a margin account. Rich RICH people with JP Morgan Private Bank or something similar currently pay like LIBOR + 100 to borrow against their own liquid investments. meaning, if you left $100MM outside of the trust, you could borrow up to $50 MM at 1.5%, invest the now $150MM, and earn interest of 2.8% on UST treasurys (or more if it was in other assets.)
Or you could use the money you borrow from yourself to live on. This is how rich people do thins.
Which - third - also accumulates free of taxes until it is withdrawn. And fourth - if you structure all your investments outside the trust as taxable as capital gains, you still won't pay taxes until you sell. And fourth - and this is VERY important and I am shocked Josh does not know this - any of the investment NOT in the trust can be borrowed against in a margin account. Rich RICH people with JP Morgan Private Bank or something similar currently pay like LIBOR + 100 to borrow against their own liquid investments. meaning, if you left $100MM outside of the trust, you could borrow up to $50 MM at 1.5%, invest the now $150MM, and earn interest of 2.8% on UST treasurys (or more if it was in other assets.)
Or you could use the money you borrow from yourself to live on. This is how rich people do thins.
3
Nobody here really gets it. I'm surprised no one mentions not only Saving you from Yourself but also from the very large, aggressive cultural underworld of criminal swindlers you will be exposed to. Very quickly, and suddenly.
You will be unprepared not only for this, but the transformation of your friends, families and colleagues who become entitled and sometimes no better than the professionals. It is going from living a relatively normal, even comfortable, life to that of being attacked financially, emotionally, criminally, even physically daily.
Similar to an earthquake, or a flood - it can devastate like no other force. Money is energy, and in a flood of this amount, would affect you in a way you have never considered. There are endless stories of the negative effects - very few positive ones. This includes those of people who were already wealthy.
Non-attachment and setting up a wise structure ahead of time is the only way to get ahead. This article states only the very beginning of this wise thinking.
Don't think MORE is what will lead to positive life effects of a lottery win. It's HOW.
(Of course I still want to win- but handle it wisely!)
You will be unprepared not only for this, but the transformation of your friends, families and colleagues who become entitled and sometimes no better than the professionals. It is going from living a relatively normal, even comfortable, life to that of being attacked financially, emotionally, criminally, even physically daily.
Similar to an earthquake, or a flood - it can devastate like no other force. Money is energy, and in a flood of this amount, would affect you in a way you have never considered. There are endless stories of the negative effects - very few positive ones. This includes those of people who were already wealthy.
Non-attachment and setting up a wise structure ahead of time is the only way to get ahead. This article states only the very beginning of this wise thinking.
Don't think MORE is what will lead to positive life effects of a lottery win. It's HOW.
(Of course I still want to win- but handle it wisely!)
1
"you’ll never beat the effective tax rate of zero on the investment income earned inside the Powerball annuity." Has this guy every heard of municipal bonds? Also, his point about the government not paying taxes on investment income generated in the annuity is irrelevant. The government owes the winner $1.5Bn over 30 years. The winner will never "receive" the tax savings (i.e. they won't receive more than $1.5Bn), the tax savings simply allows the government to invest the annuity in lower-yielding securities to generate the agreed proceeds ($1.5Bn), or invest in higher yielding securities and pocket all proceeds over $1.5Bn.
1
Give a fool fifty cents or a billion plus, and he is still a fool, as most of these big winners have turned out to be. Give a small-scale Donald Trump or Tom Steyer the big prize and he'll possibly become the next Trump or Steyer.
To surrender more than a third of the prize simply to have what you can all at once is the ultimate fool's play once you reach even the minimal Powerball prize area.
President Me would award any person saying they would take the annual payments two extra votes whenever they show up to vote on anything simply because they obviously think first, at least om federal elections.
To surrender more than a third of the prize simply to have what you can all at once is the ultimate fool's play once you reach even the minimal Powerball prize area.
President Me would award any person saying they would take the annual payments two extra votes whenever they show up to vote on anything simply because they obviously think first, at least om federal elections.
2
For me, it's a simple question: is there any realistic benefit to me of taking $930 million once versus a guaranteed payment of $50 million per year for 30 years? Mathematically, could I do better than the discount rate used in the present value calculation? Maybe, but I doubt, no matter how philanthropic I might become, that I could spend, invest and donate as much as $50 million in one year anyway; heaven only knows what kind of a mess I could make for myself with $930 million. Give me the annuity, please. It's more than enough, and it protects my heirs from the consequences of whatever foolishness in which I might indulge.
1
Everything he said may be true, IF you live the entire 30 years. However, if you die before that, the annuity option could actually hurt your heirs.
Suppose you win the $1.5 billion and choose the annuity option. That works out to $50 million per year. Now suppose that you die after five years, having received $250 million and paying $100 million in income taxes . The IRS will consider the present value of the entire balance due your estate, (around $650 million) as part of your estate and tax it. At the current maximum estate tax rate of 40%, your estate will have to pay the government $260 million in estate taxes, even though the estate will only be receiving that money at the rate of $50 million per year for another 25 years. That means that the estate will either have to 1) borrow the money needed to pay the estate taxes or 2) work out a payment schedule under which the bulk of the annuity payments will be going to the IRS until the debt is paid (and pay substantial interest on the unpaid balance).
The cash option has its pitfalls, but it would provide the estate with cash to cover the estate taxes.
Suppose you win the $1.5 billion and choose the annuity option. That works out to $50 million per year. Now suppose that you die after five years, having received $250 million and paying $100 million in income taxes . The IRS will consider the present value of the entire balance due your estate, (around $650 million) as part of your estate and tax it. At the current maximum estate tax rate of 40%, your estate will have to pay the government $260 million in estate taxes, even though the estate will only be receiving that money at the rate of $50 million per year for another 25 years. That means that the estate will either have to 1) borrow the money needed to pay the estate taxes or 2) work out a payment schedule under which the bulk of the annuity payments will be going to the IRS until the debt is paid (and pay substantial interest on the unpaid balance).
The cash option has its pitfalls, but it would provide the estate with cash to cover the estate taxes.
3
*A bird in the hand is worth two in the bush*.
When considering an annuity think of the employees of the car companies in Detroit who put in 20, 30 or even 40 years in reliance on their pension and medical benefits.
This is not the USA of yesterday where integrity, solvency and honesty were values shared and enforced by the populace. The is a *relative* society where integrity and honesty are negotiable.
And how about those lottery winners in Illinois?
No. take the money and run to an experienced lawyer and accountant (correction: sign the ticket, and run to the lawyer and accountant and THEN, take the money.)
Also, be fully familiar with another adage: *Easy come, easy go*.
When considering an annuity think of the employees of the car companies in Detroit who put in 20, 30 or even 40 years in reliance on their pension and medical benefits.
This is not the USA of yesterday where integrity, solvency and honesty were values shared and enforced by the populace. The is a *relative* society where integrity and honesty are negotiable.
And how about those lottery winners in Illinois?
No. take the money and run to an experienced lawyer and accountant (correction: sign the ticket, and run to the lawyer and accountant and THEN, take the money.)
Also, be fully familiar with another adage: *Easy come, easy go*.
4
Rarely to I ever agree with "The Upshot" advisors, but this time I agree and I find it sad to read so many commentors here who seem more interested in gaming the tax system as their excuse for taking the 'lump sum' vs. thinking about their own personal lifestyle situation which might be better served by taking the yearly annuity. As if they'd ever run out of money to live well taking home 21 mil annually. 980 mil in a lump sum dump is just far too large an amount where far too many involved in the 'process' could far too easily take advantage of not just you, but your 'unearned' windfall. Yes, they could do it too with the annual, but it would be much less painful and a bit easier to detect.
2
That's the theme of big govt - that they know better than I do what is best for me, and that they must protect me from myself. Not I nor anyone else in the private sector can possibly make the right financial, legal, and tax decisions for me - only big brother can do this.
1
No one that I have seen analyzing the lottery payout has said anything about tax rates INCREASING in the future. It is highly likely that rates under Democratic administrations would increase in the upper brackets significantly. As the left has accelerated the amount of debt taken on by the country they are left with little choice but to raise more money.
This would not be good news if you take the annuity!
This would not be good news if you take the annuity!
2
Kevin,
Your point about increasing tax rates is valid and worth noting. Your suggestion that it is only "the left" that accelerates the amount of debt taken on by he country" is another example of how partisanship exceeds reality. If you were as dispassionate on that point as you are on the first, you would recognize that massive tax cuts starting in 2001 which extended all the way up to 2010, along with two wars put on credit cards are prime factors in the growth of that debt. Those were actions initiated and championed by the right, not the left. So at the very least, an honest analysis would have to admit that future spending is as likely to rise under the leadership on the right as it may under that of the left. I hope we can agree on that obvious point.
As to Powerball winnings. Invest in mortgage free real estate and pay someone good to manage it. Good luck to us all.
Your point about increasing tax rates is valid and worth noting. Your suggestion that it is only "the left" that accelerates the amount of debt taken on by he country" is another example of how partisanship exceeds reality. If you were as dispassionate on that point as you are on the first, you would recognize that massive tax cuts starting in 2001 which extended all the way up to 2010, along with two wars put on credit cards are prime factors in the growth of that debt. Those were actions initiated and championed by the right, not the left. So at the very least, an honest analysis would have to admit that future spending is as likely to rise under the leadership on the right as it may under that of the left. I hope we can agree on that obvious point.
As to Powerball winnings. Invest in mortgage free real estate and pay someone good to manage it. Good luck to us all.
2
I sure hope you don't win the lottery.
The last thing the country needs is another money-hoarding rich person.
The last thing the country needs is another money-hoarding rich person.
At the end of the day , it's for me a matter of principle that if I am told I won 1.5 billions dollars, I want 1.5 billions not half of it plus getting double taxed .
I understand that I would be taxed each year on the annuity I receive, but I live in WA state which doesn't have income tax , so only the federal tax would apply .
Saying that we could make more money by taking the lump-sum and beat inflation means that the investment made with that money would have to bring a pretty good return , which means risk .
Saying that we don't know if the lottery will be solvent later to pay the remaining of the prize , is the same as saying there could be a major crash ion the stock market and someone could loose half of their investments.
How many millions of dollars would that be ?
I understand that I would be taxed each year on the annuity I receive, but I live in WA state which doesn't have income tax , so only the federal tax would apply .
Saying that we could make more money by taking the lump-sum and beat inflation means that the investment made with that money would have to bring a pretty good return , which means risk .
Saying that we don't know if the lottery will be solvent later to pay the remaining of the prize , is the same as saying there could be a major crash ion the stock market and someone could loose half of their investments.
How many millions of dollars would that be ?
That has been my point. A crash could cost you most your lump investment as easily as one could end or lower the payments.
You're always going to have at least a little fluctuation with all short term investments. But not all investments are created equal by a long shot. Some are very risky and quite volatile - such as emerging markets, small cap tech/biotech/energy/mining stocks, and other high beta stocks that earn little or no money and otherwise have weak fundamentals... some not so much, such as lower beta large cap stocks of companies with solid histories of earnings... and other investments such as investment grade bonds are relatively low in volatility and do guarantee a return of principal at maturity, and are often insured as well.
I must be living in a dream world see people discussing how to get the most money out of the winnings. ONE years payment would take me 440 years to make in salary. Point being you have more money than you will ever need. But yet I see discussions on here about getting the best interest rate or not giving taxes to the evil government. Ridiculous. It is lottery winnings, you didn't earn anything.
8
Take it all in a lump sum. Immediately make sure you have an updated will. No one can predict when they will die and that they will live for another 30 years.
5
no - because if you set up a trust your beneficiaries will receive the annuities. read the article.
Buying a Powerball ticket is not buying a chance to win $1.5 billion. The chances of winning are as good as zero. Really, in any meaningful sense, they are actually zero. A friend of mine called it a "tax on folly." I disagree. I think it's a purchase. With a Powerball ticket, the purchaser gets a fantasy, the kind that is filling this comment section. We spend money on movies, so why not. It is also like buying a conversation piece. We get to participate in the conversation about the fantasy. Just don't spend more on lottery tickets than you might otherwise spend on a movie, and you'll be in good shape.
6
After what's happening in Illinois where the government has inadequate funds to pay the larger winners taking the lump sum makes much more sense. Even FDIC insured accounts says the government will pay you up to a certain amount if your bank goes belly up however, in theory they can pay you in IOU's not cash.
1
This assumes that the person taking the annuity, should the person die in the next 30 years, has heirs. My spouse & I have no kids and are already middle aged. An annuity that would continue after we die would be, well, meaningless. While my circumstances are mine alone, I think it is possible to generalize enough to say it would be utterly stupid for people in similar situations to take the annuity. Plus, most readers (and any heirs) can probably manage to get by on a "mere $930 million" - considering that most people have far less today. Of course, it's all hypothetical since we all just know that none of us has a chance to win a share of the jackpot.
Yet, someone has to win, and at least one person will wake up very wealthy tomorrow morning.
Yet, someone has to win, and at least one person will wake up very wealthy tomorrow morning.
25
Your heirs could be some deserving charities, of course.
1
why wouldn't you set up a trust to benefit a charity after you pass?
Each ticket has the same chance as every other ticket. It may be minuscule, but it is not NO chance.
2
You could invest your whole lump sum at the same treasury rate (2.8%) & have no (pre-tax) loss relative to taking the annuity payoff. As others have said, with a $900 million bundle, you can afford to take some risks. You should be able to beat the 2.8% return on the annuity easily.
In 1980 the CPI inflation rate was never less than 12% in any month. What do you think the inflation rate will be over the next 30 years? If it's only 2.8% all your accumulated interest in the next three decades will buy no more than it would today. If it's greater than 2.8% (as it has been in all but 13 of the 47 years since 1965), you lose. In real purchasing power terms, you get a negative interest rate on the annuity.
Take the lump sum. Let inflation hit 10%. You'll be able to earn quite a bit more than 10% if you've got the lump sum in hand.
But, never mind. You're not going to win. I've bought a ticket.
In 1980 the CPI inflation rate was never less than 12% in any month. What do you think the inflation rate will be over the next 30 years? If it's only 2.8% all your accumulated interest in the next three decades will buy no more than it would today. If it's greater than 2.8% (as it has been in all but 13 of the 47 years since 1965), you lose. In real purchasing power terms, you get a negative interest rate on the annuity.
Take the lump sum. Let inflation hit 10%. You'll be able to earn quite a bit more than 10% if you've got the lump sum in hand.
But, never mind. You're not going to win. I've bought a ticket.
2
One problem with this is that you are making the assumption that the people running the lottery will keep it solvent and they will be able to pay you as promised. The writer is automatically assuming that the "government" can protect us from ourselves, but is failing to ask who will protect us from the government. Just ask all the people with state run retirement plans what they think of the promises the government have made. Lottery money is not guaranteed if you take the payments. The big lump sum is.
15
I was about thinking the SAME thing, lol!!
The money offered as the "cash option" is what is put into an annuity if you prefer the payments. So, it's out of the lottery people's hands regardless what decision you make.
Why does a lot of people think taking an annuity is a bad thing? If you want the cash option, that's fine. Don't knock getting payments just because you don't like it. For some people, it's a good option.
Why does a lot of people think taking an annuity is a bad thing? If you want the cash option, that's fine. Don't knock getting payments just because you don't like it. For some people, it's a good option.
Steve, absolutely correct. Just take a look at Illinois. They are deferring payment of their state run lottery winners due to being broke.
2
My finance professor through calculations proved that cash in hand today will be worth more the future. With that much money you really don't need to invest but I would invest some of the proceeds. Invest wisely in municipals, government and some real estate. Be philanthropic with purpose and make sure it goes to the cause and not to the administration's salaries and pockets.
7
Your professor didn't prove anything, using calculations and assumptions he generated a result that showed what he wanted you to see.
2
Actually we did prove the results over 10 years with $50,000 real dollars from student investment fund.
Some people could actually blow through any amount of money easily - just look at some well-known entertainers who have blown through hundreds of millions - with a little help from their "possies", of course.
Investing in something that pays at least a little interest and is framed within a trust that keeps you from taking out too much each year is a good idea.
Investing in something that pays at least a little interest and is framed within a trust that keeps you from taking out too much each year is a good idea.
1
I enjoy the dreams what you could do and have, but the biggest benefit would not having any stress at the pump, the grocery, when any repairs are needed, etc. The big things would be neat but the little things would make the most difference.
8
Absolutely. When I think of it, the big things actually seem sort of scary to contemplate (really, what on earth would you do with 100s of millions--that's a lot of responsibility...give it to the Gates Foundation and make them worry about it?). What I love thinking about is the simple financial freedom from the everyday worries.
2
I want it all now in one dollar bills.
11
I'm not sure it matters. My life is simply not budgeted to get by on $1.5 billion.
4
Now that the lottery tops $1.5 billion it's my duty to buy a ticket. Even though it is virtually impossible to win, there will be winners. The winners should be people who will benefit society rather than just buy a palace. So I'm prepared to invest the jackpot in the following, and available to help winners do likewise:
* FOOD: regional and urban permaculture, especially greenhouses and orchards * FUEL: passive solar, neighborhood solar grid, cogeneration, insulation * HOUSING: earthships and tiny houses on community land trusts * HEALTH CARE: local health co-ops, Patch Adams clinics, Massage Army * TRANSPORTATION: trolleys, bikeshare, Progressive Street Reclamation * EDUCATION: skills of neighborhood management, artmaking * PLANNING: shift from cars to transit and bikes * JOB CREATION: solar construction, holistic health care, permaculture, worker ownership * WATER: carousel waterless toilets * MONEY: community currencies, green regional stock exchanges, public banks
This agenda is the lottery everybody wins. What if Americans pooled $2 each to advance these? We'd surpass the struggling middle class to become the mutual class, powerful without lotteries.
If you win, call me-- let's have some real fun. More details: http://www.paulglover.org/0910.html
* FOOD: regional and urban permaculture, especially greenhouses and orchards * FUEL: passive solar, neighborhood solar grid, cogeneration, insulation * HOUSING: earthships and tiny houses on community land trusts * HEALTH CARE: local health co-ops, Patch Adams clinics, Massage Army * TRANSPORTATION: trolleys, bikeshare, Progressive Street Reclamation * EDUCATION: skills of neighborhood management, artmaking * PLANNING: shift from cars to transit and bikes * JOB CREATION: solar construction, holistic health care, permaculture, worker ownership * WATER: carousel waterless toilets * MONEY: community currencies, green regional stock exchanges, public banks
This agenda is the lottery everybody wins. What if Americans pooled $2 each to advance these? We'd surpass the struggling middle class to become the mutual class, powerful without lotteries.
If you win, call me-- let's have some real fun. More details: http://www.paulglover.org/0910.html
8
Not sure who the heck Josh Barro is and don't really care. Never heard of him, so will put his advice in the same box as everyone else who tries to tell me what I should do with my money and bury that advice in the backyard along with the lump some cash. I darn sure don't and won't trust the Government to hold my money. Assuming Uncle Sam gets at least half for taxes, that would leave me with about $50K per day for the next 30 years. I'm not sure I can spend that much money nor am I sure that I am going to live that long but It could buy me a boat, a pickup to pull it and yeti 110 iced down with some silver bullets. Beyond that, I would take care of my family and probably donate about 100 mil to cancer research and I would definitely donate 100 mil to the NRA matching Michael Bloomberg's money 2-1, God bless the NRA. And I would still give a few dollars to the pan handlers every now and then and the Salvation Army bell ringers at Christmas.
4
$100 million for the NRA and "a few bucks" for the Salvation Army. A few words can say so much about someone.
11
$100 million to the NRA??? How about some 100s of millions to support and aid victims of gun violence and their families?
3
If you can somehow eliminate urban gangs and prevent suicides, you get rid of most gun violence.
1
Take the money up front. Not too long ago Illinois stopped paying winners because the state did not have the money. That is the big risk of taking the annuity.
13
Exactly Paul, never know when the state will stop paying on it. Up front is always better. Just hire a good financial advisor.
1
So much can happen in 30 years. As unlikely as it is, we can have hyper-inflation. Or interest rates might reach Carter levels. Or the lottery might be considering going bankrupt. If you take the money upfront, you at least have a chance to reconfigure your investments to take advantage of changes.
8
If the interest rates reach late 70s levels and you have mountains of money, you're set! Invest in bonds and sit back. Those interest rates are rotten for people borrowing, not people who have money. Inflation, now there's the opposite story...
1
True but you cannot take advantage of higher interest rates and less you have chosen the lump sum originally
1
This is absolutely miserable financial advice. Taking the annuity you have no flexibility to defend yourself against inflation. A lot can happen in 30 years!
7
So you're worried about taxes, inflation and interest rates...with nearly a billion dollars to save and play with?
Sorry, but annuity payments DO NOT protect you from stupid choices. It's future income, so you can borrow against it. You could spend all that money right away, just as you could with that lump sum. Simple.
4
What nobody seems to be mentioning is inflation. If you take a lump sum now and invest, you will probably end up keeping up with inflation, or doing a better job at least. If you take the annuity, your payment is going to be the same regardless of inflation. Sure, the amount will still be insanely high, but just think about what you could buy with $1000 in 1985 versus what you can buy today. Inflation since 1985 to 2015 (30 years) is 128%:
Result
$22600000 in 1985 has the same purchasing power as $51,551,165.10 in 2015.
The total inflation rate from 1985 to 2015 is 128.10250%.
The average inflation rate from 1985 to 2015 is 2.78688%.
Basically your money will be worth less than half of it's current value by the time you finish the annuity. If you take the cash payout you'll end up with around $600m after taxes, which if you look at inflation rate would be worth about $1.3-1.4b in 2045 dollars.
Result
$22600000 in 1985 has the same purchasing power as $51,551,165.10 in 2015.
The total inflation rate from 1985 to 2015 is 128.10250%.
The average inflation rate from 1985 to 2015 is 2.78688%.
Basically your money will be worth less than half of it's current value by the time you finish the annuity. If you take the cash payout you'll end up with around $600m after taxes, which if you look at inflation rate would be worth about $1.3-1.4b in 2045 dollars.
5
A diversified portfolio including a number of quality stocks, precious metals, etc is a good strategy to hedge against inflation.
The government is not setting up an annuity for you. It is discounting the headline prize by 2.8% over 30 years at the risk free rate. The "annuity" is a prize paid over time. The lump sum is taking that stream as a cash payment now.
It's just weird to think of the default prize structure as a feature that you can't create, when it is the way lotteries work so they don't pay out the whole sum at once.
It's just weird to think of the default prize structure as a feature that you can't create, when it is the way lotteries work so they don't pay out the whole sum at once.
1
Ailing political magazine? Congressional seat your spouse should run for? Wow, you really don't like Chris Hughes, do you!?
The most important thing to remember is that you can deduct the cost of the lottery ticket(s). This makes all the difference.
4
"Take the Annuity" and get an IOU like the "Lucky" Illinois lottery winners got.
No thanks. My 30 year outlook for fiscal stability of the Lottery and futures payouts is not so sanguine.
"When fraud is the status quo, possession is the law."
No thanks. My 30 year outlook for fiscal stability of the Lottery and futures payouts is not so sanguine.
"When fraud is the status quo, possession is the law."
5
And let's not forget state income tax--in California you'd be looking at about $150M if you took the lump sum (about $2.8M on the $22.6M annuity mentioned in the article); taking the annuity would give you ample time to become a bona fide resident of a state with no personal income tax.
2
The State of California do not tax Lottery winnings.
1
If you win, why would you not move to Texas or Washington and establish residence first *before* collecting your prize? Don't you have a few months to make your claim? Or establish a trust fund with yourself as the sole beneficiary and have it located in a state with lower taxes. Surely a good investment advisor or attorney who specializes in that kind of stuff can help you out of giving a big share to California?
2
There is no state income tax on lottery winnings in California!
2
thank you so much for writing this "voice of reason" when I am most certain to lose it tonite when I win the lottery. I had been debating this topic in my head for days now.
1
To sleep, perchance to dream - ay, there's the rub.
3
After this prudent advice I still want to take the lump sum, so that I can give away half of it to Super PACs to un-elect Donald Trump.
3
Is it certain that the State will honor the full 30 years? How does one trust that there will not be some attempt at a claw-back sometime down the road? A bird in the hand is worth two in the bush, after all.
5
I would take the annuity just to upset my greedy kids.
3
Older players of the lottery have more to lose from taking annual payments than younger players. A payment of $10M/year when you're in your 80s is not the same as $10M/year when you're in your 60s. An older player, if they want to spend the $$$s rather than bequeathing them, could easily want all the money up front so that, while alive, they choose where the $$$s go. Giving the money to a charity, while alive, might give people more happiness than giving it while dead (and suffering the risk that the receiver of the charity is being run differently than when one bequeathed it).
5
Uh.... 1.5 billion over 30 years is actually 50 million a year before taxes, not 22.6 as the author states.
the annuity payout is graduated. the author is right in that regard
1
Uh....Steve, I think you forgot to deduct income tax.
1
Accounting 100. It is an annuity. The payment considers life span, in this case 30 years, and interest rates. Tables are available for those who wish to find them.
It's actually the best advice. I've seen firsthand what having alot of money (more than the person ever could have saved in a lifetime) all at once can do to a person. Responsibility suddenly goes out the window for awhile as you realize that yes, you CAN afford this or that little 'something' for yourself. Beyond the reasons given by the paper, you also need to consider things like the state of your health and your age. I know this sounds weird, but I'm a soon-to-be five year Cancer-free survivor from stage 3 Rectal cancer at the age of 46. My disease is just in remission. It may come back tomorrow, next year, or 5 years from now. Personally, I could think, "Well, I probably won't be here in 30 years; I'll be a whopping 76, and most likely my cancer will have come back by then, or one of my other lifetime disabilities (and I was left disabled by my fight...long story), so maybe I should just take the lump sum." Yes. I could but I wouldn't. I'd prefer knowing I had the means to PAY for my upcoming 'Golden Years,' and all the various health issues that will most likely come with my advancing years. In-home Nursing and Aide help is dreadfully expensive. And you can easily spend the value of a good used car, PER MONTH, on a good Assisted Living or Nursing Home. Are you so sure of your ability to restrain your impulses that you will have more than enough money in 30 years to pay for YOUR retirement? Take the annuity...and have fun cashing a 22 million dollar check for 30 years!
20
Doubt the lottery will still be solvent in 30 years. Plus what happens if Bernie Sanders raises taxes to 80% for millionaires!!
2
Sorry to burst your balloon but while I congratulate your surviving the cancer, what makes you think that other bad stuff won't happen? You may not have the luck to enjoy your 'golden years' -- life is very unpredictable as you well know. I'd rather blow the stuff (within reason of course) and live well now -- give a few bob to friends and family and some worthy charity. YOLO as they say.
The last time I looked, the annuity is purchased from a private insurance company and is subject to what happens to that insurance company. It is not, as I recall, backed by the full faith and credit of a governmental entity. As a result, it is like putting all of your eggs in one basket. IF the basket turns out to be sound over the next 30 years, no problem, but we have seen some fairly strong financial institutions disappear periodically. If that happens, you will wish that you had taken the lump sum. Note that you do no better by taking the lump sum if you deposit it all in a single institution.
3
Unless you are the type of person who has no financial control, this article is horrible advice!
7
If the winner lives in a state or city with high income tax, might the annuity also give them an advantage by allowing them to establish residency in a place with no such taxes? For example, NYC and NY state combined income taxes are around 12% at the highest bracket. If the winner moved to a state with no income tax they may be able to avoid paying those on the future annuity installments. I would be interested to hear from a tax lawyer or accountant as to whether this would work.
2
Many states, like California, do not tax lottery winnings.
1
I have to quibble with the statement "if you take the lump-sum cash prize, you’ll pay tax twice: on the prize when you win it, and on the income you get by investing it." This is just more anti-tax nonsense. You are not paying tax twice on the same money. You pay the tax once on the winnings and then you pay additional tax on new earnings made from those winnings. It's no different from paying tax on your wages and then paying tax on earnings made investing those wages. I suppose the author hoped that instead of catching the discrepancy we would just come away thinking "OMG, we're getting taxed twice"
8
Take the lump sum, put it in a trust if for no other reason than asset protection and certainty that those YOU want to benefit from the prize will do so. Otherwise your estate will and that opens up a Pandora's box of friends and relatives fighting over the spoils. Also:
1. Illinois is 'temporarily' defaulting on paying out big prize winners because of state budget issues. Who knows what your state's fiscal situation would be in 20 years.
2. You take the annuity and die. The annuity is passed on to your beneficiary or if none is named to your estate. The estate will distribute winnings to heirs based on your will or if no will based on state law. Estate and inheritance taxes will be paid.
3. Taking lump sum and setting up a legacy trust or other trust for intended beneficiaries makes much more sense as the principal distributed isn't taxed only the interest income and if long term at capital gains rate. This limits the government to taking one bite of the prize at ordinary income rates and the rest at capital gains rates or if invested in tax free instruments, at 0 rates.
4. Prevents the impulse to borrow money to pay for that mansion or castle since you know you'll be getting another check next year. With enormous winnings you should pay everything off at purchase.
5. With enormous winnings, half allocated to investments and the other half allocated to living, sharing and gift giving should make any winner feel rich and secure.
1. Illinois is 'temporarily' defaulting on paying out big prize winners because of state budget issues. Who knows what your state's fiscal situation would be in 20 years.
2. You take the annuity and die. The annuity is passed on to your beneficiary or if none is named to your estate. The estate will distribute winnings to heirs based on your will or if no will based on state law. Estate and inheritance taxes will be paid.
3. Taking lump sum and setting up a legacy trust or other trust for intended beneficiaries makes much more sense as the principal distributed isn't taxed only the interest income and if long term at capital gains rate. This limits the government to taking one bite of the prize at ordinary income rates and the rest at capital gains rates or if invested in tax free instruments, at 0 rates.
4. Prevents the impulse to borrow money to pay for that mansion or castle since you know you'll be getting another check next year. With enormous winnings you should pay everything off at purchase.
5. With enormous winnings, half allocated to investments and the other half allocated to living, sharing and gift giving should make any winner feel rich and secure.
5
The $22.6M is after taxes. Imagine the loans one could take out with that kind of a revenue stream as collateral. I think I could buy that house in the Hamptons!
My impulse, however, would fall more into the line of funding Democrats in this election cycle, especially those in tough races against opponents financed by the Koch brothers and Sheldon Adelson; annual payments to NPR and PBS and other worthy charities (the Guggenheim, the Metropolitan Museum, alma maters,...); investments in solar and renewable energy; in the dreams of my extended family; and the house on the beach in the Caribbean to get away from these cold winters.
Actually, that's a pretty good prescription for use outside the necessities of any monies realized.
My impulse, however, would fall more into the line of funding Democrats in this election cycle, especially those in tough races against opponents financed by the Koch brothers and Sheldon Adelson; annual payments to NPR and PBS and other worthy charities (the Guggenheim, the Metropolitan Museum, alma maters,...); investments in solar and renewable energy; in the dreams of my extended family; and the house on the beach in the Caribbean to get away from these cold winters.
Actually, that's a pretty good prescription for use outside the necessities of any monies realized.
2
Dems get plenty of financing already from other people with multi-bilions: Soros, Bezos, Buffet, et al. Some people conveniently forget that when they mention Koch and Adelson.
2
You left out the numerous unions, 90% of Hollywood and a bevy of SuperPacs.
Ever wonder what percentage of the donations from both parties gets skimmed off? I'd guess 30%.
Ever wonder what percentage of the donations from both parties gets skimmed off? I'd guess 30%.
1
That’s the kind of liberal mentality I expect. Ignoring billionaires like Bloomberg, Steyer and Soros, contributing to the ridiculous unholy alliance between media and politicians (Who do you think will be the main beneficiary of the estimated $10 Billion being spent on this election cycle? Why do you think there are no impartial media sources?), wanting to spend money on “worthy” charities like “the Guggenheim, the Metropolitan Museum, alma maters,…”. I guess UNICEF, Habitat for Humanity, Doctors Without Borders, food banks, etc. don’t make the cut. But Hey, I am sure you will get some black-tie invites donating to the Met. Good for you…
1
Nope. Any investment firm that can't beat the risk-free rate should get out of the business (and there are a lot of them, but don't use the losers). All you need to do is earn 4.71% instead of 2.843% and the short-term capital gains taxes are more than covered; only 3.56% for long-term, and just 12 months after starting it can always be long-term. Or you can earn more than 2.843% on a lot of tax-free municipal bonds, and it's not hard to find those so you shouldn't have to pay a lot to diversify all of the $930 million into them, and you get to brag you're shoring up the infrastructure. So the real advice is to take the lump sum but only after making friends with a competent (not to be confused with registered) investment advisor. Reply to this message if you want my help.
4
Perhaps most winners go wild, but one doesn't need to. I figure that the winner will take home (after taxes) a lump sum of ca. 562 million (BTW, the winner will pay taxes on the annuity all the same at about the same rate as a single payout). If one skims 12 million for fun, that leaves 550 million, invested in a fund composed of half a total market index of stocks and half municipal bonds (not taxed by the feds and some states) appreciating at 7.49% on a twenty-year average. Do the math: that's roughly 43 million a year (forever), less taxes on half the 1.7% dividends (1.64 million per year) plus taxes on capital gains you spend. That make a lot more sense than the 22.6 here, unless one has no impulse control whatsoever.
And let's face it: in the end you can't take it with you.
And let's face it: in the end you can't take it with you.
3
"The top prize in the $1.5 billion Powerball is not actually $1.5 billion. If you take the prize as a one-time cash payment, you will get a mere $930 million, before taxes".
Hmmm - a one-time cash payment of a mere $930 million before taxes? I do believe I can handle that harsh reality just fine.
12
What about estate taxes? If a winner takes the annuity and dies before the annuity is fully paid, his or her estate will owe a huge amount of estate tax, based on the present value at time of death of the future income stream. Assets over the $5.45 million federal exclusion, are taxed at 40%. Where is the money going to come from if the lucky winner spends all the annuity payments received in his or her lifetime? And then there are state estate or inheritance taxes in about one-third of the states. The winner could be leaving the family with huge headaches!
8
I just want to blow the money! How about that!
14
Well JW, the author here is 100% right if you are a wise, common sense person looking for a balance between riches, longer term happiness and self control.
Unfortunately most Americans are more like you....Damn the torpedos, full steam ahead. They want instant, full gratification and will pay the price when the world around them self implodes.
It is the nature of the beast.
Unfortunately most Americans are more like you....Damn the torpedos, full steam ahead. They want instant, full gratification and will pay the price when the world around them self implodes.
It is the nature of the beast.
1
Take the annuity then call J.G. Wentworth.
1
Suppose you croak right after you take the annuity and have no heirs?
1
I'll take the annuity for one simple reason. I really don't need more than 20 million dollars a year to survive. That number is so over the top already that even if the lottery goes belly up or something in 10 years I still would have collected 200 million bucks of free money that I really didn't earn or work for. I WON IT. You folks could not sound more greedier quibbling over lump payout or annuity. Either one is a perversity of money. Get a life.
4
His math was wrong anyway, first time annuity payment would be well over 100 million and the rest would 20 to 30 million over 29 years.
It's called business sense. One option is clearly safer and better than the other for anyone with brains and self-discipline. Trusting or depending upon the future solvency of the US govt and the honesty and integrity of its politicians is a gamble in and of itself.
1
Sorry to contradict your advice, but at my age the lump sum is the way to go. It is not for the "bling and blang". It would buy a quality of life, an ease of everyday living. This is something that most winners, to my knowledge, fail to appreciate.
And even if I were younger, just putting aside some $10M at 5% would give an annual income of $500K. Seems to be enough, even for most spendthrifts.
And even if I were younger, just putting aside some $10M at 5% would give an annual income of $500K. Seems to be enough, even for most spendthrifts.
4
PS - The Upshot to winning this lottery is not having to depend on Obama Care for my health insurance. That in and of itself is a good reason to play and hope to win. Good luck to all who purchased a ticket!!
1
Is it possible for Obama to NOT be dragged into every conversation?
1
The problem with this article is that it assumes taxes will not go up. If the democratic socialists (such as Bernie Sanders) had it their way, taxes would be up to 90% by the time you get to the end of the 30-year annuity. I'd rather take the lump sum now and pay the taxes while they are lower (as I doubt taxes will be going down in the next 30 years).
5
Or the right wing extremist like the nutjob terrorists that took over the wildlife refuge could end up taking over the government and dismantling the lottery ;-) All sorts of uncertainties in waiting 30 yrs. Sorry - it's the lump sum for me.
2
So what if I blow the my percentage of the billion dollar lottery in a short period. I will be no worse off then as I was the day before I bought my ticket. Lottery winnings is found money. I'll have some fun, be generous and share and when it's gone, it's gone.
2
You'd probably blow it all on the horses. ;-)
Absolutely! How did you know?
Thanks for making me chuckle Watcher.
Thanks for making me chuckle Watcher.
1
As long as you keep your job, have saved for retirement, and done all of those financially prudent things in the first place, sounds like a reasonable personal choice to me (not one I'd do, mind you, but I can see how one could reasonably make that choice).
1
Yes, take the annuity, but before even cashing in the ticket the first thing you do is legitimately move to a state where there is no income tax. Then you cash in the ticket. That should save you a ton of money.
4
Sorry that won't work. You will have to pay taxes to the state where you purchased the ticket as it is considered income earned in that state. However, you will not have to pay taxes to that state on future investment income, only on the initial payout from the lottery.
2
Doesn't work. You have to claim the prize within 180 days, and the standard for residency for tax purposes is 183 days. The thing to do with the money is to stop whining about paying taxes; the government just made you nearly a billionaire and biting that hand is sociopathic.
4
It's actually the taxpayers and other ticket buyers making a winner a billionaire. The government itself already takes too much and spends too much - I'll give them what I have to, but they work for ME. I owe them nothing more, and want little more from them than a strong military.
Hmmm..... Give it all away today, to poor, starving people so they can breed and make a lot more poor, starving people? Or, bet it all on Space Elevators, to truly enable mankind's future in Space, enable access to the vast resources of Space, and benefit the billions of people who will live in Space 300 years from now?
Nah, just spend it on tons (2,000 pound tons) of gold & silver coins, buy a bank building with a big vault, and swim like Scrooge McDuck in all the treasure.
Nah, just spend it on tons (2,000 pound tons) of gold & silver coins, buy a bank building with a big vault, and swim like Scrooge McDuck in all the treasure.
3
I agree with the principle, annuities are better since you'll always have the money and won't be able to spend it (they also make a good excuse to tell people you can't loan them money because you only get so much each year, which is the curse of winning the lottery) but i'd be inclined to take the payout and put it in other annuities than rely on one state's fund. There are a lot of low fee annuities out there that get better results than merely tracking Treasury bills but are still extremely low risk, plus you can spread it out among different banks for safety, and you never have to worry about a politician raiding the fund for some pet project.
20
That is just so wrong on so many levels.
How many "banks" (btw, banks don't issue annuities, they sell annuities provided by an insurance company, and you might notice that those contracts say "NOT FDIC INSURED!") would you need to work with to spread $700M around into?
And of the dozens of insurance companies (each hitting you for fees) how many of them folding (it happens!) would knock your total return down below the "risk free" return of the government bonds?
And if the government does go belly up, what do you think is going to happen to all of those insurance companies that buy government bonds?
How many "banks" (btw, banks don't issue annuities, they sell annuities provided by an insurance company, and you might notice that those contracts say "NOT FDIC INSURED!") would you need to work with to spread $700M around into?
And of the dozens of insurance companies (each hitting you for fees) how many of them folding (it happens!) would knock your total return down below the "risk free" return of the government bonds?
And if the government does go belly up, what do you think is going to happen to all of those insurance companies that buy government bonds?
You can keep yourself from spending it all if you tie it up in a trust that limits the amount you can withdraw each year to a certain % of principal, while investing the money wisely in a way that allows dividends and interest to likely exceed that amount each year.
This column comes across as simultaneously condescending and ignorant, an unfortunately frequent combination among the punditry. Every time I read anything Mr. Barro writes for the Times, I'm left to wonder on what basis he's allocated bandwidth on the site. It used to be that newspaper columns were given to people who had paid their dues in one form or another, either through some sort of public service or through success in their chosen field. Nowadays it seems that kids straight out of college (well, only certain colleges), with no real life experience, are given major platforms like this. I often see Mr. Barro's writing in these pages and see him as a guest on MSNBC and cannot figure out on what basis we're supposed to take him and his cohort seriously. Please return to the days when a column in the Times was given in recognition of past achievements and not simply for graduation from Harvard, Yale, Brown, etc.
28
@jmolka,
Your response to the article comes across a both resentful and ill informed.
The article was indeed informed by "real life." Of "Fear" and "Greed" there is only one in the usual decision made by the lottery winner, "Greed." "Gimme, Gimme, Gimme!" As if billionaires all have their money in a gigantic "Uncle Scrooge Mc Duck" vault and that what the lottery winner needs so they can "be" a "Billionaire."
Mark Zuckerberg is a Billionaire, based on the value of Face Book shares he owns. Not based on his bank account. Not based on his income (IDK what his income is) But if he's taking home $22MM/yr chances are even he can't spend that much.
What the article does ignore is that, even if you take the annuity, some people will find the need to borrow against the future value of that annuity and blow the $$$ anyway.
Your response to the article comes across a both resentful and ill informed.
The article was indeed informed by "real life." Of "Fear" and "Greed" there is only one in the usual decision made by the lottery winner, "Greed." "Gimme, Gimme, Gimme!" As if billionaires all have their money in a gigantic "Uncle Scrooge Mc Duck" vault and that what the lottery winner needs so they can "be" a "Billionaire."
Mark Zuckerberg is a Billionaire, based on the value of Face Book shares he owns. Not based on his bank account. Not based on his income (IDK what his income is) But if he's taking home $22MM/yr chances are even he can't spend that much.
What the article does ignore is that, even if you take the annuity, some people will find the need to borrow against the future value of that annuity and blow the $$$ anyway.
Lump or annuity isn't the biggest issue they will face. No, they need to find a place to hide. People will be gunning for that person/people. I recall that the lottery winner in Chicago that was poisoned. Get your lawyer, tax attorney, and financial advisers lined up and also immediately revise/create your will to deal with your newfound wealth. Get things settled and then get out of dodge.
8
And don't wait till after you win! Call me NOW! Operators are standing by! I will advise the bejebus out of your finances, but only if you're among the first hundred thousand to call!
1
And hire bodyguards. You don't want kidnappings.
Never, I can do allot better myself and a whole lot better with a wealth management team than that annuity. Though their are allot of people that probably should take it since they have no concept of wealth management.
1
Maybe taking the annuity is a good idea if the winner is young. A winner who is over the age of 60 should take the lump sum. So much advice on the subject ends up benefiting the government more than the winner. Elder?? Take the lump, pay the taxes, go enjoy!! Simple as that.
6
Someone over 60 isn't likely to see the end of the money in any case, so that's not an argument. And the annuity survives in the estate, so their heirs will get the payments once the winner dies, so that's not an argument. The question is whether you can find a better use for the larger amount. I know I can. A lot of people might not. The primary reason to take the lump sum is that at today's interest rates it's the biggest it's ever going to be. Rates are more likely to go up than down, which means that 2.8% you're earning is going to look pathetic in a few years, and if the cash is in your hands you can continuously adjust your portfolio to take advantage instead of being stuck with the fixed payout.
Follow John Travolta's advice in "Broken Arrow" - buy Volvo and live of the dividends, knowing you're creating a safer world - hah!
2
What most of these articles don't tell you is that you can actually do both. You can choose to take part of the payout as a lump sum and part as an annuity. Personally, I would probably take the option that gave me $100 million in cash (after taxes) today and take the rest as an annuity. That would give me an annual income of about $40 million per year, which isn't too shabby. Taking a partial annuity also keeps you from blowing all the money at one time.
8
If that's possible (I've never seen anything in the lottery documentation about it, but that just means I haven't seen that) then that would constitute a means of diversification. Which you can do with the lump sum yourself, and still get a better rate of return on every tranche of the diversified portfolio. IMO the one thing you don't want to do is lock yourself into anything you can't divest cheaply, and while you can sell a lottery annuity, you get lousy rates for that. Bayes' rule would also say that since your advantage on the investment is only 2.8%, you should only put 2.8% of your portfolio into it, meaning you would tell the lottery annuity to pay you $1.4 million a year, and take the rest as a lump to diversify elsewhere. But again the illiquid nature of that makes it worth less than the interest it's paying.
Another advantage is that even the annuity amount would take a long time to invest wisely. Trying to invest around five hundred million all at once opens you up for a lot of mistakes.
2
Maybe this adds to the discussion: http://finance.yahoo.com/news/whats-tax-bill-1-4b-201206560.html
That's excellent. It points out that the feds only take 25% as withholding, and you have 17 months to invest over $135 million that you will end up paying in further federal income tax. Even at only 2.85%, that $135 million will earn $4.8 million over that time, which you'll only pay 20% on, leaving you $3.8 million in additional free cash, and you'll never have to calculate income tax on your winnings again, just on your capital gains, which will be taxed at 20% as long as you only ever take out money that's been in its investment vehicle for over 12 months, or 0% if your vehicle is a tax-free bond of some sort.
What a mad and silly article. 22.6 million dollars, losing half to taxes, is still more than almost anyone bothering to respond to this article will be able to accumulate across the span of their lifetime. What difference would it make, unless you have aspirations that require hundreds of millions of dollars in initial capital?
We win the lottery everyday in this country that we wake up in a reasonably safe place, have enough food to eat, clothes to wear and work to be found. Me? I aspire to a house with a garage. I aspire to giving my kids the educational opportunities I had without worrying about debt (the way I did - because state school was both affordable and achievable for a student with modest grades). My selfish aspiration is not spending 12 or more hours of every one of my remaining weekdays working at something that isn't wonderful, because the most important commodity that exists is time - money can't buy more of it, but it can give us the freedom to choose how it's spent.
I think I could cover that with just one payment.
We win the lottery everyday in this country that we wake up in a reasonably safe place, have enough food to eat, clothes to wear and work to be found. Me? I aspire to a house with a garage. I aspire to giving my kids the educational opportunities I had without worrying about debt (the way I did - because state school was both affordable and achievable for a student with modest grades). My selfish aspiration is not spending 12 or more hours of every one of my remaining weekdays working at something that isn't wonderful, because the most important commodity that exists is time - money can't buy more of it, but it can give us the freedom to choose how it's spent.
I think I could cover that with just one payment.
27
Amen.
Truly.
Truly.
2
Mr. Barro's analysis is terrible advice! as others have commented previously.
I am very glad he is not my financial advisor. I would be broke if he were.
NYT, I expect better from you.
I am very glad he is not my financial advisor. I would be broke if he were.
NYT, I expect better from you.
5
Anyone with ANY fiscal cents [sic] would do this without suggestion.
Great article. Definitely use a safe deposit box; but make sure to also insure the box. No bank or federal agency insures the contents of a safe deposit box. Only one company I know of can insure it overnight—SDBIC.
Something doesn't sound right. The annuity is $22.6M/yr? That times 30 years is only $678M. Does the payment grow each year? If so, the government is holding onto your money longer to goose their return. Or is that after taxes on that years' payment?
I say take the full amount ($930M, which after a big tax payment is probably more like $500M). Invest that broadly, expecting maybe 5% return, so $25M/yr. You remove only the investment return each year and pay taxes on the capital gain, so you have ~$20M/yr of actual cash to spend, FOREVER, and you still leave the nest egg of $500M to your heirs.
I say take the full amount ($930M, which after a big tax payment is probably more like $500M). Invest that broadly, expecting maybe 5% return, so $25M/yr. You remove only the investment return each year and pay taxes on the capital gain, so you have ~$20M/yr of actual cash to spend, FOREVER, and you still leave the nest egg of $500M to your heirs.
2
It is a basic rule of finance that a dollar today (present value) is worth more than a dollar tomorrow (future value). The tax effects might be an issue but with such a large annuity payment I think the actual tax effects of annuity vs lump sum would be minimal. I would take the lump sum.
1
This is the sort of article that sort of legitimizes the whole lottery thing and IMO has no place in the NYT. How silly for readers to waste even a nanosecond considering something that won't happen.
Another way to look at the odds are for me to drive from where I live to Alaska and pick a point at random. Then you come along and guess within a half inch on either side. The fact that "someone wins" is lottery system subterfuge to convince players that they have a reasonable chance when nothing could be further from the truth.
A co-worker said that he spent on lottery tickets what I would spend at a fast food place later today. I said at least I get lunch for it. The media, including now even the NYT, need to stop feeding the frenzy and spreading disinformation.
Another way to look at the odds are for me to drive from where I live to Alaska and pick a point at random. Then you come along and guess within a half inch on either side. The fact that "someone wins" is lottery system subterfuge to convince players that they have a reasonable chance when nothing could be further from the truth.
A co-worker said that he spent on lottery tickets what I would spend at a fast food place later today. I said at least I get lunch for it. The media, including now even the NYT, need to stop feeding the frenzy and spreading disinformation.
1
You get lunch. They get hope. False hope, maybe, but that's what we all have, dealing with hopeless naysayers every day.
But the lottery does two other things: 1. it slightly reduces everyone's tax bills, converting them to entertainment costs for those who choose that form of entertainment; 2. it reduces the demand for numbers rackets run by organized crime, which used to flourish before lotteries were instituted.
But the lottery does two other things: 1. it slightly reduces everyone's tax bills, converting them to entertainment costs for those who choose that form of entertainment; 2. it reduces the demand for numbers rackets run by organized crime, which used to flourish before lotteries were instituted.
1
That's some terrible advice. Besides the political risk touched on by other commenters, it is very very easy to beat the return on treasury bonds. Index funds, high-end/commercial real estate in New York. I was checking inflation rate for 1985 to 2015 and even that is higher than the return of waiting 29 years.
1
Barro presumes (perhaps correctly) GOP'ers and the TP crowd want our little capitalist mecca to continue on pretty much ' as is ' for the next 30 years - a little too sanguine we would say, judging from the propensity of ' smart money ' since the days of St. Ronnie to get the cash now/monetize everything/make capital as mobile as possible.
And there's this little ' fly in the ointment ' from the radical rightists as to what's looming:
http://www.slate.com/blogs/the_slatest/2016/01/08/texas_governor_greg_ab...
showing why the Risk of waiting to see if an ' annuity certain ' is a little more fuzzy than in the past is outweighed by acting like ' smart money ' has been doing for these last 30 years.
Winners should take the money and run, following the cues of Wall Street and corporate America's abandonment of pension systems, and their constant whittling away at the ultimate pension/annuity, Social Security.
No one out in fly-over country trusts the financial system to honor a financial arrangement made today for the next 30 years - indeed, they wouldn't even hand their corner financial institution $5 today, expecting that institution to hand it back next week sans a lot of unexplained fees/deductions/skimming.
And there's this little ' fly in the ointment ' from the radical rightists as to what's looming:
http://www.slate.com/blogs/the_slatest/2016/01/08/texas_governor_greg_ab...
showing why the Risk of waiting to see if an ' annuity certain ' is a little more fuzzy than in the past is outweighed by acting like ' smart money ' has been doing for these last 30 years.
Winners should take the money and run, following the cues of Wall Street and corporate America's abandonment of pension systems, and their constant whittling away at the ultimate pension/annuity, Social Security.
No one out in fly-over country trusts the financial system to honor a financial arrangement made today for the next 30 years - indeed, they wouldn't even hand their corner financial institution $5 today, expecting that institution to hand it back next week sans a lot of unexplained fees/deductions/skimming.
3
It's all bush's fault!
I would take it all now for the same reason that I began taking Social Security as soon as I turned 62: I don't trust the government to have the money in years to come to continue the payments, or it will change the rules to make it more difficult to collect.
2
Rule of thumb (and general economic sense): Money now is worth more than money later.
Cheers.
Cheers.
6
This is bad advice.
It presumes the winner can't handle the dough over time. Also, a 5% return without taking much risk is very doable, especially with that much capital to put to work.
Also, winners who believe in themselves can magnify that lump sum doing good in the in the near term.
It presumes the winner can't handle the dough over time. Also, a 5% return without taking much risk is very doable, especially with that much capital to put to work.
Also, winners who believe in themselves can magnify that lump sum doing good in the in the near term.
3
Enough with the snark about how buying a lottery ticket means you are not one of your generation's "greatest financial minds."
Buying lottery tickets -- particularly for a jackpot this large -- to me is about entertainment. My husband and I couldn't even see a movie with the $20 we spent on 10 tickets, and we've had a lot of fun thinking about what we'd do with the money. It's hard to daydream about spending a lottery jackpot when you don't have a ticket!
I'm also not so sure that many people would be making 30 year investments at 2.843 percent interest. Giving that we're in a rising rate environment, it won't be long before that annuity rate is going to be chump change.
And why the heck would you invest that money by buying an insurance company annuity? The insurer is going to invest the money and take in the difference between what they get on their investments and the guaranteed rate they are paying you. With that sort of principal, start a family office and invest directly. Even with the costs associated with paying investment advisors, you should be able to do better than that sub 3% pre-tax rate.
You're also running a risk that future tax rates will be no higher than current rates. With the lump sum, you can change investing strategies to reflect new tax law. With the annuity payment, you've got fewer options.
Buying lottery tickets -- particularly for a jackpot this large -- to me is about entertainment. My husband and I couldn't even see a movie with the $20 we spent on 10 tickets, and we've had a lot of fun thinking about what we'd do with the money. It's hard to daydream about spending a lottery jackpot when you don't have a ticket!
I'm also not so sure that many people would be making 30 year investments at 2.843 percent interest. Giving that we're in a rising rate environment, it won't be long before that annuity rate is going to be chump change.
And why the heck would you invest that money by buying an insurance company annuity? The insurer is going to invest the money and take in the difference between what they get on their investments and the guaranteed rate they are paying you. With that sort of principal, start a family office and invest directly. Even with the costs associated with paying investment advisors, you should be able to do better than that sub 3% pre-tax rate.
You're also running a risk that future tax rates will be no higher than current rates. With the lump sum, you can change investing strategies to reflect new tax law. With the annuity payment, you've got fewer options.
43
I agree, please stop being critical of people just because they buy lottery tickets. We all know we aren't going to win. Even the person who wins knows they aren't going to win, but that's not what Lottery is about.
Lottery, is the "Dream Tax", is the government's way of generating revenue from our daydreams. Isn't it nice to dream even if it's just for a few moments. In my opinion, the two dollar tax is very reasonable because it offers us an opportunity to get away mentally, to think about something other than our every day stresses.
Lottery, is the "Dream Tax", is the government's way of generating revenue from our daydreams. Isn't it nice to dream even if it's just for a few moments. In my opinion, the two dollar tax is very reasonable because it offers us an opportunity to get away mentally, to think about something other than our every day stresses.
2
Agreed. I am not a gambler. I buy a Powerball ticket a couple of times a year. That doesn't make me financially irresponsible.
1
Depending on your age and the state you live in: Very BAD advice for some to take the annuity. Here's why:
Estate Tax Bite
States will make annual annuity payments to you and then to your heirs until the money runs out. If you die before receiving all your annuity payments, your estate and heirs could face a whopping death-tax bill on all the unpaid money remaining in the annuity. That tax would be due all at once in the year of your death. In effect, your estate and heirs would owe tax today on money that won’t be paid for years to come. But if your state lottery permits payment of the present value of the outstanding annuity balance as a lump sum to your estate, your heirs can obtain the money to pay the death taxes.
If you win, call Goldman Sachs - they have the best of the best financial and tax planners. You'll pay up front but you and your heirs will have wealth forever.
Estate Tax Bite
States will make annual annuity payments to you and then to your heirs until the money runs out. If you die before receiving all your annuity payments, your estate and heirs could face a whopping death-tax bill on all the unpaid money remaining in the annuity. That tax would be due all at once in the year of your death. In effect, your estate and heirs would owe tax today on money that won’t be paid for years to come. But if your state lottery permits payment of the present value of the outstanding annuity balance as a lump sum to your estate, your heirs can obtain the money to pay the death taxes.
If you win, call Goldman Sachs - they have the best of the best financial and tax planners. You'll pay up front but you and your heirs will have wealth forever.
4
Personally, I won't care what happens to any taxes after I am dead. There would still be more than enough left. But I would be willing to find out if you could add lottery winnings to a living trust.
I'm not sure where this $22.6 million figure is coming from for the annuity amount. It seems to me that 1.5 billion divided by 30 years is $50 million per year pre-tax.
In any case, you can argue the case both ways. 500 or 600 million is a tremendous amount to manage, and some people might be more at ease just getting a big fat yearly check, which in itself would be a management challenge. The tax savings are a good point as well.
On the other hand, you have no inflation hedge built into the annuity. If inflation were to go up substantially, you could not pivot any investments into higher yielding assets. The interest rate quoted for an ultrasafe investment is good now. Will it be in 10 years? Your locked in. Probably wouldn't make much difference in terms of lifestyle, but it would lower your real rate of return.
In any case, you can argue the case both ways. 500 or 600 million is a tremendous amount to manage, and some people might be more at ease just getting a big fat yearly check, which in itself would be a management challenge. The tax savings are a good point as well.
On the other hand, you have no inflation hedge built into the annuity. If inflation were to go up substantially, you could not pivot any investments into higher yielding assets. The interest rate quoted for an ultrasafe investment is good now. Will it be in 10 years? Your locked in. Probably wouldn't make much difference in terms of lifestyle, but it would lower your real rate of return.
1
In an odd way, the logic behind Mr. Barro's premise is the emblematic of our self-destructive fear of taxes and our willingness to perversely distort our own behavior so as to not pay a single "extra" dollar in taxes. A lottery winner will be getting a massive amount of 'free' money, so the possibility that the winner might pay more in taxes if they took the lump sum seems like small beer. Justice Holmes once said "I like to pay my taxes. It buys me civilization." Look at it this way -- if you won the lottery in Guatemala (and MANY other places), the banks, bureaucrats, thieves and kidnappers would line up to steal your money, and you would have no protection or recourse. No so here in America, but that requires government, which needs to be funded. Just do what you want do, lump sum or annuity, and be grateful for what you have and for your good luck, and use some of the money to be generous to deserving people, which you will never regret. That's what I say.
419
Exactly. And even if they wind up completely blowing their jackpot, lottery winners are the only segment of the megarich who actually use trickle down economics.
3
I'm upper middle class (born lower middle class), and I am a huge beneficiary of trickle down economics. As is my maid, my landscaper, my hair stylist, my home builder, my car salesman, etc.
As for protection here in America, it IS becoming more of an issue with the growing anti-police sentiment, grievance hustling, moral decay in certain cultures, etc.
As for protection here in America, it IS becoming more of an issue with the growing anti-police sentiment, grievance hustling, moral decay in certain cultures, etc.
Thank you!
1
This advice is absolutely correct; a Powerball winner doesn't need a big rate of return on his investments in order to be financially successful. A person could take the lump sum, aggressively invest successfully, and do even better. But so what? The upside isn't material.
What IS material is the downside. Powerball winner after Powerball winner has screwed up, blowing the money, making bad investment decisions. The annuity option means you get THIRTY opportunities to NOT screw up. You could mess up 29 times, and still, with that last $22.6M check, make the right decisions and you're set for life.
The primary risk for a Powerball winner is to screw up; the annuity addresses that problem. All you people that think you can get a few extra percent by investing the lump sum; you're ignoring the lessons of history and human nature. Try a slice of humble pie and accept it: the annuity is in your best interests.
What IS material is the downside. Powerball winner after Powerball winner has screwed up, blowing the money, making bad investment decisions. The annuity option means you get THIRTY opportunities to NOT screw up. You could mess up 29 times, and still, with that last $22.6M check, make the right decisions and you're set for life.
The primary risk for a Powerball winner is to screw up; the annuity addresses that problem. All you people that think you can get a few extra percent by investing the lump sum; you're ignoring the lessons of history and human nature. Try a slice of humble pie and accept it: the annuity is in your best interests.
75
A person who takes the annuity will easily be able to borrow against the future payments. They can also change their mind later and sell the future payments to a 3rd party for a lump.
If someone is going to screw up and end up broke it doesn't matter which choice they make. And the scenario where someone messes up 29 times and then gets smart with the 30th payment is so unlikely as to not be worth mentioning.
If someone is going to screw up and end up broke it doesn't matter which choice they make. And the scenario where someone messes up 29 times and then gets smart with the 30th payment is so unlikely as to not be worth mentioning.
3
Not if you are yourself a savvy financial professional, or know to hire such people. I don't need the govt deciding what is "in my best interests" when it comes to my personal finances and other personal matters. I only need govt to protect me from criminals and to do a few other things my tax dollars are supposed to pay them to do.
@Bill, I agree with the annuity factoring concern. If the annuity certain is a contract, I'd ask that it be written with a strict anti-assignment provision. A savvy drinker locks up his gun before going on a bender; a savvy Powerball winner ties his own hands with an anti-assignment clause in the annuity.
As for people learning that there are lots of ways to screw up financial planning, I actually DO think that one can learn their lesson. The problem with the lump sum is that the lesson is taught only once, with no opportunity to do better next time. People are scammed out of lots of money all the time. The point isn't that people learn after 29 failures; the point is that the first screw-up is the most likely, and there are many more screw-ups possible. Don't limit yourself to 1.
@Julio, savvy financial professionals do get scammed too - often by other supposedly savvy financial professionals. How many hundreds of millions did Madoff scam? A savvy financial professional knows to lay off as much risk as he can, and the annuity option lays off the risk of screwing up and being scammed, onto the government. It's the smart trade.
As for people learning that there are lots of ways to screw up financial planning, I actually DO think that one can learn their lesson. The problem with the lump sum is that the lesson is taught only once, with no opportunity to do better next time. People are scammed out of lots of money all the time. The point isn't that people learn after 29 failures; the point is that the first screw-up is the most likely, and there are many more screw-ups possible. Don't limit yourself to 1.
@Julio, savvy financial professionals do get scammed too - often by other supposedly savvy financial professionals. How many hundreds of millions did Madoff scam? A savvy financial professional knows to lay off as much risk as he can, and the annuity option lays off the risk of screwing up and being scammed, onto the government. It's the smart trade.
Mr. Barro, it is my understanding that, if you take the annuity, and keep it in your name only, that the IRS can charge the Estate Tax on the entire amount, if yo die. And, that pertains to money that hasn't been collected yet.
Better yet, seek legal counsel, form a corporation, fund it with the original ticket, and give shares to family, friends or whomever. Of course, you would probably wish to make donations, from the amounts received, to any favorite charities, if you wish.
Better yet, seek legal counsel, form a corporation, fund it with the original ticket, and give shares to family, friends or whomever. Of course, you would probably wish to make donations, from the amounts received, to any favorite charities, if you wish.
1
What happens if you take the annuity and "something happens" to the lottery? It's declared illegal, or it falls off the back of a truck -- doesn't matter what. The lottery existed on Wednesday, and it's gone on Thursday. Unlikely as this is, would those annuity payments still be forthcoming?
7
Good query. That's why many pass on any annuity.
2
If it becomes part of your estate then wouldn't whoever you left it to have to pay the outrageous %50 estate tax on it?
How is this correct financial advice?
How is this correct financial advice?
2
Don't take the annuity, but let government pay you anyways. Make a fortune.
1. Lump Sum.
2. Purchase the rights/patent to a few medications.
3. Increase price 10 fold or so.
4. Watch Medicare/Medicaid checks start rolling in.
1. Lump Sum.
2. Purchase the rights/patent to a few medications.
3. Increase price 10 fold or so.
4. Watch Medicare/Medicaid checks start rolling in.
2
And then go to jail.
Winning the lottery is the the very definition of found money. Ultimately, your true nature, for better or worse, will assert itself regardless of the advice your given. If you're altruistic at heart, you will act accordingly. If your nature is such that you need to lord it over others, that's what you'll do. If you're too trusting, there's the old adage: "a fool and his money are soon parted" or its variant (and my favorite): "a fool and his money are some party."
On a practical tax nite, though, had read awhile back that when you die, the present value of all your lottery future payments on your annuity are immediately taxable by federal and state authorities as part of your estate. In some cases, to raise that money, the lottery annuity gets sold in what, charitably, could be called a distress sale. Have the tax laws changed?
On a practical tax nite, though, had read awhile back that when you die, the present value of all your lottery future payments on your annuity are immediately taxable by federal and state authorities as part of your estate. In some cases, to raise that money, the lottery annuity gets sold in what, charitably, could be called a distress sale. Have the tax laws changed?
Wrong:
1. Inflation, it takes about $250 to buy what $100 would buy 30 years ago, with the national debt at almost 20 Trillion, inflation is in our future.
2. Taxes, with ongoing deficits and the above mentioned national debt, does anyone think taxes will go down in the next 30 years? Bernie wants to raise income tax on the rich to 90%. Some States don't tax lottery winnings, California for example.
3. Take your half billion, invest it wisely and conservatively and enjoy the money, especially the older you are. I'm not going to be much fun in 30 years if I'm even alive.
1. Inflation, it takes about $250 to buy what $100 would buy 30 years ago, with the national debt at almost 20 Trillion, inflation is in our future.
2. Taxes, with ongoing deficits and the above mentioned national debt, does anyone think taxes will go down in the next 30 years? Bernie wants to raise income tax on the rich to 90%. Some States don't tax lottery winnings, California for example.
3. Take your half billion, invest it wisely and conservatively and enjoy the money, especially the older you are. I'm not going to be much fun in 30 years if I'm even alive.
4
Except for that whole "compound interest" thing. If you take the $960MM payout and pay taxes at a rate of 39.6%, then you have $561.72MM left. Invest the entire corpus of the remainder into tax-free municipal bonds at a historical rate of above 4% (currently, 3.45%), then you are getting an annual return of at least $22.47MM per year tax-free income (this number goes up if you choose to reinvest the $22.47MM --- compound interest, people!!!), plus you keep safe the entire $561.72MM after-tax payout with a zero-risk investment.
5
Imagine right now that you won it all...now take that feeling with you forever. There is nothing either good or bad but thinking makes it so-Will Shakespeare. If you can walk tall you can feel like a billion, fake it till you make it.
I would take the lump sum and buy Bitcoin. I wouldn't trust the current financial system with my money. With Bitcoin, my money would be entirely in my control.
1
Give a $100,000 to 15,000 families and change a LOT of lives, not just your own.
Except that they will need to pay tax on everything over $14,000 per person per year. That's money you have already paid tax on when you initially won. (Current gift tax limits.)
2
Interesting. How did you arrive at that number? Maybe it's my privilege talking, but $100,000 is not a life-changing amount of money for most American families. It's not enough to have paid my college tuition, let alone my brother's. It's enough to buy a house in some parts of the country, but not many. It's not enough for the annual interest to create any kind of income stream that would replace the livelihood of someone unable to work. Maybe that kind of incremental change (a new car to get to a better job; an in-state education paid for as opposed to a private one partially paid for) is what you're looking for, but it doesn't sound all that appealing to me.
I happen to be 1%-er, so I know something of privilege, and for most Americans (whose median annual income is about $54,000 per household) $100,000 could indeed be life-changing--to send a child to college, to pay off debts, to have a downpayment for a house, to improve your own education for a better job. If more people of privilege like yourself could see that, perhaps we would have policies in this country that better address the growing income gaps across the country.
I have a question for any accountants out there?
Can the government pre-emptively limit you on the lump sum payout?
For example, could you donate all of the money to recognized charities in the first year and thereby avoid any tax on the earnings?
Can the government pre-emptively limit you on the lump sum payout?
For example, could you donate all of the money to recognized charities in the first year and thereby avoid any tax on the earnings?
Hey Mike, you can donate it all if you wish but only 50% of the donated income in tax exempt according to the Fed. Government.
W. Dufresne,
Thanks.
I will connect with you tomorrow after I win :)
mgt
Thanks.
I will connect with you tomorrow after I win :)
mgt
Given that government bond rates remain at historic lows, the idea that you'll do better with an annuity is insane. Because the most likely scenario is that interest rates will be (on average) significantly higher than they are now, investing the cash payout makes far more sense -- interest rates of 5% mean that you are making 5% on whatever you haven't spent on the "cash payout", while the annuity is based on 1% interest rates.
1
Again if they make three payments you have 90 million or more than youll ever need.
At the end of the thirty years you will have gotten 200 million more after taxes. So your investments have to beat that make it worth it and you will invest the largest part of the payments so you will be earning money on top of the 200 you get for waiting over those thirty years.
The somewhat forced discipline may also keep you from being one of those bankrupt winner after five years.
Investing the lump yourself is no guarantee you wont lose it in a crash or catastrophe.
At the end of the thirty years you will have gotten 200 million more after taxes. So your investments have to beat that make it worth it and you will invest the largest part of the payments so you will be earning money on top of the 200 you get for waiting over those thirty years.
The somewhat forced discipline may also keep you from being one of those bankrupt winner after five years.
Investing the lump yourself is no guarantee you wont lose it in a crash or catastrophe.
Yeah right, take the annuity... Has anybody been watching the Detroit lottery situation over the last few months??? People were winning the lottery but due to "budget problems", their money wasn't given to them. That could be a yearly problem. No thanks! Take the lump sum, invest it in something rock solid safe even if the returns are low and the money will be yours forever.
4
Very funny. I don't care about interest income and I don't care about taxes. Just give me everything left over after that. Single and 56 yrs old, I can count all my relatives on one hand. First order will be to hire a lawyer and accountant from a top firm and then spend the rest of my days in fancy hotels seeing the world without anything tying me down - good luck finding me. At some point I may even rent an apartment in Manhattan - if I can afford it. Hehe.
5
What I want to know is, will I owe NYS any income tax at all if I actually move to another state and collect my annuity checks there, Florida for instance, where there is no state income tax.
1
If you bought the ticket and won in New York then I am afraid you are stuck Mike.
1
Good advice. But I think that the nadir reason financial planners recommend taking it call at once, is that Federal taxes are so low now, and are likely to rise in the future. Which is pretty much a certainty. But, yes, most people have zero idea what to do with a windfall, so it's good advice anyway. But note this if you've over 60. If you die before the remaining annuities are paid, the remaining amount is subject to an enormous estate tax of 55%, plus the state, and then income tax on the beneficiaries. So DON'T take the annuities.
34
Not 100% true Ken, if you claim the money as yourself then yes if you die the remainder is taxed. You can however form an LLC and trusts and this should help you avoid that problem
The top federal estate tax rate is only 40%, but that's only a quibble. What asset would you have in your estate that is NOT subject to that rate?
I agree with you up to the point you bring in estate taxes. If you are over 60 and took the lump sum, you would probably have a substantial amount left in your estate at death, and that's just as subject to estate tax (if the "death tax" isn't repealed) as the annuity payments would be. So the annuity isn't necessarily worse from an estate tax viewpoint. And heirs don't pay any more income tax than you would. They don't pay income taxes on the estate when received--only estate taxes affect that amount. They pay income tax only on what it earns, just as you wold.
Even if you take the annuity the annual payout will so high that you will easily be in the highest tax bracket for every year of the payout.
1
The other day, I saw a NYTimes article saying I am not going to win so don't bother with buying the tickets and today, it wants me to take annuity if I win. Which advice should I take? LOL
3
Thanks, for some really awesome advice. I hadn't considered the annuity route at all. Mr. Barro I will take your advice and take the annuity option upon winning tonight's JimmysBall, I mean PowerBall!!!
However I'll have to pass on purchasing the The New Republic for now . . . I do like the Times!!!
However I'll have to pass on purchasing the The New Republic for now . . . I do like the Times!!!
Mark; Did you not read the full article? It states that the funds, when you die, go to your estate!
"The main one is that taking the annuity is basically like letting the government hold onto part of your prize for a while and invest it for you".
That statement is the entire problem with taking the annuity, I do not want the government investing MY money for me. Just look at how messed up Social Security is.
That statement is the entire problem with taking the annuity, I do not want the government investing MY money for me. Just look at how messed up Social Security is.
Horrible advice, period. The author operates from a premise based in ignoring a whole lot of probable outcomes: taxes will not increase, that inflation will be non-existent and that the tax rate on dividends would be 24.6% less than it is on the income from the annuity. Any decent trust attorney and fiduciary can set up a trust fund to insure the recipient does not "blow it all". Also, as others have pointed out, this assumes the entity will still be solvent for the coming thirty years.
73
The article says the annuity is invested in government bonds. Assuming the author means "US federal bonds," if the entity is not solvent for the coming 30 years, then it's hard to see what investment would be better.
Yes, it is horrible advice. Taxes will increase over time. The value of the USD will decrease over time. As a lottery winner you will never have as much spending power as right now. There is a slim chance the USD won't even be around another decade. Perhaps the United States doesn't even exist past 2020. Heck, stranger things have happened. State lottery in Illinois and other locations have already defaulted on some payments to past winners.
This is where I am with this. I don't trust that the government would be a good steward of my remaining funds - there is no knowing what could change in that many years.
Absolutely terrible analysis. It completely overlooks the federal estate tax, which is 40% of everything $5.45 million. Worse, that tax must be paid within 9 months of death, and there is no provision to allow it to be paid as your annuity payments are made to your heirs.
Let's say you take the annuity, then die in 2016. The good news is that the taxable value will be discounted, so the estate tax isn't on the full $1.5 billion. The discounting rules are complicated, but it's likely that the estate tax would apply to about $900 million, the lump sum value.
At a 40% tax rate, that means the estate would have to come up with $360 million before the heirs could inherit the remaining annuity. Where would that money come from?
Let's say the heirs send the full annuity payment to the feds every year. Interest will run on the amount outstanding. Penalties might apply also. My guess it would take at least 15 years of payments before the estate tax obligation is satisfied. I'd love to see someone work that out.
If you take the lump sum, at least you have the cash to pay the taxes.
The risk of dying before fully collecting is pretty high, BTW, there are many Tax Court cases on just this subject.
Let's say you take the annuity, then die in 2016. The good news is that the taxable value will be discounted, so the estate tax isn't on the full $1.5 billion. The discounting rules are complicated, but it's likely that the estate tax would apply to about $900 million, the lump sum value.
At a 40% tax rate, that means the estate would have to come up with $360 million before the heirs could inherit the remaining annuity. Where would that money come from?
Let's say the heirs send the full annuity payment to the feds every year. Interest will run on the amount outstanding. Penalties might apply also. My guess it would take at least 15 years of payments before the estate tax obligation is satisfied. I'd love to see someone work that out.
If you take the lump sum, at least you have the cash to pay the taxes.
The risk of dying before fully collecting is pretty high, BTW, there are many Tax Court cases on just this subject.
7
incorporate the estate and pay taxes on the annuity as it comes in even after death.
yes, that works for the income taxes, but not for the estate taxes. those are not deferrable, except in limited situations for family business and farms. what's more, the caps on the deferments are quite low, and wouldn't come close to $360 million.
1
I still think that having 1500 winners of 1 million each would make more sense, "spread the wealth" so to speak and prevent some of the misfortunes you speak of. The government and states would still get a lot of extra cash and taxes and a lot more folks would want to buy tickets.
5
Exactly the opposite. Most people wouldn't bother buying tickets in that scenario. We certainly wouldn't be at a $1.5 billion jackpot if the game was set up as you suggest.
There are existing games with lower payouts and higher chances of winning. They aren't nearly as popular.
There are existing games with lower payouts and higher chances of winning. They aren't nearly as popular.
1
One million is nothing. Many of us managed to hit that milestone (and then some) before 40. I wouldn't waste $2 on anything less than $100 mil or so.
This is terrible advice, just like the terrible advice that you should wait as long as possible to take social security because the payments are large. Of course you take the money as soon as possible!!!!! A simple Excel spreadsheet is all it takes to prove it. Good grief!
3
What horrible advice. You take the lump sum and hire a top of the line tax attorney, public affairs attorney, and most importantly top of the line financial adviser.
You have the tax attorney figure out how to make sure you pay the right amount of taxes, you have the pubic affairs attorney figure out how to handle the P/R when you claim the prize (each state is different), and finally you have the financial firm put the money into investments that will pay out a lot longer than 30 years.
Heck assuming you clear somewhere near 1/2 a billion after taxes you could easily make $20 million a YEAR forever.
Horrible advice to take the annuity.
You have the tax attorney figure out how to make sure you pay the right amount of taxes, you have the pubic affairs attorney figure out how to handle the P/R when you claim the prize (each state is different), and finally you have the financial firm put the money into investments that will pay out a lot longer than 30 years.
Heck assuming you clear somewhere near 1/2 a billion after taxes you could easily make $20 million a YEAR forever.
Horrible advice to take the annuity.
This is a really great argument by Josh Barro. He does talk about risk, and the only thing that I would add is that if one is young, he or she could risk taking the lump sum. Theirs may be lives during which they lose it all, but meh, they can continue on the income to which they were accustomed before their Powerball win.
The annuity tells you what you need to do with your finances: Live within them. True, $20 million a year certainly lets you color outside the lines, but there are the lines to guide you. Historically many people lose their money.
And Josh brings up the big winner here: If we have another crash like the 2008 debacle, you will be just fine with that annuity.
The annuity tells you what you need to do with your finances: Live within them. True, $20 million a year certainly lets you color outside the lines, but there are the lines to guide you. Historically many people lose their money.
And Josh brings up the big winner here: If we have another crash like the 2008 debacle, you will be just fine with that annuity.
17
Imagine the kind of life the person would have to live in order to 'lose it all'.
In 2008, the federal govt had half the debt it has now. The next crash might be the private sector trying to bail out Uncle Sam.
What if the Multi-State Lottery and the underwriters go belly up?
I doubt Congress will bail out a lottery.
I doubt Congress will bail out a lottery.
Why would anyone need to invest that much money? Put it in a savings account and be done with it. And what happens if you die before the annuity stops, your one beneficiary will receive it but that's it. If that person dies, then it's gone. Must states only allow you to have one beneficiary and some states don't allow you to have any. Your family gets nothing. Take the lump sum and put it in savings accounts. If you weren't an investor before, why start now, just to make someone else rich.
3
I laugh, too, every time I read someone's plan to make even more. Spend your time in offices and on the phone and then drop over dead with a nice fat bank account.
2
Bad advice. Savings accounts pay virtually nothing, and each institution will only insure you up to $250k anyway. An appropriate mix of stocks, bonds, REIT's, precious metals, etc through several reputable publicly traded institutions is the way to go.
One of those payments would last me the rest of my life if i wanted it to. I never got why people take the lump sum either, it's dumb, but hey, most people are dumb.
"A mere $930 million." Not sure about you but I'd be pretty okay with my mere $930 million. Heck, I'd be okay with a measly $100 million. If you can't live very comfortably on that for the rest of your life, you're doing it wrong.
3
The winner will not be a subscriber or reader of the New York Times. Why not print an article about malarial prophylaxis instead? Probably a greater chance of getting a mosquito borne illness in New York than winning the big prize. In any case, New Yorkers need something to fret about. If you bought your ticket already and asked for the lump sum, you can worry about not chosing the annuity option, at least until the numbers are announced.
1
Purely financial analysis doesn't work. You take it as a lump sum, then you invest it with Warren Buffett. Make it do some real work.
I can't tell if the author here has any actual financial planning experience or not.
If you invest in U.S. Government Bonds and hold them to maturity, you will not pay any capital gains (this is what's going on in your Lottery annuity). The interest you earn is taxed as ordinary income - just as your income from the Lottery annuity would.
They are literally the same things. You will not be taxed twice.
The additional benefit of the cash option is the ability to earn better than "risk free" returns in the stock market. This is no small thing - over the past 30 years, you'd have earned 3.4% investing in T-Bills; you'd have earned 11.3% investing in the S&P 500.
Want to know the difference that makes? Investing $500 million at 3.4% over 30 years results in $1.363 billion. Investing the same $500M at 11.3% for 30 years nets you 12.411 billion. That's a figure that's NINE times higher than the "risk-free rate". That's the 30 year period, by the way, beginning in 1985 and encompasses the 1987 crash, the 2001 bubble and its collapse, as well as the 2008 financial crisis.
Take the annuity? No thanks.
If you invest in U.S. Government Bonds and hold them to maturity, you will not pay any capital gains (this is what's going on in your Lottery annuity). The interest you earn is taxed as ordinary income - just as your income from the Lottery annuity would.
They are literally the same things. You will not be taxed twice.
The additional benefit of the cash option is the ability to earn better than "risk free" returns in the stock market. This is no small thing - over the past 30 years, you'd have earned 3.4% investing in T-Bills; you'd have earned 11.3% investing in the S&P 500.
Want to know the difference that makes? Investing $500 million at 3.4% over 30 years results in $1.363 billion. Investing the same $500M at 11.3% for 30 years nets you 12.411 billion. That's a figure that's NINE times higher than the "risk-free rate". That's the 30 year period, by the way, beginning in 1985 and encompasses the 1987 crash, the 2001 bubble and its collapse, as well as the 2008 financial crisis.
Take the annuity? No thanks.
8
That assumes that you invest in a broad based index fund that captures the entire market (the S & P 500),that you leave the investment alone, and leave it fully invested the entire time till 2045. On those grounds people are very fallible.
First, they don't necessarily invest broadly. Unless they do any research or hire someone to do it for them, they are liable to try to pick 'winners' by focusing on particular sectors. In that way, they will end up guessing wrong, especially over a long time period. Diversity is the only long term strategy that works.
Second, most investors are terrible at market timing. They buy when valuations are too high and sell when they are too low. They are not disciplined investors. A lot of studies have shown that money market managers, who have staff, resources and time, are not able to beat the market for any length of time (5 or more years). Why should a lucky lottery owner be better disciplined than a professional? Thus, the author is right that most lottery winners would do better taking the annuity.
First, they don't necessarily invest broadly. Unless they do any research or hire someone to do it for them, they are liable to try to pick 'winners' by focusing on particular sectors. In that way, they will end up guessing wrong, especially over a long time period. Diversity is the only long term strategy that works.
Second, most investors are terrible at market timing. They buy when valuations are too high and sell when they are too low. They are not disciplined investors. A lot of studies have shown that money market managers, who have staff, resources and time, are not able to beat the market for any length of time (5 or more years). Why should a lucky lottery owner be better disciplined than a professional? Thus, the author is right that most lottery winners would do better taking the annuity.
9
You shouldn't confuse "beating the market" as being the hallmark skill of a money manager. An NFL team - on average - has a .500 win average. This should not imply to you that your chances of beating an NFL team are .500. In other words, .500 is the win percentage against other professionals.
great analysis! I'll have to keep this in mind for tomorrow morning after I win!!
I say do not tell a single soul, wait as long as legally possible to claim your winnings, hire a trusted financial planner and, a lawyer, give to selected charities and take a lovely vacation.
3
Just think how many Senators and House of Representatives you could buy with all that money. I'm thinking 5 Senators and 20 House Members. You could actually run the government. After all isn't that what is going on now. So tell me what direction would you like America to go?
4
Not accounting for taxes, the annuity works out to be equivalent to a whopping 1.6 percent rate of return. Regarding taxes, let's assume that the average bite is not going to be much different if you get 930 million now or $50 million a year over the years--you are well into the territory of the highest marginal tax bracket. I'd expect taxes, if anything, to rise in the future.
2
I would take the lump sum. Also i would get a tax lawyer. I would just put it in my bank in more then one account no interest. and make trust funs for the kids. Put 500,000 in my debt account and call it a day. With all that money I dont need the interest. There are accounts out there that YOU CANT GET TAXED ON. Not going to invest in nothing. If you invest you have to pay tax and a chance you will lose money. Dont need the worries and headache. I am not worried about others out there. I can handle my self with family and lost friends....just say no. Live good and keep it simple.
3
If you're under a certain age, with no experience managing money, yes, the annuity. If you're over a certain age, take the cash. Period.
1
I t's a matter of who trusts the government to handle their money!
3
What a silly, silly article. Pay the taxes (yuk it is a huge hunk) then donate to charities and people you personally know who would greatly benefit by your gift. Then invest and enjoy your life but don't go crazy. Also, do not forgive to donate to your church, temple, mosque or whatever if you choose to worship.
1
Thanks, I'll inform my accountant.
2
This article is a scream!
If you don't take the annuity you'll get a measly 930 million dollars.
And you think the ordinary person will be interested in investing this to make more????
Unless you have dreams of buying a country I think you'll have quite enough money to buy that classic six (or 7 or 8) on Central Park West and still have enough left over to go to the theater and opera, occasionally.
If you don't take the annuity you'll get a measly 930 million dollars.
And you think the ordinary person will be interested in investing this to make more????
Unless you have dreams of buying a country I think you'll have quite enough money to buy that classic six (or 7 or 8) on Central Park West and still have enough left over to go to the theater and opera, occasionally.
8
You pay way too much in taxes with the annuity. If you invest your 560 million in dividend stocks you only pay 15% vs 50% on your annuity. In 5 years if a bull market is still in place you should be able to hit a billion dollars plus you have cash to spend with a portion of the dividends.
Myself and none of us who are reading this will win ever win this or any other lottery. Period.
If the biggest problem I am going to have in my life is whether or not to take the annuity on $1.5 billion, then my life is essentially complete.
Even though the "what if" scenario is always fun, we all know it ain't gonna happen.
So let's move on, shall we?
If the biggest problem I am going to have in my life is whether or not to take the annuity on $1.5 billion, then my life is essentially complete.
Even though the "what if" scenario is always fun, we all know it ain't gonna happen.
So let's move on, shall we?
4
I will move on at 11:01pm eastern. Until then... I can't wait to move onto my new island!
2
The lesson we've learned from the last half-dozen recessions is that when the economy turns bad politicians and reactionaries adopt a "sky-is-falling-down" mentality and call for an end to civilization as we know it: Kill social security, repudiate pensions and debt, shutter the state capitals, burn the poor, etc. Lottery annuities are big chunks of change available to such demagogues and tip the argument in favor of taking the lump sum. A bird in hand etc...
8
I tend to side with those who call for reductions in govt spending and entitlement programs as a solution over those who favor more taxes and more spending.
We're in our sixties. We have little need and few desires. We've lived frugally all our lives a pattern set yours ago when we were growing up. We both grew up in poor families mine more so. I grew up a Dutch Calvinist she a Baptist, Calvinist but not as strong as myself. We are today Conservative Presbyterians.
We've no desire to just spend that kind of money. We contribute about 15% of our income to charities.
Any program that would allow us to provide annuities to them would be more our ideal. Sure we'd like a few luxuries. It would be nice to have someone remodel the house. After nearly 40 years it could stand it. Or we'd build another and donate this one to Habitat.
I am not as concerned about the government's ability to pay as its willingness.
I'd definitely get professional investment advice to make this happen.
We've no desire to just spend that kind of money. We contribute about 15% of our income to charities.
Any program that would allow us to provide annuities to them would be more our ideal. Sure we'd like a few luxuries. It would be nice to have someone remodel the house. After nearly 40 years it could stand it. Or we'd build another and donate this one to Habitat.
I am not as concerned about the government's ability to pay as its willingness.
I'd definitely get professional investment advice to make this happen.
3
Taking an annuity means you assume the organization will continue to pay if for many years. Hasn't one state already defaulted on that?
3
Steve Miller: "Go on, take the money and run."
Need more be said?
Need more be said?
3
The first argument over ideas I had with my wife was over the utility of buying two, instead of one, ticket. I insisted that would cut the odds against winning in half. She couldn't believe that, but finally I convinced her.
Yesterday I bought ten tickets, cutting the odds against me by 90%.
Yesterday I bought ten tickets, cutting the odds against me by 90%.
4
But your assumption is wrong! The odds don't improve by buying more tickets.
Americans are the least taxed people in the Western world and yet they're consumed by the thought that they're paying too much. Taxes are how you pay for civilization, people. Or, if you prefer, how you pay for bombing other peoples' civilizations. Either way, take yer obscene lottery payout and pay yer damn taxes. Those F-35s aren't free, people.
41
I'm 75 years old. I'll take the lump sum and give most of it away in the first year, keeping enough to keep me really comfortable.
6
Donate the entire jackpot to the Gordon church, and make yourself the head of the church. That would be 100% tax free forever. And you can live like a televangelist with mansions, jets, stardom. Hire all your relatives to be deacons or bishops, or whatever, and pay them nice fat salaries. Maybe do a little charity work on the side.
Who wouldn't want to live in a cathedral and a 10,000 square foot parsonage.
Who wouldn't want to live in a cathedral and a 10,000 square foot parsonage.
11
If I gave away every cent, would anyone get any tax money or would the entire $1.5 billion have to be forked over? That's what I'd do I think. You could do a lot of good with $1.5 billion.
Don't be a sucker and give it all away. We only live one life so if you win you take it for all it worth. You aren't famous and eventually no one will know who you are and what you did for charity.
I always recommend purchasing more than 1 ticket with the same number.
2
The problem with taking the annuity is that you are now assuming both credit and political risks. Thirty years is a long time. How can you be sure that in a pinch the government won't confiscate your future annuity payments or that at some point public sentiment against the rich receiving such easy money compels the government to somehow dilute the windfall? Bottom line, I want the money in my pocket, not the government's.
10
If there is a catastrophe that makes the annuity payment end, that same catastrophe will probably make your 400 million in Wall Street go to zero. If the world doesn't end for 24 month, you'll have three payment or close to 90 million after taxes to do anything your heart desires. I agree, take the payments.
Two issues with the article. It gave the interest rate risk too little concern. Historically low interest rates exist today but that may not be the case 5 or 10 years for now. It did not mention at all the tax rate risk. Top Federal rate now is 39.6%. In one election that rate could go much higher and deductions capped even further. Has anyone ever taken the annuity option in Powerball or Mega Millions? The biggest winner in the multi State lottery is the Federal government from the income tax windfall on the top prize.
3
It would be crazy to base the choice of annuity vs lump sum on present tax and interest rates! Both are at historic lows, and both are likely to rise significantly in the future. An annuity not only locks in your funds at today's interest rates, but you'll still pay taxes at tomorrow's rates. A stock index fund would generate a much higher return with minimal risk, and one could easily say that allowing your fortune to be held by the state and paid when they are "able to" (just look at Illinois RIGHT NOW) is assuming significant risk in the future. Nah, take the lump sum, make a few sound investments, and you're set!
158
I do not know how any sane, rational person could not possibly be "set for life" with even one one-hundredth of the amount of this jackpot.
On that basis, I favor the suggestion of having more winners (like me, of course!) with smaller amounts .
On that basis, I favor the suggestion of having more winners (like me, of course!) with smaller amounts .
Based on historical data, the effect of inflation over the last thirty years is to halve the purchasing power of the fixed annuity amount. If your $22 million annuity check in 2045 only buys the equivalent of $11 million today, I think you'd still be hard pressed to spend that kind of money -- nearly a million dollars per month -- without living a really crazy lifestyle. You could literally live in $5,000/day luxury hotels ALL YEAR for less than $2 million. It'd take profligate gambling, drug use or just burning currency outright to use it up.
That being said, I kind of lean towards the lump sum coupled with a more diverse investment strategy -- perhaps a quarter in index funds, a third in tax-free municipal bonds to offset taxes, a quarter in a mix of bonds and T-bills, and the rest divided between a still-live-like-the-0.5% annuity safety net and maybe some small ($10 million?) amount in a the-world-is-ending mix of physical currency and bullion in case the others managed to all fail.
You'd probably also want to end up with a "family corporation" (paid at a premium for loyalty, with performance bonuses for beating the original annuity benchmark) to manage it all.
That being said, I kind of lean towards the lump sum coupled with a more diverse investment strategy -- perhaps a quarter in index funds, a third in tax-free municipal bonds to offset taxes, a quarter in a mix of bonds and T-bills, and the rest divided between a still-live-like-the-0.5% annuity safety net and maybe some small ($10 million?) amount in a the-world-is-ending mix of physical currency and bullion in case the others managed to all fail.
You'd probably also want to end up with a "family corporation" (paid at a premium for loyalty, with performance bonuses for beating the original annuity benchmark) to manage it all.
The plan I have, which is much like a plan for battle, is to invest wisely in municipal bonds and blue-chip dividend companies with option collars. On the other hand, my wife will probably demand her half and I'll have to invest wisely with the above strategy and shave a little off the principle to maintain a modest cost of living with no travel, no new friends, no entertainments, and no fun. The goal with the annuity and wise investing is to have more remaining when the next year's check arrives.
The promise to pay over thirty years, no thanks. No way.
1
Only people who have never lived in a hyperinflation economy would take the 30-year annuity, unless it is guaranteed to be indexed to inflation, and if you believe in the guarantors' guarantees! Things can happen out there that could turn 22 million into the price of a cup of coffee in just a few years' time. We in Brazil lived through inflation like that and may do so again, and there is nothing to guarantee that it would never happen in the US. Regarding the annuity's protection from blowing all your money at once, if you are stupid enough to blow hundreds of millions then you are stupid enough to go out and borrow against your future annuities once you have blown the current one, which makes it even easier to blow the whole thing. Taking the money up front makes it a bird in the hand.
8
If it costs 22 million dollars to buy a cup of coffee tomorrow, your lump sum payment is nearly as worthless as the annuity plan. Being able to buy 20 cups of coffee all at once isn't much better than buying one cup per year for 30 years.
If you are not the sort of person who can make and hold onto large sums of money in the absence of a lottery, you would be a fool to assume a BIG chunk of money will solve all of your financial issues and likely to become totally broke for life from a lump sum payment as opposed to broke for some space of a year, every year, on the annuity plan.
If you are not the sort of person who can make and hold onto large sums of money in the absence of a lottery, you would be a fool to assume a BIG chunk of money will solve all of your financial issues and likely to become totally broke for life from a lump sum payment as opposed to broke for some space of a year, every year, on the annuity plan.
I don't normally reply to replies, but you have clearly never lived with hyperinflation and thus some explanation is in order. We used to have inflation here in Brazil that ran 40% a month, sometimes more. To cope with that we also had bank accounts and "overnights" that paid 40% a month on your deposits. So, if you have the money in hand and hyperinflation comes along, investment opportunities to keep up with the inflation will also come along. Not so with fixed payments: they'll just keep dwindling in value until they disappear. Re blowing the cash payout, you missed the point about simply being able to borrow against your future annuities. If you are determined to blow the money you can blow it because you got it all at once or you can blow it because you chose annuities and then borrowed against them to get the money now. You'll have even less than you would have had with the cash payout because you'll be paying interest instead of receiving interest.
1
Really? Who's going to live thirty more years? Take the whole stash and run!
2
Only under the circumstance that you need to be protected from yourself should you take the annuity. The future ordinary income tax rate that you will be paying is uncertain but consider that P Obama raised ordinary income from 35 to 39% and added an extra medicare tax of .9% = a 14% increase in your taxes. Further, Hilary Clinton is proposing additional high income taxes and if the Burn happens, the potential for almost a doubling of taxes. This article is irresponsible on the face of it based on the likely winner of the election and the recent past behavior of the Democratic party. Take your money, put it into an S&P500 index fund. Current cash yield is about 2% (paying dividend tax rates). The principle will grow almost entirely tax free and when you sell it, it will be taxed at capital gains. Historic rate of return for the S&P 500 index (inclusive of dividends) is ~ 10% since 1928.
1
The thing you have to take into account is future taxation.
If you think taxes are going to go up (they probably are) Or if Bernie has his way down the line your tax bracket in 5 years will be well above 50% maybe even 70% (it was that high before anyway)
Hell the tax rate even got up to 91%.. so If you think taxes are going to go up you can take the cash option, Invest in many safe methods that have garnered more return than Bond interest.. and pay the tax rate billionaires today pay.. long term capital gains tax.. and you might be better off depending on how high taxes get. A lot can change in a couple decades.
If you think taxes are going to go up (they probably are) Or if Bernie has his way down the line your tax bracket in 5 years will be well above 50% maybe even 70% (it was that high before anyway)
Hell the tax rate even got up to 91%.. so If you think taxes are going to go up you can take the cash option, Invest in many safe methods that have garnered more return than Bond interest.. and pay the tax rate billionaires today pay.. long term capital gains tax.. and you might be better off depending on how high taxes get. A lot can change in a couple decades.
3
Take the cash. Pay the withholding. Buy your own annuity that pays you a million a year for the life of you and your spouse. Not that expensive in the grand scheme of things. Put aside about 5 million or so in various bank accounts. Put a million in cash in safe deposit boxes. Buy a nice house in a gated community with guards. Now, buy yourself something you like, a car (not seven) a Rolex, whatever for each member of the immediate family. Now get your tax attorney to figure out how to give the rest away because you really don't need that much. A few bucks for uncles, cousins, sisters and brothers. Be careful about gift taxes. You will still have about 500 million dollars and if done right you may even get some of that 25% withholding back (if done wrong you owe another 15% and almost double that for NYC residents). You need to work hard doing this as the interest on 500 million, depending on how you invest, can easily be another 2 million a month (and more taxes).
3
Can't you route the money through the Netherlands, bounce it off Ireland a couple of times, and only pay 2% taxes like corporations do?
No? I guess lottery winners need better lobbyists in DC.
No? I guess lottery winners need better lobbyists in DC.
7
I think the money would be fun for a short time. But then, I'd be bored to death. How much stuff can you buy? Even if you decided to give much of it away, you would need professional managers to do that. After Tahiti, Paris and Italy, then what?
3
True... after I establish my office in Mare Vaporum, the spending would probably level off.
Australia, New Zealand, Cuba, South Africa, cruise to Alaska, Antarctica, Chile, and many other places.
First off I am not going to live another 30 years. Second, I am not going to trust the lottery system to be a viable entity for another 5 years, let alone 10, 20, or 30 years. I will take what is mine now, and pay and pay, and pay the taxes on it,rather than to be told later on that there is no money and I must forfeit the rest of my prize. Also, I don't have any family to speak of. Only 3 living members and one has one foot in the grave, the other two I barely know. I would never give my winnings to long lost relatives, I would rather donate to charities I deem worthy. I will take my money up front, thank you.
1
An older cousin won $200 in the New York Lottery many years ago. He was in his 70s at the time and said it was the worst thing that ever happened to him in his life. He was mugged three times, and dozens of people hit him up for literally thousands of dollars with every conceivable hustle and sad tale. All for $200.
If you win big in a current lottery, I wish you good luck. It is after winning that you will need it. Most of your money and mental energy will go to providing security for yourself and your family. Probably never again will you be able to just interact with someone without thinking, "Hmmm, what do they want from me?"
Be careful what you wish for; you just might get it. And all the unintended consequences.
BalCoMd Independent Thinker comments re: my previous comment, "Rod Serling would have written a wonderful Twilight Zone episode about this."
Think what Serling could have done with the current field of Republican Presidential aspirants. Maybe he'd have President Carpet-Bomb-'em-Cruz crushed by rolls of carpet falling off a rack as he has the Oval Office redone. Or Donald Trump drowning in the Rio Grande, when a Mexican trying to save him can't climb over The Wall. Or Carly Fiorina devoured by a pack of starving old people who had lost all their retirement money in the Hewlett Packard debacle. Or Marco Rubio losing his Senate seat to Fidel Castro's grandson.
If you win big in a current lottery, I wish you good luck. It is after winning that you will need it. Most of your money and mental energy will go to providing security for yourself and your family. Probably never again will you be able to just interact with someone without thinking, "Hmmm, what do they want from me?"
Be careful what you wish for; you just might get it. And all the unintended consequences.
BalCoMd Independent Thinker comments re: my previous comment, "Rod Serling would have written a wonderful Twilight Zone episode about this."
Think what Serling could have done with the current field of Republican Presidential aspirants. Maybe he'd have President Carpet-Bomb-'em-Cruz crushed by rolls of carpet falling off a rack as he has the Oval Office redone. Or Donald Trump drowning in the Rio Grande, when a Mexican trying to save him can't climb over The Wall. Or Carly Fiorina devoured by a pack of starving old people who had lost all their retirement money in the Hewlett Packard debacle. Or Marco Rubio losing his Senate seat to Fidel Castro's grandson.
2
I'm no expert at this but, I believe there are 29 payments not 30, for a gross check of $ 51,724,137.93 or about $ 31,241,379.31 after taxes based on the top marginal Federal income tax rate of 39.6%. If correct,it shows that even when winning big, newspaper columnists are always in a position to accept less than they are worth.
1
If you take the annuity you lose control of the ethical component of the investments. If the government invests in fossil fuel companies, poisonous agribusinesses, weaponry that gets sold to disreputable regimes, etc., your impact might not match your values. If you take the lump sum you can control the investments and use it to make a positive impact on the world that aligns with your values. I would support low interest micro loans to help build the economies of less developed areas, green businesses, medical research, etc. It is so much more money than anybody could possibly need, starting up a charitable foundation makes sense.
2
@ Jconacarl
"I would support low interest micro loans to help build the economies of less developed areas, green businesses, medical research, etc. "
Not to step on your dream. It's nice and all, and after all, it cost you $2.
But...
Us Gov't bond are all the Government can "invest" the money in. That the Gov't supports fossil fuel etc etc etc... You're already a part of that and an extra Billion $ isn't a significant difference on $2T budget let alone the $13T economy.
As to investing... $500M (after you blew $200M on shoes) Is very difficult to spread among mid cap and small cap stocks without disturbing the market for those companies. You're going to wind up with money going into the petro agri pharma "blue chips".
Micro loans and "Medical research" are 180 degrees of separation.
Money is a full time job.
"I would support low interest micro loans to help build the economies of less developed areas, green businesses, medical research, etc. "
Not to step on your dream. It's nice and all, and after all, it cost you $2.
But...
Us Gov't bond are all the Government can "invest" the money in. That the Gov't supports fossil fuel etc etc etc... You're already a part of that and an extra Billion $ isn't a significant difference on $2T budget let alone the $13T economy.
As to investing... $500M (after you blew $200M on shoes) Is very difficult to spread among mid cap and small cap stocks without disturbing the market for those companies. You're going to wind up with money going into the petro agri pharma "blue chips".
Micro loans and "Medical research" are 180 degrees of separation.
Money is a full time job.
Fun fact about the annuity, if you were to die and only received one check, the money's gone. Your family won't see a single penny of it. So better to take the lump sum amount. If you win, don't be an idiot, don't invest in one stock, don't buy a huge house, don't get fancy cars. Live like anyone else, $868 million is MORE than enough to support you, your family, and your future generations for quite a good time. IF you win, be smart, not stupid. The annuity is not a good choice, the better choice is to take the lump sum, and be smart, multiple stocks, a house just big enough for your family to live in, cars that aren't luxury cars, just normal old cars that regular people drive.
1
As a mathematically minded person: I keep the money instead of buying a lottery ticket. You are more likely to be struck by lightening or killed in a volcano eruption in New York than you are to win the lottery.
2
There is no doubt that it is not a sound investment but then again a ticket is only $2.
2
Bad advice, choosing annual payments from the state.
Lump sum payout.
Set up a trust to receive it. This is no DIY project. Smart lawyering required.
Taste freedom awhile, then try to do some good with it.
As for the supposed advantage of staggering income distributions, a trust could do that. But nothing can save you from yourself.
Lump sum payout.
Set up a trust to receive it. This is no DIY project. Smart lawyering required.
Taste freedom awhile, then try to do some good with it.
As for the supposed advantage of staggering income distributions, a trust could do that. But nothing can save you from yourself.
3
Every so often I get all excited at the idea of winning multi-millions, then after dreaming a while I start realizing that all it would actually get me would be one huge headache - how do I stop all those me-me-me people from drowning me with cries for 'help', how do I actually find a TRUSTWORTHY financial adviser? How do I balance my real concern for those in need, with sanity for keeping my own family's new fortune? Do I think I would actually enjoy being able to buy absolutely anything I fancied or would everything lose it's appeal ? - eventually after thinking about those aspects of being wealthy I usually decide I really, really like my little house, love being able to decide on small pleasures and still help with charity as I can - my happiness is simple, caring and totally appreciative of what I have - i am a very lucky human !
13
Take the lump sum while taxes are still reasonable. If the "punish the rich" sentiment continues to grow, those future annuity payments could be taxed at rate that is more punitive than the current 50%.
1
I understand the author's rationale. However, taking the annuity amounts to a leap of faith in the government's ability to pay. Many people may not be open to assuming that risk.
The ability to create or sustain wealth is as much a function of values and behavior as it is access to capital. Properly structured, and with guidance from carefully selected, trusted professionals, the lump sum can be managed to create its own, perpetual annuity.
Taking the lump sum removes all uncertainty about the government's future ability to make good on its payout. Conservatively assuming $425 million after taxes, it could be invested in a structured, conservative investment portfolio at 2.5% to 3.5% with minimal tax liability. That would throw off $10 million to $15 million per year in income in perpetuity, without ever having to touch the principle. Tax-free municipal bonds, Treasuries, TIPS, and dividend-paying stocks of large-cap companies are among the asset classes that can achieve this.
A portion of the annual income could also be reinvested. Done properly, your net worth could increase each year. Still, the long-term outcome would depend on the investor's lifestyle choices, goals, values, and behavior.
The ability to create or sustain wealth is as much a function of values and behavior as it is access to capital. Properly structured, and with guidance from carefully selected, trusted professionals, the lump sum can be managed to create its own, perpetual annuity.
Taking the lump sum removes all uncertainty about the government's future ability to make good on its payout. Conservatively assuming $425 million after taxes, it could be invested in a structured, conservative investment portfolio at 2.5% to 3.5% with minimal tax liability. That would throw off $10 million to $15 million per year in income in perpetuity, without ever having to touch the principle. Tax-free municipal bonds, Treasuries, TIPS, and dividend-paying stocks of large-cap companies are among the asset classes that can achieve this.
A portion of the annual income could also be reinvested. Done properly, your net worth could increase each year. Still, the long-term outcome would depend on the investor's lifestyle choices, goals, values, and behavior.
11
I find it hard to believe that a situation where the federal government's ability to repay a guaranteed annuity is questionable, but that the rest of the market was stable enough that a third-party advisor could come up with something even close to reliable.
1
Has there been any evidence that "the government" will not have the ability to pay lottery winners? Has there been a single lottery winner anywhere in America who has gotten stiffed? That is just ridiculous and more than a little weird.
"Still, the long-term outcome would depend on the investor's lifestyle choices, goals, values, and behavior."
Age? Does it play no part?
Age? Does it play no part?
An annuity unless you have charities in mind that could massively benefit from money now. Buying land to preserve it comes to mind. It benefits everyone who did not win, ok except the Bundys ilk. What about giving to some specific cancer research? Personally, I like the idea of matching grants goading the mega rich to contribute more in the U.S. Really tired of charities always focused on those distant lands. Pay for a lot of vaccines here and protect a generation.
4
You are joking right? Take that lump sum and dump a bunch of it into buying buildings. You will 10X your money in the next 20-30 years for sure.
Just as an example back in 2001 as I was getting out of college I saw a mansion on the beach near Boynton Beach, FL on sale for $1.8M. I commented to my mother that I thought this was a a good deal for the amount of land.
Do you know how much these estates run for today? $25M or more. Economists say that with conservative investments money should double every 15 years. But this very nice piece of property, which I would have called conservative in that it is always desirable, went up in value over 10X in 15 years.
Just as an example back in 2001 as I was getting out of college I saw a mansion on the beach near Boynton Beach, FL on sale for $1.8M. I commented to my mother that I thought this was a a good deal for the amount of land.
Do you know how much these estates run for today? $25M or more. Economists say that with conservative investments money should double every 15 years. But this very nice piece of property, which I would have called conservative in that it is always desirable, went up in value over 10X in 15 years.
5
Sure, but keep in mind that property ownership and management is an incredibly complex, full-time (or more) job. I own a few properties, and while I recommend it to my friends, the reality is that most of them (correctly) know that they would either be unable or unwilling to invest the time and energy required to successfully manage properties.
4
You need to diversify though. Real estate can be a great part of a balanced portfolio, but unless you're a legit RE expert, you should not put too many of your eggs in any one basket - even RE. And even the experts can get into trouble with RE - just ask Donald Trump. RE markets can be quite volatile, and hard assets can be a challenge to liquidate if you're ever needing to free up capital.
I'm worth nowhere near $500 mil (or even nowhere near $50 mil), and there's already no way I would be bothered with actually managing properties. Better to hire someone to do that...
Only an eternal optimist believes that the government will always honor its contracts to bondholders, especially in the face of increasing debt (national and state). Take the lump sum.
22
The I guess most of the world is run by optimists as t-bonds are widely considered to be the safest investing haven on the planet.
10
And I suppose I should place my trust in the stock market hedge fund insider trade culture? How is that better?
Are you kidding. The federal govt not paying off a guaranteed annuity would crater the world economy, meaning anything you "smartly" invested in would tank, too. Try not to overthink this: you are not smarter than the market.
It's astonishing how many people who suddenly had well over a billion dollars would think first about ways to avoid taxes and not at all about charitable donations.
Fear of giving something back to benefit your own country, when you've been handed many millions on a silver platter!
Fear of giving something back to benefit your own country, when you've been handed many millions on a silver platter!
57
For starters how about the many-hundreds-of-millions in taxes? Isn't giving back half or so giving back enough? Personally, I'm an elite human being like you, and I would be generous with winnings, but let's not condemn someone who hasn't even won yet.
1
Right, because the government has been so good with its money lately that giving them more of it (and 1 billion is a drop in the ocean of the federal budget, btw) seems like a good idea to you?
1
"Benefit your own country"
Less you pay in taxes the more you can actually help people.. instead of spending programs that cost 10 billion and employ 355 people.. Waste waste waste..
http://freebeacon.com/national-security/obama-administration-program-spe...
Yea doubtful.
Less you pay in taxes the more you can actually help people.. instead of spending programs that cost 10 billion and employ 355 people.. Waste waste waste..
http://freebeacon.com/national-security/obama-administration-program-spe...
Yea doubtful.
2
As an estate planning and tax lawyer, I have represented and advised lottery winners. And yes, if the winner of a large jackpot has a life expectancy longer than the duration of an annuity payout, the annuity has an advantage -- preventing the winner from "blowing" most or all of a lump sum through misspending.
However, if the lottery winner has a life expectancy that is less than the duration of an annuity payout, or if he or she is in poor health, choosing the annuity option has some serious disadvantages. If the winner were to die while there are 20 or 25 years of annuity payments remaining, the date-of-death present value of those remaining payout will be a taxable asset for federal estate tax purposes, but the winner's estate will not have a lump sum large enough to pay the estate tax . . . . unless the winner does some considerable and careful planning. Some state lottery rules allow the commutation of the remaining annuity payments to a lump sum if the winner dies "prematurely." But many lottery winners who choose the annuity option discover that they need to purchase substantial life insurance and create trusts to own and maintain that life insurance in force, in order to deal with the estate tax risk.
However, if the lottery winner has a life expectancy that is less than the duration of an annuity payout, or if he or she is in poor health, choosing the annuity option has some serious disadvantages. If the winner were to die while there are 20 or 25 years of annuity payments remaining, the date-of-death present value of those remaining payout will be a taxable asset for federal estate tax purposes, but the winner's estate will not have a lump sum large enough to pay the estate tax . . . . unless the winner does some considerable and careful planning. Some state lottery rules allow the commutation of the remaining annuity payments to a lump sum if the winner dies "prematurely." But many lottery winners who choose the annuity option discover that they need to purchase substantial life insurance and create trusts to own and maintain that life insurance in force, in order to deal with the estate tax risk.
52
Not to mention the advantages of blowing all the cash while still alive rather than leaving it to the kids...
2
I know I'm not likely to win (and that Brooklyn Heights Art Deco penthouse won't happen). For $2 it has been fun dreaming and discussing the possibilities w/ friends/family/colleagues - quite illuminating to hear how others would live having great wealth.
I'm taking away two things from this:
1) many of us are already quite fortunate and wealthy compared to many around the world and even on our own streets.
2) Powerball (sadly) is one event which excites and unites people across our very polarized nation in ways few other events and issues can.
I'm taking away two things from this:
1) many of us are already quite fortunate and wealthy compared to many around the world and even on our own streets.
2) Powerball (sadly) is one event which excites and unites people across our very polarized nation in ways few other events and issues can.
63
Under NO circumstances is the Powerball lottery jackpot worth what it is claimed to be, even if you take the annuity.
It's an outrageous legalized lie that Powerball and other lotteries are permitted to advertise that they are worth a great deal more than they are actually worth. To the best of my knowledge such lies are illegal for every other realm of advertising.
When a financial institution evaluates a sequence of future payments that it might commit to (whether paid out or received), it converts them to a single number called its present value.
The mere total sum of all the future payments could hardly be more irrelevant to what they're worth. And this is a lot more than their present value, especially if the payments stretch out over 30 years of equal amounts.
Legalized lies like this should be eliminated. We have enough lies as it is; we certainly don't need government agencies deceiving us as well.
It's an outrageous legalized lie that Powerball and other lotteries are permitted to advertise that they are worth a great deal more than they are actually worth. To the best of my knowledge such lies are illegal for every other realm of advertising.
When a financial institution evaluates a sequence of future payments that it might commit to (whether paid out or received), it converts them to a single number called its present value.
The mere total sum of all the future payments could hardly be more irrelevant to what they're worth. And this is a lot more than their present value, especially if the payments stretch out over 30 years of equal amounts.
Legalized lies like this should be eliminated. We have enough lies as it is; we certainly don't need government agencies deceiving us as well.
15
Clearly you don't understand the concept of present value.
2
I have seen nothing advertising a "worth" to the asset - only its sum. Nothing has said "the value of the prize in present value United States currency as of the date of conversion of the winning ticket will be $________". It is not a lie - it just doesn't fit your polynomial definition of truth - and that is not truth's definition. Calm down - advertising lies about a whole lot more than Powerball and gets away with it...
1
Couldn't disagree more.
First, placing all your money in one investment is just stupid and irresponsible. A safe investment is a diversified one in safe assets. If it is in one place it is the opposite of safe.
A state can go bankrupt, the US can default due to political bickering. Take the money then diversify your investment. Diversify it as you choose into risky or safe or a mix but most importantly it should be also in different regions of the world (different currencies) and in different assets (bonds, real estate, shares, gold, etc). Hire an investment adviser and he/she will pick and propose the US and International Investment funds for your money. A well diversified portfolio will bring you 6% return, almost double your annuity.
Many have pointed other reasons, I will add this one: Inflation eats your Anuity. In 2012 inflation was 3%. If inflation is always 3% a year the annuity is a terrible idea since the 3% return the state gives you for holding your money is eaten by the inflation and in 30 years that house will cost so much more to buy, same with all goods. Even if inflation is lower you still are penalized. Thus in 30 years if you wanted to buy gold or invest in the real estate the price will fracture in the accumulated extra inflation of the last 30 years.
First, placing all your money in one investment is just stupid and irresponsible. A safe investment is a diversified one in safe assets. If it is in one place it is the opposite of safe.
A state can go bankrupt, the US can default due to political bickering. Take the money then diversify your investment. Diversify it as you choose into risky or safe or a mix but most importantly it should be also in different regions of the world (different currencies) and in different assets (bonds, real estate, shares, gold, etc). Hire an investment adviser and he/she will pick and propose the US and International Investment funds for your money. A well diversified portfolio will bring you 6% return, almost double your annuity.
Many have pointed other reasons, I will add this one: Inflation eats your Anuity. In 2012 inflation was 3%. If inflation is always 3% a year the annuity is a terrible idea since the 3% return the state gives you for holding your money is eaten by the inflation and in 30 years that house will cost so much more to buy, same with all goods. Even if inflation is lower you still are penalized. Thus in 30 years if you wanted to buy gold or invest in the real estate the price will fracture in the accumulated extra inflation of the last 30 years.
23
Who says you can't invest conservatively (and I certainly would with a percentage of that lump sum).
Besides if stocks rattle and fall they have no where to go but up, buy 'em low, sell 'em high! Its not like you won't have a tremendous cushion anyways (unless you are a complete idiot!)
Besides if stocks rattle and fall they have no where to go but up, buy 'em low, sell 'em high! Its not like you won't have a tremendous cushion anyways (unless you are a complete idiot!)
4
My understanding is they will split it as you see fit. You can have an annuity and a lump sum. It is a bad idea to think you are double taxed on the money. You are taxed on initial earnings and then on the increases in your investments as you realize the gains. But you can borrow against those investments and likely never have to cash them in. Thus never paying taxes.
4
Give me the lump sum.
First thing I do is buy a few congressman- senators. The deal is they get some big dough but they have to dance - literally. They have to call a live press conference, national TV only/prime time, and they have to all be standing in a straight line - 5, 6, of 'em all lined up. Then, with cameras rolling, they start dancing. Serious faces, staring straight ahead. No explanation - no talking - no nothing, dancing only. Start subtle, maybe a synchronized high kick to the right and left. Then we get down to business. I'm talking intense chicken dance. I wanna see crouching, wagging, clucking - I mean really get into it. Then we end it with everyone pointing together at the sky and shouting "You too can eat petroleum" three times on top of their lungs before dunking their heads into buckets of ice water that have been set before them. Whoever holds his head down the longest gets double the money.
Everyone has a right to dream. Doubt the whole thing will cost more than a couple million and I still get plenty left for the next batch which will involve a grass eating contest on the White House lawn.
First thing I do is buy a few congressman- senators. The deal is they get some big dough but they have to dance - literally. They have to call a live press conference, national TV only/prime time, and they have to all be standing in a straight line - 5, 6, of 'em all lined up. Then, with cameras rolling, they start dancing. Serious faces, staring straight ahead. No explanation - no talking - no nothing, dancing only. Start subtle, maybe a synchronized high kick to the right and left. Then we get down to business. I'm talking intense chicken dance. I wanna see crouching, wagging, clucking - I mean really get into it. Then we end it with everyone pointing together at the sky and shouting "You too can eat petroleum" three times on top of their lungs before dunking their heads into buckets of ice water that have been set before them. Whoever holds his head down the longest gets double the money.
Everyone has a right to dream. Doubt the whole thing will cost more than a couple million and I still get plenty left for the next batch which will involve a grass eating contest on the White House lawn.
120
Jack M, you are a God among mortals.
1
This made me giggle.
1
Great idea - politicians from both sides of the aisle get to compete against each other on prime time. Even more, add an act to the half-time show of the next open Superbowl. You would make back enough in advertising revenue to realize a profit. Sounds like a solid business venture and if I win I will be contacting you to make this one come true. Our country can use it right now to lighten up.
1
Protecting you from yourself is the big advantage. Do you want to be known as the fool who blew almost a billion dollars? You can still have a nice life with $22 million a year for 30 years.
9
Protect yourself with a private trust.
So what if the lottery at some points goes bankrupt? (Many of them come as a surprise.) Is there any guaranty of your annuity at that point? That's why I'll be going for lump sum this Thursday.
7
This is happening in Illinois. The state puts lottery funds in the general fund and, without a budget, there are no funds available to pay out to winners so they are giving 'iou's Do not know how this effects multi-state lotteries such as Powerball but it has to have some influence. The money 'earmarked' as a win is actually in 'bonds' which may be state issued - and states have defaulted on those before. I believe the post tax payout of a $1.4B win has been published as $448M. Some of that tax can be reclaimed through a variety of strategies (such as trusts or charitable trusts - some of which are revokable. For example, Wounded Warrior Project started out as a good charity but is now very poorly rated by CharityWatch so, if you had a revokable trust for them, you could stop payments (the trust gets invested and the investment income is what is distributed to the charity) and redirect them to some other charity (same purpose or another.)) You could have the bulk payout paid to an LLC which holds the investments but pays you the income. There are a lot of options. Finding trustworthy advisers is the real problem - the temptation with managing such a large portfolio can make you vulnerable to the Madoffes of the various industries. You would need an unrelated team - a trust lawyer from one firm, an investment manager from another, an auditor from another so that they check each other for excesses. You also have to take responsibility yourself for watching for churning, etc.
17
My old math professor said you might as well buy a ticket because the odds of winning are the same whether you play or not! Remember also that you if you buy two tickets you double your odds of winning.
Good luck to all. You're all wonderful people - remember me!!
Good luck to all. You're all wonderful people - remember me!!
12
You face odds of 1 in 292,000,000 with one ticket, and 2 in 292,000,000 if you buy two tickets. Only Harry and Lloyd like those chances!
this is dumb why would you trust the goverment to pay you over 30 years? Also the economy is collapsing so you would definitely not get the money.
4
It is illegal to put cash in bank safety deposit boxes!
Nonsense, it isn't illegal to keep cash in a safe deposit box.
Cite the law if you disagree.
Cite the law if you disagree.
1
It is illegal to hide money to avoid taxes. it is not illegal to put cash in a safe deposit box. It will be uninsured, and if you die your heirs may have some issues getting it, but it is not illegal. Be sure to set up an account to pay fees, though with lottery winnings also deposited in the bank they should give it to you for free (otherwise consider getting another bank).
No, it isn't.
What about buying the lottery ticket, contributing it to a 401k plan, at its current basis, and having it grow tax free until retirement? In the meantime, take loans out to enjoy life.
If I am not mistaken, 401k contributions must come from earnings. It is just deferred income. I don't think you can throw extra money in. Contributions must come from payroll.
The maximum a person can contribute to a 401K is something like $20,000 annually.
Has anyone suggest taking ownership of the lump sum proceeds in a Family Limited Partnership (FLP) as it is probably the most beneficial structure available for wealth preservation via asset protection, estate planning and tax minimization. Although you “can’t take it with you,” by placing your assets into FLPs you can legally and successfully protect everything you own from attack by creditors and from erosion by exorbitant taxes. See a tax and estate planning attorney attorney immeiately.
11
better off gifting 99% of your ticket to the next generation before they draw the winner. it's a $0.20 gift.
6
If you need the money now, sell your lottery annuity to a structured settlement firm. They'll take less than the powerball, and you hand the risk to someone else.
1
If you win $1.5 billion, it is $50 million every year for 30 years.
You people are worried about inflation, taxes, investment decisions?
$50 million every year, people. Ease up.
You people are worried about inflation, taxes, investment decisions?
$50 million every year, people. Ease up.
14
Are you sure? The article mentions 22.6M, not 50.
1
If you take the annuity but die before you received it all, is there estate tax due on the present value of the uncollected annuity?
2
The fact that you have a greater margin of error (given a billion rather than a million) of avoiding financial disaster doesn't change the fact that you thereby inherit a responsibility to manage it wisely.
It's none of my business what you decide to do with your blessings, whether you shower it on charities, set up a foundation so that your descendants are protected from financial disasters, or simply make sure you have one helluva great time before life breathes its last.
No matter what your choice is, make sure you choose it... not just fall into it. That way, when you're saying your goodbyes, you can do so knowing you made a difference. (Even it was a selfish one)
It's none of my business what you decide to do with your blessings, whether you shower it on charities, set up a foundation so that your descendants are protected from financial disasters, or simply make sure you have one helluva great time before life breathes its last.
No matter what your choice is, make sure you choose it... not just fall into it. That way, when you're saying your goodbyes, you can do so knowing you made a difference. (Even it was a selfish one)
2
Excellent advice, Josh. I've always thought the same and if I win the gazillion dollars, I'll buy you 1/20 of a new car every year. :-)
2
$1.5 Billion divided by 29 installments is not $22 million per year. It comes to $51 million per year before taxes which would still leave you with $31 million after Federal taxes. The article stated that the $22 million was before taxes per year.
3
The annuity payments increase so you can't divide $1.5B by 30 (30 payments over 29 years, the first payment you get immediately).
The payments start lower than $1.5B/30 and end up substantially higher.
The payments start lower than $1.5B/30 and end up substantially higher.
The installments aren't payed out in even segments. This is explained on the Powerball website. The payments start out small (comparatively) and get bigger every year. The first year's payment WOULD be about $22 million, and go up from there.
The article stated that the FIRST PAYMENT was $22mil,which is correct. A lottery annuity is a fixed annuity, but not one with the same annual payment each year. The payout increases each year by 5%,which doesn't sound like much, but it's enough to ensure that just over half of the total value of the jackpot won't be received until years 21-30. Less than 25% would be received the first 10 years. For many people that is a good reason for them to take the lump sum and invest the cash themselves.
Very bad advice:
- idiosyncratic risk of all your money in one admittedly fairly safe pot
- tax impact on heirs if you die well before the 30 years end
- likelihood of tax increases over time since US tax rates are at historic lows and lower than most other developed nations
- a long term investment in low cost stock/bond indexes will conservatively net you 4% a year. The rule of 70 says that at 4% your money will double in value in about 17 years, and will be close to doubling again by the 30th year. So an after tax amount of roughly $450 million will be worth close to $1.8 billion in 30 years if you don't spend it
- if you have that much money, your options for investing in funds that generate returns not available to the average investor will probably give you a chance for a higher return. A 5% average return would mean that your $450m is worth closer to $3 billion in 30 years
- idiosyncratic risk of all your money in one admittedly fairly safe pot
- tax impact on heirs if you die well before the 30 years end
- likelihood of tax increases over time since US tax rates are at historic lows and lower than most other developed nations
- a long term investment in low cost stock/bond indexes will conservatively net you 4% a year. The rule of 70 says that at 4% your money will double in value in about 17 years, and will be close to doubling again by the 30th year. So an after tax amount of roughly $450 million will be worth close to $1.8 billion in 30 years if you don't spend it
- if you have that much money, your options for investing in funds that generate returns not available to the average investor will probably give you a chance for a higher return. A 5% average return would mean that your $450m is worth closer to $3 billion in 30 years
11
Financial Advisor here. Annuities do have a tax advantage, in that you aren't taxed on the earnings until you take distribution. Very true, but what you ultimately create is a future estate tax problem. Taking the lump sum and investing it in whatever or anything that you choose is a much wiser choice. Not knowing the future of taxation, estate tax, or liquidity of our government will be in in the future should force most people to take the money up front. Also, I would rather take the value of dollar today and invest it in so many different avenues, than to take roll of the dice and hope inflation or currency devaluation hit my annuity payments (I don't trust the Govt to invest wisely). A large cash lump sum is also the best stimulation to a lot of businesses and people of the U.S.
9
First, it depends how old you are. Take a look at the Tax Court case Estate of Cook, T.C. Memo. 2001-170 (2001). The value for estate tax purposes of the lottery ticket will be quite high and there will be little cash to pay the tax.
Second, in the years 2006-2015, which included quite a few really bad years, the S&P 500 had an average return of 9.03%, quite a bit better than the annuity is offering. Much of that return, of course, is tax deferred and, if you die, tax free to your heirs. Simply put the cash into an index fund. BTW, the 1966 to 2015 rate of return is even greater.
Third, it is a reasonable certainty that individual tax rates, now at a very low rate, and interest rates, also very low, will rise over the next 29 years.
All in all, take the cash.
Second, in the years 2006-2015, which included quite a few really bad years, the S&P 500 had an average return of 9.03%, quite a bit better than the annuity is offering. Much of that return, of course, is tax deferred and, if you die, tax free to your heirs. Simply put the cash into an index fund. BTW, the 1966 to 2015 rate of return is even greater.
Third, it is a reasonable certainty that individual tax rates, now at a very low rate, and interest rates, also very low, will rise over the next 29 years.
All in all, take the cash.
6
Wait, isn't 1.5 billion/30 years equal to about $50 million a year, not 22? Not concerned about any difference it would make financially to the winner, but just trying to get into the weeds here.
7
I made the same comment. You are correct and even after federal taxes it would be $31 million.
The annuity is "graduated," i.e. the payments increase over time.
Grumpy,
Check out www.usamega.com it gives you the breakdown of the annuity payments....they start at 22M about 2M each year until in year 30 you get about a 93M payment...based on 1.5B
Check out www.usamega.com it gives you the breakdown of the annuity payments....they start at 22M about 2M each year until in year 30 you get about a 93M payment...based on 1.5B
If you take the annuity, aren't you taking a chance that Powerball or the United Statues government could go bankrupt sometime within the next 30 years? I have heard those warnings about state lotteries and I assume Powerball would be the same.
I get the part about saving you from yourself and the stories of other winners who end up broke. I think it just takes discipline. Myself, I'm not sure I'll be around 30 years from now. I think I would take the cash.
I get the part about saving you from yourself and the stories of other winners who end up broke. I think it just takes discipline. Myself, I'm not sure I'll be around 30 years from now. I think I would take the cash.
10
Very true.... Illinois, for one state with a lottery, has not been able to pay lottery winners of over $500 for several months because the legislature has not approved the state's budget and can not pay their bills. Take the money and run!
3
"Take the Annuity" -- I beg to differ.
Who guarantees that that the annuity will be paid over a period of 30 years?
Take your money, pay the taxes, and run.
Who guarantees that that the annuity will be paid over a period of 30 years?
Take your money, pay the taxes, and run.
10
I am definitely in the camp of people who don't trust the relevant state government(s) to stay solvent for 30 years. Gimme my money now!!
10
What? No way. I‘ll take the lump sum, thank you.
10
If you win the $1.5B, and take the lump sum, which post tax is roughly $450MM, why in the world would you need to be concerned about investing it? $450MM can support a very luxurious lifestyle for a lifetime, for multiple lifetimes. Which is undeniable proof of the need for estate taxes.
11
Estate taxes should not exist. The people that have accumulated their fortune have already paid taxes on that money and it should not be taxed again because they die and leave it to a family member.
2
My thoughts exactly, CY! Investing is for people who want or need, and hope, to increase the amount of money they have. If I had $450 million, what would I care about stocks and bonds? Cash is king, and I'd already have more cash than I could ever spend in my lifetime, no matter what happened to the stock market. Take that, Wall Street!
2
You want to invest it to at least generate income, and also to keep it safe in a diversified portfolio. Putting hundreds of millions in a safe or even just in 1-2 deposit accounts is not even the SAFEST way to go. And the stocks and bonds of companies you help create jobs, economic growth, and valuable products and services for society.
6
This was clearly not written by a financial professional. If you can't beat 3.5% (the 2.843% annuity return he references, divided by the 20% capital gains tax one would pay to achieve the same post-tax return), you're as inept as the author. Nor does he account for age, inflation or government solvency.
18
I was advised by my attorney that taking an annuity (instead of a limp sum) on lottery winnings means that in the event of your death, your heirs are liable for the ENTIRE tax liability at once, ahead of the annual payouts. This leads to the situation of your heirs owing more to the IRS than they've yet received. It's the reason so many attorneys recommend second-to-die policies when the estate involves royalties that may only pay out over a number of years -- to,protect against the necessity of paying taxes on money that has not yet even be earned.
12
This makes no sense at all. You can't pay taxes on money that you don't have. Why would our sports stars ever sign long-term contracts if this was the case. You should get a new lawyer.
3
It may not make sense but it is true. Sports contracts aren't annuities that get inherited with the star dies so that comparison is invalid.
You might want to check with an attorney yourself because your belief that "sense" is how the law works is misguided.
You might want to check with an attorney yourself because your belief that "sense" is how the law works is misguided.
1
You can't pay taxes on something that you don't have.
Take the annuity? Not on your life.
I'd never put my trust in future politicians who might well decide that the State needs the money more than I do.
I'd never put my trust in future politicians who might well decide that the State needs the money more than I do.
5
What happens with regards to inheritance taxes if I die before the annuity is completely paid out? If my heirs owe a large sum of taxes on the entire value, but don't have access to the money to pay it, that could end up being more of a hardship. Yes, I know this is hardly a glass-is-half-full approach, but still!
2
Take the annuity? And become an unsecured creditor of some state or governmental entity for the next 30 years!
5
IF you win simply start a hedge fund, invest in the SP 500 and then pay much lower taxes. Hedge funds only pay 20 percent tax a year instead of 39.6 percent ordinary income tax.
1
I can assure you that in the US, no one sitting on a lump sum of hundreds of millions of dollars or receiving an annuity of tens of millions of dollars pays 39.6% in taxes.
No one.
No one.
1
Are you kidding me.
Even if I were 18 years old and won, I would take the "cash" option.
Immediately after taking the cash option, I would open 100 hundred Swiss bank accounts, putting 250k in each one (or whatever the limit is for guaranteeing deposit and not being targeted by the IRS for interest
In fact, I don't want any interest from these accounts, to simplify any "taxes" I might have to fill out in the future.
I would also spend a few months visiting a small city near a major city in each US state, and open safety deposit boxes in each state, and put 100k cash and 100k in silver / gold / platinum bullion in each.
10 million in safety deposit boxes split between cash and precious metals.
25 million in Swiss accounts, and multiple accounts in case any get hacked.
That is only 35 million, and provides me emergency cash in any US state, and Swiss accounts I can access outside of the US.
I would then open up my "petty cash" checking accounts with each major US bank.
Wells Fargo
BBT
Bank of America
Citibank
Chase
200k in each, so it is FDIC insured, non-interest bearing accounts. That would pretty much guarantee I can access money from an ATM anywhere I go.
I would be able to access cash anywhere, and have zero US income so wouldn't have to worry about USA taxes.
Total above, 36 million.
Tell me again why I need to "invest" in annuities, or stock market, or mutual funds, or treasuries?
I'd still have 100s of millions to try to allocate.
Even if I were 18 years old and won, I would take the "cash" option.
Immediately after taking the cash option, I would open 100 hundred Swiss bank accounts, putting 250k in each one (or whatever the limit is for guaranteeing deposit and not being targeted by the IRS for interest
In fact, I don't want any interest from these accounts, to simplify any "taxes" I might have to fill out in the future.
I would also spend a few months visiting a small city near a major city in each US state, and open safety deposit boxes in each state, and put 100k cash and 100k in silver / gold / platinum bullion in each.
10 million in safety deposit boxes split between cash and precious metals.
25 million in Swiss accounts, and multiple accounts in case any get hacked.
That is only 35 million, and provides me emergency cash in any US state, and Swiss accounts I can access outside of the US.
I would then open up my "petty cash" checking accounts with each major US bank.
Wells Fargo
BBT
Bank of America
Citibank
Chase
200k in each, so it is FDIC insured, non-interest bearing accounts. That would pretty much guarantee I can access money from an ATM anywhere I go.
I would be able to access cash anywhere, and have zero US income so wouldn't have to worry about USA taxes.
Total above, 36 million.
Tell me again why I need to "invest" in annuities, or stock market, or mutual funds, or treasuries?
I'd still have 100s of millions to try to allocate.
3
Chill, bro. You're not going to win.
6
Don't forget your password for those multiple accounts.
10
You do realize that the penalty for not declaring that you have money in a Swiss bank account is a tax equal to at least 50% of the highest balance in the account plus interest?
As a big winner, the IRS would be inquiring what you did with your money.
As a big winner, the IRS would be inquiring what you did with your money.
I'm glad that I read this article. I was planning to take the lump sum payment - but now I've decided to take the annuity. Thanks NY Times! (Well, it's fun to dream.)
2
If you take the annuity then die Unca Sam gets to stick the estate for an additional 40%.
Do your heirs a favor, take the lump and set up your own(living trust etc.) transfer strategy.
Do your heirs a favor, take the lump and set up your own(living trust etc.) transfer strategy.
4
You all forget the Federal Estate Tax. If you die the day after you get your first annuity check, your estate will owe Estate Tax on the present value of the annuity - the cash value. That tax rate is 40 percent. Your estate could owe the Feds about $400,000 nine months after your death and it wouldn't have it. This problem persists throughout most of the 29 years of the payout. Take the lump sum.
8
I'm pretty sure that with a guaranteed annuity of $22 billion, i could manage to have $400,000 set aside each year for when the tax man cometh.
Besides, I would be dead.
Besides, I would be dead.
1
So you are telling me there is a chance!
21
Something in the math here does not make sense.
22.6 million per year for 30 years = $678 million. I am assuming your 22.6$ million per year is after taxes are taken out. So, over a 30 year span you only get $678 million, but not really, as it will be eroded by inflation.
If you take the $930 lump sum, and then assume a 50% take bite (which should be a bit higher than the real amount) you get $465 Million right now.
Even an average investor should be able to turn $465 million into MORE than $678 million over 30 years. That would be a very low rate of return; a far cry from high risk investing.
I think you've given horrible advice. The math just does not back up your thinking.
22.6 million per year for 30 years = $678 million. I am assuming your 22.6$ million per year is after taxes are taken out. So, over a 30 year span you only get $678 million, but not really, as it will be eroded by inflation.
If you take the $930 lump sum, and then assume a 50% take bite (which should be a bit higher than the real amount) you get $465 Million right now.
Even an average investor should be able to turn $465 million into MORE than $678 million over 30 years. That would be a very low rate of return; a far cry from high risk investing.
I think you've given horrible advice. The math just does not back up your thinking.
1
If you need protection from yourself if you win this lottery, it will be needed regardless of the chosen option.
Correct!
An annuity doesn't protect you from foolishness. At least one lottery winner who took an annuity soon found himself bankrupt. An annuity is an asset if you life the high life you can end up broke and your creditors hauling you into bankruptcy court. That annuity would get sold, you would have to pay taxes on the balance and pay off your creditors.
An annuity just gives the illusion of security but it isn't real.
An annuity doesn't protect you from foolishness. At least one lottery winner who took an annuity soon found himself bankrupt. An annuity is an asset if you life the high life you can end up broke and your creditors hauling you into bankruptcy court. That annuity would get sold, you would have to pay taxes on the balance and pay off your creditors.
An annuity just gives the illusion of security but it isn't real.
Only stupid people take annuity, imagine you take the annuity and the next day the stupid government said IOU because they go bankrupt like Detroit and Chicago....Never ever ever take annuity.
I am far from a financial genius, but what about a revocable trust? Put some aside for yourself and your dreams, then have the money managed to give to your charities, your causes, your beliefs and, yes, even your friends and relatives.
If I win, I'm taking the lump sum. Or at least hat is left after I pay off my student loans.
If I win, I'm taking the lump sum. Or at least hat is left after I pay off my student loans.
I didn't see anything here about the time cost of money. A dollar now is worth a lot more than a dollar thirty years from now, particularly when you take inflation into account. And, really, how can you trust government to pay that annuity for thirty years. Bankrupt Illinois is reneging on paying out lottery winnings to its winners. When the US goes bankrupt, it will probably put lotto winners at the bottom of its list of creditors.
I will take the lump sum, give a nice present to each of my siblings and neices, pay off my step daughter's law school tuition loans, buy my step kids and my son each a nice, modest, reasonable, pleasant home to live in, give a lot to my church, anonymously fund some charities, and then pretty much live the way I have always lived. Good luck to all of us!
3
The only problem with the annuity is that what happens when the government goes bankrupt in 10 years?
2
Doncha love how we are all taking this so seriously!!!
5
Ah, A contract with the government for 30 years. What could go wrong?
(Ask an indian)
(Ask an indian)
11
Laughable, what sane person would trust a pay out over thirty years. I think, but may be incorrect, that the state of Illinois is failing to pay lottery winnings. Take the money, hire multiple attorneys, give millions to charity, and enjoy your life.
10
Also consider who the writer of this article is working for. It's not you.
4
Th8us is not good advice: 1) inflation erodes the future dollars; now could set up a charitable trust and family trust to avoid significant taxes. If the person dies; the remainder of the annuity say for instance 500 million would be automatically taxed and the heirs would owe 250 million fight away although they would be receiving only about 25million/ year; they would have to borrow the 250 million from a bank and then at 4% would be paying( for instance 20 years (apx 1/2 the payout) 18 million per year with no tax deduction for that leaving 7 million per year. Taking the 700 million and with conservative tax exempt high quality bonds yo could get 14 million her year svn with no trust.
3
but if yo took the annuity your 22 million per year would be 12 mill or so and you would have to split it 6 mill per yr with your mate that will surely leave you! and then you have to agonize over it each year for 30 years. with laughter
It's not $22 million per year. $1.5 billion divided by 29 = $51 million per year and $31 million per year after federal taxes. The writer of this article doesn't know how to use a calculator.
The author of the article knows something you don't.
1) You get 30 annuity payments
2) They aren't equal payments
You don't need a new calculator but you do need to understand how the annuity is actually structured.
1) You get 30 annuity payments
2) They aren't equal payments
You don't need a new calculator but you do need to understand how the annuity is actually structured.
Pete I believe correctly described the issues earlier in these comments (or at least that’s the answer I came up with when, several years ago, I looked at the issues):
“if you die during the 30 year period, the annuity is valued [for estate taxation] at its present value on the day of your death, and all income and estate taxes become immediately due. The problem is Powerball has no obligation to speed up payments so how do you fund the taxes?”
That is, the tax obligation is accelerated, but the cash stream to pay the taxes is not.
So your heirs would have to sell the right to the annuity payments, undoubtedly at a very steep discount.
As Pete concludes: "The annuity might work for the invincible 20 year old but not so much for the 40 or 50 year old.”
Also, not so much for someone who dies prematurely, or his/her heirs..
Better to find some other way to protect yourself from yourself.
Among these: use part of the cash to purchase your own annuity certain,so you can’t ever run out of money.
And by all means give very generously to your alma maters and numerous other charitable donees. Of course, seek very good financial/tax advice.
And absolutely do not go public; you don’t want to attract the swarm of people who will hound you to manage your money, sell you things, swindle you, seek handouts, etc., etc.
It’s a nice problem to have, and you can and should take your time dealing with it (within this taxable year).
Onetime tax lawyer.
“if you die during the 30 year period, the annuity is valued [for estate taxation] at its present value on the day of your death, and all income and estate taxes become immediately due. The problem is Powerball has no obligation to speed up payments so how do you fund the taxes?”
That is, the tax obligation is accelerated, but the cash stream to pay the taxes is not.
So your heirs would have to sell the right to the annuity payments, undoubtedly at a very steep discount.
As Pete concludes: "The annuity might work for the invincible 20 year old but not so much for the 40 or 50 year old.”
Also, not so much for someone who dies prematurely, or his/her heirs..
Better to find some other way to protect yourself from yourself.
Among these: use part of the cash to purchase your own annuity certain,so you can’t ever run out of money.
And by all means give very generously to your alma maters and numerous other charitable donees. Of course, seek very good financial/tax advice.
And absolutely do not go public; you don’t want to attract the swarm of people who will hound you to manage your money, sell you things, swindle you, seek handouts, etc., etc.
It’s a nice problem to have, and you can and should take your time dealing with it (within this taxable year).
Onetime tax lawyer.
8
Don't go public? It all depends on from which lottery your prize springs. Many have public disclosure of winners as a rule; customers and potential customers like seeing a face next to a very big (in both senses of the word) mock check. They think, could be ME up there next and buy in.
This is not displeasing to lotteries, which receive a giant jolt of free publicity. They WANT the ballyhoo of the ceremony if they can force winners into it but will settle for taDAAAH, here's the real winner and it's not the governor's great-grandmother.
This is not displeasing to lotteries, which receive a giant jolt of free publicity. They WANT the ballyhoo of the ceremony if they can force winners into it but will settle for taDAAAH, here's the real winner and it's not the governor's great-grandmother.
1
You could have a bank or trust company turn in the ticket in its name, and deposit the proceeds in your account(s), preserving your anonymity.
Yes, the lottery would like to parade you about, but there’s no reason you have to go along. You will really want not to attract the mob that would seek you out if you’re not anonymous.
Yes, the lottery would like to parade you about, but there’s no reason you have to go along. You will really want not to attract the mob that would seek you out if you’re not anonymous.
Money in hand is worth ten times money in the future. We don't live in the year 2045. A lot of us won't even hanging around by then. In any case, we live now, not then.
It is a fact, I know from experience, that handling lump sum payments is difficult, problematic and complicated. Most people can't handle it or handle it well. I'll take that chance. Lump sum.
I like to go by an informal rule of thirds when dealing with larger amounts of money or, more frequently, conceptual amounts of money. With a mega payout, this idea might be too small time, but I would think about 1/3 for investment, 1/3 for charitable works and deeds and 1/3 for a personal cushion and to pass along, at the appropriate time, to family. As for the tax strategies, I would let the advisers come up with their best plans and tell them, in no uncertain terms, I plan to keep it all legal and very above board. Very.
Over a couple of decades, that 1/3 investment could grow to be as big as the original payout or it could evaporate. No matter. I would still have the one third for charity and the other bit for living (well).
I would tell anyone and everyone who came around asking for money this: NO. I might, if possible, set up a modest fund where those new friends and suddenly close family members could apply for loans or grants, but it would be finite amount. The worse thing would be to make instant enemies by loaning or giving out money for personal use. Don't give money and make enemies that way instead.
It is a fact, I know from experience, that handling lump sum payments is difficult, problematic and complicated. Most people can't handle it or handle it well. I'll take that chance. Lump sum.
I like to go by an informal rule of thirds when dealing with larger amounts of money or, more frequently, conceptual amounts of money. With a mega payout, this idea might be too small time, but I would think about 1/3 for investment, 1/3 for charitable works and deeds and 1/3 for a personal cushion and to pass along, at the appropriate time, to family. As for the tax strategies, I would let the advisers come up with their best plans and tell them, in no uncertain terms, I plan to keep it all legal and very above board. Very.
Over a couple of decades, that 1/3 investment could grow to be as big as the original payout or it could evaporate. No matter. I would still have the one third for charity and the other bit for living (well).
I would tell anyone and everyone who came around asking for money this: NO. I might, if possible, set up a modest fund where those new friends and suddenly close family members could apply for loans or grants, but it would be finite amount. The worse thing would be to make instant enemies by loaning or giving out money for personal use. Don't give money and make enemies that way instead.
2
I would be very happy to pay high taxes on my $1.5 Billion in earnings - even the 90% in income taxes the rich paid back in the 1950s. That would leave me with $150 million dollars. I could live with that.
3
This makes me laugh. Worrying about the investment returns on a 1.5 billion dollar lottery win. This is some 1% stuff right there.
In my lottery winning dreams, I'm actually happy to pay taxes on it. Taxes are the price we pay for a civilized society and all (OWH). I'll make up for all the wealthy deadbeats out there!
In my lottery winning dreams, I'm actually happy to pay taxes on it. Taxes are the price we pay for a civilized society and all (OWH). I'll make up for all the wealthy deadbeats out there!
63
One item the author forgot to mention is that if you are living in a high tax state (say, well, NY or even worse, NYC) and take the lump sum, NY (and NYC if that applies) will dearly love you. After all, next year you could move to Texas or Florida and not pay any state income tax on an annuity stream... and you will be hard pressed to make up via investment that 5-10% immediate state/city tax payment on the lump sum.
If you believe that the government will fumble the economy one down side is the possibility of hyperinflation running ahead of the investment stream; another is some change that results in nullification of any gambling winnings unlikely as that might be. 30 years is a long time. OTOH, you have already parlayed a few dollars into many millions so you are way ahead no matter what.
It is valid to consider the annuity since the annuity is heritable and not terminated on death like in the bad old days. A lot of people still remember those days.
If you believe that the government will fumble the economy one down side is the possibility of hyperinflation running ahead of the investment stream; another is some change that results in nullification of any gambling winnings unlikely as that might be. 30 years is a long time. OTOH, you have already parlayed a few dollars into many millions so you are way ahead no matter what.
It is valid to consider the annuity since the annuity is heritable and not terminated on death like in the bad old days. A lot of people still remember those days.
4
Don't count on it.
That annuity stream for a ticket sold in New York will continue to come from New York and New York will consider it to be income earned in New York even if you reside outside New York.
No different than living in Conn. and commuting to work in New York. That New York income continues to be taxed.
If you don't want to pay NYC taxes on your lottery ticket, don't buy it in New York.
That annuity stream for a ticket sold in New York will continue to come from New York and New York will consider it to be income earned in New York even if you reside outside New York.
No different than living in Conn. and commuting to work in New York. That New York income continues to be taxed.
If you don't want to pay NYC taxes on your lottery ticket, don't buy it in New York.
Well, If I win, I'll have enough money do hire lots of lawyers and fight the IRS on the constitutionality of income taxes. Seeing as they are only voluntary and not mandatory, I think I'll keep it all and at the same time, liberate all Americans from income tax.
2
You will also need to hire lawyers to keep you out of prison. And then lawyers from prison to appeal your case and manage your affairs.
1
You should read the Sixteenth Amendment to the U.S. Constitution: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
You would spend your money more wisely to repeal the amendment rather than pay lawyers on a fool's errand. The income tax is without question constitutional.
You would spend your money more wisely to repeal the amendment rather than pay lawyers on a fool's errand. The income tax is without question constitutional.
2
And you would LOSE. BADLY.
People have tried that argument, and so far, every single one of them has LOST.
Not the way I would spend the mney.
People have tried that argument, and so far, every single one of them has LOST.
Not the way I would spend the mney.
I'd take the lump sum as well. Invest, build, help, travel... and tease all of the banks that'll be kissing my A that turned me down as an honest hard working stiff before.
10
We get it. Mr. Barro is superior to the millions of rubes who waste money on the lottery.
Has it occurred to him that many people -- who knows. maybe even most! -- play the lottery for entertainment purposes, and don't actually consider it an investment?
My Netflix account provides hours of escapism, but I don’t expect it to help me retire.
Has it occurred to him that many people -- who knows. maybe even most! -- play the lottery for entertainment purposes, and don't actually consider it an investment?
My Netflix account provides hours of escapism, but I don’t expect it to help me retire.
8
I don't know whose full faith and credit the powerball annuity is drawn on, but a lot of US states are leveraged to the gills when you take into account their unfunded pension obligations. And those numbers are going to get worse - way worse - over the next 30 years.
There's a not small chance that your lottery winnings aren't paid to you at all or in full, starting in the not too distant future.
Crazy? Illinois is issuing IOUs to lottery winners *today.*
There's a not small chance that your lottery winnings aren't paid to you at all or in full, starting in the not too distant future.
Crazy? Illinois is issuing IOUs to lottery winners *today.*
2
I probably won't live another 30 years. Gimmie my money!
11
Let me see. I'm suppose to trust the gov. with my money when they let company's back out of promised retirement benefits including insurance for retirees,sure sure let's do that. Another little note, I call social security a few months ago thinking about filing for ss and the person I talked to had this small sound of panic to her voice that didn't dawn on me until I hung up.
2
Whether you take the annuity or the lump sum, someone will always be trying to take it from you. I'd rather take my chances with common crooks and thieves than the politicians that run our state and federal governments.
2
I'd buy a small house and car, travel to a few places I've always wanted to see, put a bit away for retirement and daily expenses, and give the rest to friends and charities I know. No politicians.
8
Dear NY Times,
Your advice is terrible. One thing many (like everyone actually) does not realize is that the 30 year payment schedule is very back-end heavy. What this means is that 50% of the annuity amount is paid out over the last 10 years. To clarify, you go through 20 years of inflation before you get access to the other 50% of the winning amount which then gets paid out over another decade. You are much better off taking the lump sum and hiring a skilled financial team. They would easily get you 15% year on year growth avg over a 10 year period.
Your advice is terrible. One thing many (like everyone actually) does not realize is that the 30 year payment schedule is very back-end heavy. What this means is that 50% of the annuity amount is paid out over the last 10 years. To clarify, you go through 20 years of inflation before you get access to the other 50% of the winning amount which then gets paid out over another decade. You are much better off taking the lump sum and hiring a skilled financial team. They would easily get you 15% year on year growth avg over a 10 year period.
"They would easily get you 15% year on year growth". Ain't no easy way to make easy money. High returns come with high risks, no matter how skilled your financial team is.
1
LOL at how seriously everyone is taking this article. And while you make some valid points, Josh, life is short. I would go with the lump sum and hope for the best.
1
It's very simple.
Way too many winners blow through the cash payout and then regret their experiences. Not all of them mind you. But we are talking $1.5B here (half that after taxes). The advantage or disadvantage of the amount of taxes being paid is effectively moot at this point.
If you cannot live on $22.6M a year (again roughly half that after taxes). Then you don't deserve to win anything.
Way too many winners blow through the cash payout and then regret their experiences. Not all of them mind you. But we are talking $1.5B here (half that after taxes). The advantage or disadvantage of the amount of taxes being paid is effectively moot at this point.
If you cannot live on $22.6M a year (again roughly half that after taxes). Then you don't deserve to win anything.
8
Since 1.5 billion divided by 30 years equals 50 million, why are we talking about a $22.6 million annual payment?
They did the math when the payout was expected to be $900 million.
Since the powerball annuity isn't a fixed payment why are you dividing $1.5B by 30?
If you should pass away at the early stages of the annuity, your estate will have to pay estate taxes on the full amount of the remaining annuity even though it doesn't have the immediate right to it. Duh!
4
I'd take the lump sum. If a person can't mentally handle $930 million responsibly in one lump sum, he/she is not going to do any better with $22 million per year either. There are plenty of good solid investments out there that do better than 2% annual, too from A corporate bonds to top county utility and infrastructure bonds. Also, there are plenty of good dividend stocks to put in a highly diversified portfolio. And if you're in your 60's -- say -- most likely you'll see yearly cash flow electing the annuity for only 20 years +/- which means you risk losing a third of your annuity earnings, unless you are so keen to leave the remainder right away to relatives or charities. If you're so keen on this, take a portion of the lump sum and create a charitable remainder trust for whomever to get free of estate tax when they receive the principal or whatever is in there when you go up to that great Powerball drawing in the sky.
4
Take the annuity, and while Real Estate prices are low, BUY! Use the cash to LEVERAGE (max 50% debt or pay off a few) awesome deals on properties that will return 10 fold in income EVERY year!
Buy some offshore property in case US crashes (and a plane/pilot whose family you'll take with you and yours)!
Put some (10%) away in a trust safely earning interest, for the family in case stupid stuff happens!
Buy some offshore property in case US crashes (and a plane/pilot whose family you'll take with you and yours)!
Put some (10%) away in a trust safely earning interest, for the family in case stupid stuff happens!
3
The author said everything that I need to know why I'll take the lump sum when he wrote, "... taking the annuity is basically like letting the government hold onto part of your prize for a while and invest it for you — and the government does not pay tax on investment income.".
1
So, the pot is $1.5 billion.
They give me a lump of @ $900 million and then tax that so I end up with a net of @ $500 million?
The rats just took a billion bucks off me!
And I needed that billion for, among other sundry items, that used Corrola I've been eyeing!
They give me a lump of @ $900 million and then tax that so I end up with a net of @ $500 million?
The rats just took a billion bucks off me!
And I needed that billion for, among other sundry items, that used Corrola I've been eyeing!
16
If I were to, maybe I'd go and dine at Per Se, but avoiding the salmon cornet.
9
Most winners will be so slobberknocked with even a mere pre tax $900 million that they will care nothing about the current tax bite while justifiably doubting the validity of any 30 year promise of continuing payments.
1
20% more cash over 30 years
Is that worth the lost opportunity cost of a lump sum? I remember doing this as a simple exercise in econ class and it always seemed to suggest, based on favorable investment returns of course, that the ability to use that money now to make more money is better than getting the annuity. If the Stock market returned 5% a year, then that surely would be better over 30 years at a 20% loss would it not?
Glad you did the article though but I'd really like to see the graphs and tables on this one ;)
Is that worth the lost opportunity cost of a lump sum? I remember doing this as a simple exercise in econ class and it always seemed to suggest, based on favorable investment returns of course, that the ability to use that money now to make more money is better than getting the annuity. If the Stock market returned 5% a year, then that surely would be better over 30 years at a 20% loss would it not?
Glad you did the article though but I'd really like to see the graphs and tables on this one ;)
2
I am from Illinois. LUMP.
5
If you're pushing 70 something, lump sum is the way to go.
4
Utterly idiotic for quite a number of reasons.
I'm 53. Who cares when I'm 83? No one lives forever, even with that kind of money. Ecological disaster is also imminent. No point in gaining more money.
Even if it were 20 million, taking it now and paying taxes would leave someone with about 12 million dollars. Why would you even bother to put that into any sort of investments of high yield?
This is an obscene and absurd amount of money. You could buy the house and car of your dreams and all the furnishings and live a lavish lifestyle for a year or 5 and still have 10 million left. Simple bank interest on that amount alone is going to be a little over 300,000 per year. Taxes on that would leave you with about 200,000 per year.
Do you really need to make this money earn more? I think most rational people could easily live on 200K per year with 10 million in reserve.
I'm 53. Who cares when I'm 83? No one lives forever, even with that kind of money. Ecological disaster is also imminent. No point in gaining more money.
Even if it were 20 million, taking it now and paying taxes would leave someone with about 12 million dollars. Why would you even bother to put that into any sort of investments of high yield?
This is an obscene and absurd amount of money. You could buy the house and car of your dreams and all the furnishings and live a lavish lifestyle for a year or 5 and still have 10 million left. Simple bank interest on that amount alone is going to be a little over 300,000 per year. Taxes on that would leave you with about 200,000 per year.
Do you really need to make this money earn more? I think most rational people could easily live on 200K per year with 10 million in reserve.
18
Investing in capital markets not only generally makes the investor wealthier, it also creates many jobs, economic growth, and many other desirable outcomes.
In taking away ~ $500 mil net from such a large windfall, one could likely easily enjoy a low 7 figure MONTHLY income in dividends and interest without disturbing the principal.
But I would personally give ~$100 mil to a handful of close family (controlled by me in trusts that only allowed them so much a year), invest $200 mil for growth, invest $100 mil for income (approx $300k income per month), blow perhaps $10 mil upfront on a bigger house and a few other things, and give away some $50-100 mil to carefully selected charities over the rest of my life.
In taking away ~ $500 mil net from such a large windfall, one could likely easily enjoy a low 7 figure MONTHLY income in dividends and interest without disturbing the principal.
But I would personally give ~$100 mil to a handful of close family (controlled by me in trusts that only allowed them so much a year), invest $200 mil for growth, invest $100 mil for income (approx $300k income per month), blow perhaps $10 mil upfront on a bigger house and a few other things, and give away some $50-100 mil to carefully selected charities over the rest of my life.
"...the cars and the boats and the new political magazine..." - never thought that I could actually go and buy the New Republic with the money; now that's all I can think about. Guess I'll have to go play after all.
2
Sorry, but considering what's happening in Illinois (ahem, IOUs for lottery winners), I wouldn't trust the government with a dime of that money.
5
...and considering what's happening in New Jersey with the teachers' pension, I agree.
1
I am 90 years old, let me enjoy the money for the remaining few years.
1
I will win the 1.5 billion dollars on Wednesday, collect it on Thursday and give it to the Bernie Sanders campaign and no-kill animal shelters around the country and keep $1M for myself as a cushion. Then I go back to life as usual.
7
Go Fred!
Bern through the money!
Bern through the money!
1
Ever hear of estate taxes, oh brilliant great financial analyst. Die 1 day after you win and have chosen the annuity and the dreaded 55% estate tax cuts in on your win...effective immediately so you gonna have to borrow a whole bunch of money to pay the tax bill. Take the immediate, pay your taxes and put it into a trust like the rich folks do and pass it on tax free forever.
2
I think i'll be safe if I put 95% of it into Google.
buy a nice house, nice car, travel, (work cuz I'm still young)
then around when I'm 80 put some 3-5 sexy 20 year old ladies through nursing to school, offer them annual salary to take care of me till I die (not that way you dirty minded ppl)
buy a nice house, nice car, travel, (work cuz I'm still young)
then around when I'm 80 put some 3-5 sexy 20 year old ladies through nursing to school, offer them annual salary to take care of me till I die (not that way you dirty minded ppl)
Clearly you didn't learn diversification in your schooling...
Good advice for short term, but long term risky. What happens when the economy sours and budgets are tight. Power Ball winners get short changed.
1
Yep, annuity. After all, that worst case scenario of dying before you collect it all is a false dilemma...unless you are like those who cash out and blow it all in a short period of time.
And once you're dead, you won't miss a dime. But whomever you leave the rest to will be quite happy about it.
And you earn Good Karma.
Win win, baby.
And once you're dead, you won't miss a dime. But whomever you leave the rest to will be quite happy about it.
And you earn Good Karma.
Win win, baby.
3
If you take the annuity and die before collecting it all your heirs will have a real problem on their hands. They will owe a 40% estate tax on the present value of the remaining annuity payments and that means they will be forced to sell the annuity to pay the taxes.
Terrible idea to take the annuity. No opportunity to do any estate tax planning.
Terrible idea to take the annuity. No opportunity to do any estate tax planning.
@DMutchler:
It's 6's and 7's.
If you're older than 45, your best bet probably is to take the lump sum given the adverse estate tax situation you might create for your heirs. But if you're younger than 30 and knew little or nothing about finance and investing, the annual payment route is definitely preferable. It buys time to learn.
A roll of the dice either way, but then again so is the lottery.
It's 6's and 7's.
If you're older than 45, your best bet probably is to take the lump sum given the adverse estate tax situation you might create for your heirs. But if you're younger than 30 and knew little or nothing about finance and investing, the annual payment route is definitely preferable. It buys time to learn.
A roll of the dice either way, but then again so is the lottery.
No heirs. No problem. Some organization would deal with it, and likely gladly.
In my town, Kansas City, the (awhile ago) gambling run by "other" interests was probably a better deal than with government being involved. Really, can you trust the good folks that run these scams against the poor to be fair in the end??
I think government has better things to do that promote gambling.
And where in this election season are all the candidates of the religious right on this??
I think government has better things to do that promote gambling.
And where in this election season are all the candidates of the religious right on this??
In one respect you want all that money to end your thinking about money. So you don't want to invest, or collect, or budget. You take the lump sum and buy your houses all over the world and bank the rest and have no income to report, no mortgages to pay, etc. You simply live off of an endless debit card and never see paperwork or talk to money managers. This means of course you live like a millionaire, not like a billionaire.
2
Congratulations, you know how to calculate an odd. However, I'm afraid this amazing talent of yours seems to come at the expense of your ability to understand the nature of humanity. But no reason to fret, you definitely have the ability to write a snarky column with an obvious plot, full of inconsistencies which your oblivious employer allows you to put forth as though it is somehow interesting. That's job security right? There is absolutely no need for a great man such as yourself to spend a couple unneeded George Washington's crumbled up in that change jar for a chance to dream, realistically actually, because as they say, you can't win if you don't play, about saving yourself from the constraints of monetary necessity. No, you already spend the vast majority of your time day dreaming about how things could be and you already get paid to write those dreams down and pass them off as news. Again I say, congratulations! As for me, now, I really hope my two dollars pulls throug. For then I could take that lump sum, buy your relic of a time gone by employer... for cash... simply shut it down to save us all the misery, and still have enough funds to order room service from my penthouse suite at the top of whichever of the world's Four Seasons hotels I choose to be residing in, that week, for the rest of my life.
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I'm 77 years old...take the annuity?!
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I thought paying taxes was a good thing?
Around here anyway,,if its a rich white guy he must pay more taxes.
Hypocrisy every day.
Around here anyway,,if its a rich white guy he must pay more taxes.
Hypocrisy every day.
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If/WHEN I win and share it with one or more people, do all members have to take the same payout option? It seems if that was possible you could combine the safety aspects of an annuity with the crazy spending/give away aspects of getting an unthinkable windfall.
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If you own the ticket, sharing it would involve gift taxes to you. Make sure that before you claim the prize, all of the people with whom you are sharing it know that they were co-owners before the ticket won. And you could have partial shares. So one guy gets 5%, you get 70% and one other person gets 25%.
Take the annuity. Leave 50 of it to your favorite charity when you die and the rest to family.
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While this appears to sound like 'greed' to many, I think it's just fairly sound actuarially-based advice. Ultimately, with a $1B plus jackpot, I don't think one has to agonize over the decision- you should be set for life in either scenario. But we do know that plenty of winners have managed to blow through what should have been enough to be 'set for life,' even at a more modest rate of spending. But whether you take the annuity or the lump sum it's certainly critical to get trustworthy financial and estate planning advice. And while I'd probably opt for the lump sum, it's more to do with my need for 'control' and a fear of the unlikely but possible collapse of state finances. And no, I wouldn't advertise my winnings or share with my co-workers or anything dramatic to 'prove' my goodwill. But I would take great pleasure in setting up trust so that my children and grandchildren would have guaranteed retirements- but under terms that would still require that they work until retirement, disability, etc. And then there are a handful of charities close to my heart that would get major donations and bequests. The thought of being able to do those two things brings me more joy than the thought of what I could buy for myself. But believe me, there are plenty of things I would buy! Ain't the fantasy great? Even if you never buy a lottery ticket (and we rarely do)... we've all spent that fortune in our heads many times!
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And what about the counterparty risk of the lottery system going broke in the next 29 years? Or the risk of taxes going up significantly on people with high income?
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If I win that kind of money, I'll move from Texas to California.
California will tax the winnings, Texas won't.
Thanks for the advice but I'll take the lump sum and take my chances.
California will tax the winnings, Texas won't.
Thanks for the advice but I'll take the lump sum and take my chances.
What about inflation? Won't that devalue the annuity payments over the next 30 years? Wouldn't most people be better off taking the lump sum and investing it?
hey everyone can we stop the nonsense and wake up go to work and be happy We R Not Winning!!!!!
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joao, its not about winning. I pay $2 for the fantasy of the what if. it's really a lot of fun. You should try it!
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Mr. Barro is 31yo. Of course, he will take the annuity. I'd be interested in his opinion on this subject when he's 60.
Also, who want to live in the Hamptons?
Also, who want to live in the Hamptons?
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So, What's the math and rationale on whether the $1 "power play" is worth it or not?
The annuity protects you from yourself.
The lump sum protects you from the lottery defaulting on its promises sometime in the next 30 years.
I'll take the lump sum.
The lump sum protects you from the lottery defaulting on its promises sometime in the next 30 years.
I'll take the lump sum.
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Take the cash, the state you buy it in could go bankrupt and not end up paying you!
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As I'm sure many commentators have concluded as well here, the only reason to take the annuity is the "don't trust yourself" reason. And even then, you can easily take out a loan against your annuity and waste all that money anyway.
With this amount of money, there is no reason no put all of it in "ultrasafe" investments, and you don't need to be a financial wizard to find better alternatives. You can put enough into ultrasafe treasuries to live comfortably no matter what and drop the rest into index funds and do considerably better over the next 30 years than a 2.8% return. Much of that will be in capital appreciation as well, so you don't have to pay tax up front.
And that's just the basics. I'm confident with that amount of money you can hire some accountants to make your investments even more, shall we say... tax efficient.
If you win the $1MM prize, the decision process may be different. You're a lot more likely to blow all of that on risky investments than you are $900 million (I mean that won't even get you a brownstone in Manhattan, not even considering taxes). If you're so risky that you'll blow $900MM, your lavish lifestyle is probably going to kill you before the difference between the options will matter anyway.
With this amount of money, there is no reason no put all of it in "ultrasafe" investments, and you don't need to be a financial wizard to find better alternatives. You can put enough into ultrasafe treasuries to live comfortably no matter what and drop the rest into index funds and do considerably better over the next 30 years than a 2.8% return. Much of that will be in capital appreciation as well, so you don't have to pay tax up front.
And that's just the basics. I'm confident with that amount of money you can hire some accountants to make your investments even more, shall we say... tax efficient.
If you win the $1MM prize, the decision process may be different. You're a lot more likely to blow all of that on risky investments than you are $900 million (I mean that won't even get you a brownstone in Manhattan, not even considering taxes). If you're so risky that you'll blow $900MM, your lavish lifestyle is probably going to kill you before the difference between the options will matter anyway.
Once you win 1.5 billion dollars, you have to worry about the "best" strategy? Be real.
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take the cash option...the gov't can stop those annuity checks at anytime...
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The government can render the dollar worthless at anytime too. Take the annuity.
I'd take the annuity for the sole reason that 22.6 million now and once a year for 30 years won't put a giant target on my head. If there is one thing life has taught me is that where there is money there is greed. With the lump sum your likely to get killed over it or lose alot of it if not all. For those who would take the lump sum I'm sorry to say the world isn't big enough to hide from people's greed. Personally id rather live like a prince for the rest of my life than live like a king for a year.
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Preach. That was the biggest thing. In Florida, there is almost no anonymity when you claim the winnings. Once you win, a target is on your hand by your own family, friends, past acquaintances, etc. Everyone wants a handout and it will leave a bitter taste on you if you win. If do win, I rather take the annuity:
1. I am young (25)
2. I do not want to engage the world of jealousy from that big of a windfall - dangerous.
3. I do not want to risk being like all of the other lottery winners. Many on here think they are going to be different. Until you actually win, you will not know how you would act or take it - or what you would do with it. All of those winners (well most), go broke. I think they all had some ingenious plan to maintain their wealth forever. Hmmmm...Historically, I would place my bets into the annuity then into myself - John Whitaker is an example case.
1. I am young (25)
2. I do not want to engage the world of jealousy from that big of a windfall - dangerous.
3. I do not want to risk being like all of the other lottery winners. Many on here think they are going to be different. Until you actually win, you will not know how you would act or take it - or what you would do with it. All of those winners (well most), go broke. I think they all had some ingenious plan to maintain their wealth forever. Hmmmm...Historically, I would place my bets into the annuity then into myself - John Whitaker is an example case.
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$930M invested for 30 years only gives $1.5B?? They can't even double the money in that time?? What are they investing in?
An older cousin won $200 in the New York Lottery many years ago. He was in his 70s at the time and said it was the worst thing that ever happened to him in his life. He was mugged three times, and dozens of people hit him up for literally thousands of dollars with every conceivable hustle and sad tale. All for $200.
If you win big in a current lottery, I wish you good luck. It is after winning that you will need it. Most of your money and mental energy will go to providing security for yourself and your family. Probably never again will you be able to just interact with someone without thinking, "Hmmm, what do they want from me?"
Be careful what you wish for; you just might get it. And all the unintended consequences.
If you win big in a current lottery, I wish you good luck. It is after winning that you will need it. Most of your money and mental energy will go to providing security for yourself and your family. Probably never again will you be able to just interact with someone without thinking, "Hmmm, what do they want from me?"
Be careful what you wish for; you just might get it. And all the unintended consequences.
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Rod Serling would have written a wonderful Twilight Zone episode about this.
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Ahh, yes !
Think what Serling could have done with the current field of Republican Presidential aspirants. Maybe he'd have Carpet-Bomb-'em-Cruz done in by rolls of carpet falling off a rack as he has the Oval Office redone, when he takes office. Or Donald Trump drowning in the Rio Grande, when a Mexican trying to save him can't climb over The Wall. Or Carly Fiorina devoured by a pack of starving old people who had lost all their retirement money in the Hewlett Packard debacle. Or Marco Rubio losing his Senate seat to Fidel Castro's grandson.
Think what Serling could have done with the current field of Republican Presidential aspirants. Maybe he'd have Carpet-Bomb-'em-Cruz done in by rolls of carpet falling off a rack as he has the Oval Office redone, when he takes office. Or Donald Trump drowning in the Rio Grande, when a Mexican trying to save him can't climb over The Wall. Or Carly Fiorina devoured by a pack of starving old people who had lost all their retirement money in the Hewlett Packard debacle. Or Marco Rubio losing his Senate seat to Fidel Castro's grandson.
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@BalCoMed:
It's been done.
It's been done.
A bird in hand......
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Unless, of course, you're over sixty when you win, and you know perfectly well you haven't got 45 years, but possibly less than half that. Take the cash, pay the upfront taxes, and instead of investing it so the government can tax it again, give as much of it away as possible to heirs, friends, worthy causes of your choosing, then stick the rest in the bank and enjoy yourself for the 15-20 years you have left if you're lucky, leaving the remainder in your will, again, to your heirs and/or worthy causes. Once you've paid the upfront taxes, you can put the lot in your bloody ordinary savings account and draw down from it on an annual basis without owing the government one penny. If you're 40, perhaps the annuity is the best way to go - after all, 40+30 =70. But 65+30=95 - who wants to count on that? Anyone 60+ should take the cash.
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I wonder what the billionaires sitting on their Mount Olympus think about the powerball dreams of the poor mortals. It must be a source of amusement, if they think about it at all.
It seems like the best would be a split of 50% annuity and 50% cash. The annuity keeps you from going broke which is a typical lottery disease. The cash portion allows you to invest at a potentially higher rate of return but with more risk. But I'm not sure they would allow you a 50/50 split though.
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Take the lump sum. Why bother with worrying about investing it. Most people wouldn't be able to spend that amount anyway.
One thing I would do if I won would be to give everyone one I know personally 1 million dollars. There would still be plenty of money left over.
One thing I would do if I won would be to give everyone one I know personally 1 million dollars. There would still be plenty of money left over.
if you think a powerball winner shouldn't be investing a large portion of their wealth in the stock market, then surely an ordinary middle class person definitely should not be investing in stocks? With declining marginal utility of wealth, we should be MORE conservative with our investments at lower income levels, not less as Mr. Barro seems to imply
I wouldn't trust the government with my lottery winnings for one second longer than necessary! I do love that the government is able to tax so many people with these lotteries. It is a tax on impulsive, non-saving people with very poor mathmatics skills. The more they dream of riches, the less taxes I pay!
This NY Times writer must give the government more tax withholdings all year as an interest free loan too. Who wants any government worker holding their money? No thanks, the government wastes too much of my money already. Lump sum or annuity, the winner will always be in the highest tax bracket, so it is better to have the money in hand to invest, give away, or use as firewood (you could use dollar bills as a heating source with that kind of money)!
This NY Times writer must give the government more tax withholdings all year as an interest free loan too. Who wants any government worker holding their money? No thanks, the government wastes too much of my money already. Lump sum or annuity, the winner will always be in the highest tax bracket, so it is better to have the money in hand to invest, give away, or use as firewood (you could use dollar bills as a heating source with that kind of money)!
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Can't see the annuity option. Take the lump sum and wait for interest rates to go up a bit. Rates are at a ridiculous and artificial historical low and all the experts of all stripes expect a return to something more like normal interest rates in 5-10 years. Then if you want, buy an annuity that yields a higher rate and you'll end up with a whale of a lot more at the 30-year date. Don't need more? Of course you don't - so more to give away, I say.
The Lottery is self-taxation. Only the govt benefits, as well as say the top 1 percent, who started this 50 years ago to avoid 'taxes.' If you buy a ticket, good luck, but continue to drive defensively and stay away from beaches and golf courses if thunderstorms are forecast. The writer does offer the correct advice in case you win.
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$5 million aftertax is more than enough for the average couple to be set for life, so even after all income taxes, the Powerball winner will be getting 100x more than one "needs." The real fun of winning that much money would be using it to do the maximum good for society. So take the cash now, fund your foundation, and enjoy the meaningful work of giving the money away constructively over the rest of your lifetime.
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Leaving the money with the government....what could possibly go wrong?
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Nowhere does Mr. Barro mention age as a factor. And what if you're childless? I'll be taking the lump sum and giving a lot of it away immediately. Happy to pay the taxes on all that money. Even at the pathetic interest rates available today, it's still worth paying income tax on the investment income. And it's worth paying the gift tax and every other tax.
As the head honcho of the lottery said on TV this morning, if you win, contact a trustworthy financial professional BEFORE you cash in your prize. Josh Barro isn't one.
As the head honcho of the lottery said on TV this morning, if you win, contact a trustworthy financial professional BEFORE you cash in your prize. Josh Barro isn't one.
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