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stoopid peeple
Why take the one-time payout for the Lottery? 2/22/2006 4:37PM Reply | Return to Index | Report Post
Why would someone do this? You cut your winning in half or less. Are they that impatient to get their hands on the money?

The 8 winners in Nebraska only got $15 Mil each. How many of them do you think will be bankrupt in 10 years?
Not so stupid
RE: Why take the one-time payout for the Lottery? 2/22/2006 4:41PM - in reply to stoopid peeple Reply | Return to Index | Report Post
I don't need to goverment to invest my money for me and then pay it out to me over the next 25 years. Give me the money now...and I'll invest it. Some people will blow it, no doubt, but any wise money manager will tell you to take the lump sum, invest it wisely and live off the interest.
LnL
RE: Why take the one-time payout for the Lottery? 2/22/2006 4:43PM - in reply to stoopid peeple Reply | Return to Index | Report Post
I would take 15 mil. I would likely blow 3 million on property and other toys and the other 12 I'd invest. Assuming a modest 10% I would make 1.2 million a year for the rest of my life not including the compounding of that money. Not too shabby. Certainly enough for me to live on.
atownrunnin
RE: Why take the one-time payout for the Lottery? 2/22/2006 4:50PM - in reply to LnL Reply | Return to Index | Report Post
If you are smart in investing you will make way more over the course of a 20 (or is it 25) year payout. Taking it over the years would be a payout of 1.8 mil per year before taxes, meaning it would take several years to earn 15 million (the entire payout that you are starting with) through investments. Starting with a larger sum of money leads to tons more compounded interest.
Paris Hilton
RE: Why take the one-time payout for the Lottery? 2/22/2006 4:51PM - in reply to LnL Reply | Return to Index | Report Post

LnL wrote:

I would take 15 mil. I would likely blow 3 million on property and other toys and the other 12 I'd invest. Assuming a modest 10% I would make 1.2 million a year for the rest of my life not including the compounding of that money. Not too shabby. Certainly enough for me to live on.


Are you planning on living in the gutter? Nobody can live on 1.2 million a year. 1.2 million? I call that a weekend in Vegas.
Paris Hilton
RE: Why take the one-time payout for the Lottery? 2/22/2006 4:52PM - in reply to Paris Hilton Reply | Return to Index | Report Post
Well, actually 1.2 million and a video camera is a weekend in Vegas.
Grumpy Old Codger
RE: Why take the one-time payout for the Lottery? 2/22/2006 5:42PM - in reply to stoopid peeple Reply | Return to Index | Report Post
8 people sharing $15 million? So somehow they turned $365 million dollars into $120 million dollars? Christ that sucks.
Grumpy Old Codger
RE: Why take the one-time payout for the Lottery? 2/22/2006 5:59PM - in reply to Grumpy Old Codger Reply | Return to Index | Report Post

Grumpy Old Codger wrote:

8 people sharing $15 million? So somehow they turned $365 million dollars into $120 million dollars? Christ that sucks.


I guess that should be "8 people getting $15 million each". You know what I meant. I get damn forgetful these days.
ef hutton
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:03PM - in reply to stoopid peeple Reply | Return to Index | Report Post
We have seen that even financial experts forget about taxes. From the example above, if the winner takes the cash, then the winner will have to pay state and federal taxes on the cash amount. The amount of income tax will vary, but it will likely be somewhere close to half the cash amount. With $50 million as a cash prize, a cash winner will have less than $30 million to invest. We dont pay any income tax and so start out by investing the whole $50 million. You should note that current tax rates are pretty low and will probably go higher to pay for all of the government spending that has been going on. Federal rates for 2006 are at 35% (and Powerball winners end up in that maximum tax bracket).

Sometimes financial experts also do not understand how the annuity prize is paid out. We do not hold the prize for 29 years and then pay it all out. The winner gets the first payment immediately and then an annual payment for the next 29 years. And this is guaranteed. It is possible to beat this income stream, but not without risk. Deciding how to take the prize can be a complicated decision, but it is an important one that deserves your attention. You have 60 days, after you claim your ticket, to make the decision. Get lots of advice and ask these kinds of questions
analyze this
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:05PM - in reply to LnL Reply | Return to Index | Report Post
You don't need 10% to make the lump sum more profitable. If the pay out is 20 yearyou just need to make 5.72% on your money to go with the lump sum. If its 25 years then you only need to make 4.55% compounded.
Wyco Loco
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:09PM - in reply to ef hutton Reply | Return to Index | Report Post
Also...I believe if you take the money over the long haul & then you die NO ONE gets the remainder. So if you die a year after you hit the jackpot, your family is SOL on the next 19 or however many years payout.
idiot
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:10PM - in reply to stoopid peeple Reply | Return to Index | Report Post

stoopid peeple wrote:

Why would someone do this? You cut your winning in half or less. Are they that impatient to get their hands on the money?

The 8 winners in Nebraska only got $15 Mil each. How many of them do you think will be bankrupt in 10 years?


Are you serious? let's assume for the sake of argument that you win the 365 million all to yourself. You can take $120 million or $365 million paid out over 30 years. If you invest the the money conservatively (6.5 %), you would make about 7.8 million a year. The next year, you would invest 127.8 million and so on. You would be looking at $793,723,939 in 30 years. This is substantially more than if you took the 12 million a year and then invested it annually.
Finance PhD
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:35PM - in reply to idiot Reply | Return to Index | Report Post
i won't even get into why 6.5% maybe too high a number for a 'conservative' investment; try more like 4%


idiot wrote:


stoopid peeple wrote:

Why would someone do this? You cut your winning in half or less. Are they that impatient to get their hands on the money?

The 8 winners in Nebraska only got $15 Mil each. How many of them do you think will be bankrupt in 10 years?


Are you serious? let's assume for the sake of argument that you win the 365 million all to yourself. You can take $120 million or $365 million paid out over 30 years. If you invest the the money conservatively (6.5 %), you would make about 7.8 million a year. The next year, you would invest 127.8 million and so on. You would be looking at $793,723,939 in 30 years. This is substantially more than if you took the 12 million a year and then invested it annually.
no please
RE: Why take the one-time payout for the Lottery? 2/22/2006 6:45PM - in reply to Finance PhD Reply | Return to Index | Report Post
please get into it, you have a PhD after all.
dukerdog
RE: Why take the one-time payout for the Lottery? 2/22/2006 8:52PM - in reply to idiot Reply | Return to Index | Report Post
idiot wrote:
Are you serious? let's assume for the sake of argument that you win the 365 million all to yourself. You can take $120 million or $365 million paid out over 30 years. If you invest the the money conservatively (6.5 %), you would make about 7.8 million a year. The next year, you would invest 127.8 million and so on. You would be looking at $793,723,939 in 30 years. This is substantially more than if you took the 12 million a year and then invested it annually.

According to my calculations you'd have a little over a billion if you invested 12 million a year for 30 years at 6.5%. I think you'd have to manage about 12.5% return before the lump sum comes out ahead. The payments stop upon death is the killer, so to speak. If that's true I would probably take the lump sum myself.
so shall he did
RE: Why take the one-time payout for the Lottery? 2/22/2006 9:18PM - in reply to stoopid peeple Reply | Return to Index | Report Post
He needs no PhD to state simple facts. Ten percent is by no means conservative and shouldn't even be counted on using the best financial managing team in the world. Also, a "conservative" return could be 6%, considering we're using subjective language, but it is also much more likely going to be closer to 4%, as that is closer to what most government bonds and money market accounts return (certainly not 6%).

About the die-and-f-your-family bit, it's nonsense. This has never happened because anyone with ANY type of financial advisor/accountant sets up some tricky fund (beyond my knowledge right now-maybe a simple trust fund?) which becomes its own entity, to which the remaining sum will always be paid in full.
mactuary
RE: Why take the one-time payout for the Lottery? 2/22/2006 10:06PM - in reply to stoopid peeple Reply | Return to Index | Report Post
The lump sum and the annuity payout are actuarially equivilent. This means that the present value of the two payment streams is equal. (note that a lump sum is a payment stream of only one payment) If you think you can invest the money better than the interest rate used to perform the calculation and believe that the current tax environment is more favorable than the future tax environment, take the lump sum. Otherwise, take the annuity.

"only $15M"? still sounds pretty good for a lifetime investment of even $10,000 in lottery tix.


stoopid peeple wrote:

Why would someone do this? You cut your winning in half or less. Are they that impatient to get their hands on the money?

The 8 winners in Nebraska only got $15 Mil each. How many of them do you think will be bankrupt in 10 years?
mactuary
RE: Why take the one-time payout for the Lottery? 2/22/2006 10:20PM - in reply to mactuary Reply | Return to Index | Report Post
Here - you can see for yourself

Go into Excel - in cell A1 put $12,000,000 and drag it down for 30 rows. in cell B1 type:
=A1*.65
to represent a 35% tax rate, drag this down for 30 rows. in cell C1 type:
=B1*(1.06)
in cell C2 type:
=(B2+C1)*(1.06)
drag this down for all remaining 29 rows. The entry in row C30 is what you will have investing all the money at 6% after initial taxes (but without taking out taxes on investment income - for simplicity) (Should be around $654,000,000)
In cell E1 type:
$120,000,000
In cell E2 type:
=E1*(1.06)
and drag down for the remaining 29 rows. The last entry in column E should be around $650,000,000. Since these represent the two options, you can see that (with some simplifying assumptions) the end result is almost identical.


mactuary wrote:

The lump sum and the annuity payout are actuarially equivilent. This means that the present value of the two payment streams is equal. (note that a lump sum is a payment stream of only one payment) If you think you can invest the money better than the interest rate used to perform the calculation and believe that the current tax environment is more favorable than the future tax environment, take the lump sum. Otherwise, take the annuity.



dukerdog
RE: Why take the one-time payout for the Lottery? 2/22/2006 10:34PM - in reply to mactuary Reply | Return to Index | Report Post
mactuary wrote:
The lump sum and the annuity payout are actuarially equivilent. This means that the present value of the two payment streams is equal.

If you use a simple compound interest calculation in this case ($120M lump sum vs. $12.17M annual payment over 30 years), a 10.7% investment return is required to make them equivalent(about 12.5% if you include some assumptions about taxes). What are the factors that I'm neglecting in this calculation?
dukerdog
RE: Why take the one-time payout for the Lottery? 2/22/2006 10:40PM - in reply to mactuary Reply | Return to Index | Report Post
mactuary wrote:
In cell E1 type:
$120,000,000
In cell E2 type:
=E1*(1.06)
and drag down for the remaining 29 rows.


Well that works if the $120M lump sum payment is after taxes. Is that true?
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