choice of lump sum or annuity.

[Gomar]

I am confused by choice of lump sum or annuity.

"A lump-sum winning will typically get reduced by 45% or more for the time value of money (acceleration by
2o+ years)"

ok, so say jackpot is $100m, lump sum is 60% of it, so it's $60m, correct? Fine so far.

"and then the net amount is further reduced by approximately 35% or more for taxes; leaving a net amount of
35% or less of the gross winnings."

ok, so the taxes are taken off the $60m not the jp amount of $100m, right? Leaving $40m. Thus, you take
home %40 of jackpot prize. If you put in the bank $40m, you get back in 26 years from interest rate and
investments the same amount you lost as you took the lump sum.

"Installment collections will only generally only be subjected to the federal tax hit (depending on state rules) and
the taxes are paid over the collection period."

huh? So if I choose 26 installments then do I get the entire jackpot of $100m or not? Do I still pay %35 tax on
the entire $100m only once, or the yearly installments? Thus, I will get $65m in 26 years if taking annuity
instead of $40m lump sum.

 

[Jasminebed]

If you're actually faced with making this decision, hire a tax attorney in your state prior to making your choice.

From following lottery wins in the news, most winners seem to choose the lump sum option, so I think there must be some real advantages to it. One of the big advantages is you have your money to invest and spend as you see fit.

 

[cpdnd31]

I think they take the lump sum because if they die the remainder can not be willed or left to someone. So if they were to die 3 years after winning the rest is lost.

 

[Nifty29]

I think they take the lump sum because if they die the remainder can not be willed or left to someone. So if they were to die 3 years after winning the rest is lost.

Is that fair dinkum?

If so, that is criminal.

 

[Gomar]

I think they take the lump sum because if they die the remainder can not be willed or left to someone. So if they were to die 3 years after winning the rest is lost.

True only for scratch off cards. You win $5k/week/life, but if you die heirs get nothing. Lottery keeps paying
anyone whom winner designates in their will. So, the estate will continue to collect $50m if jackpot is $100m, and winner only got $50m.

Most people I guess just want to "get the money and run". Thus, they get 60%. However, since I am afraid I'd blow it all, I would spread out for 26 years, and spend 1/4, and invest the rest.

 

[dionysus]

It's nice to be Canadian lol lotto winnings are tax free

 

[me_and_ed]

It's nice to be Canadian lol lotto winnings are tax free

Yes it is and the 50 mil Lottomax tonite is mine.............dare to dream

 

[chayton]

Yes it is and the 50 mil Lottomax tonite is mine.............dare to dream

Just don't forget about all us 'little people' when you're rich.

 

[vinylweatherman]

This is more complicated than it seems. You have to factor in the inflation over those 25 years, which will reduce the value of the payments. If inflation is high, you would be much better off with the lump sum and investing it so that it at least keeps pace with inflation. US winners have the added complication of tax.

The lump sum option delivers certainty, even if it is only 60%. If invested well, that 60% up front should easily outperform 100% spread over 25 years. The winner could always invest in such a way that they can't easily access most of the money, but can draw a regular amount each month similar to the payments spread over 25 years.

If I was faced with this "unfortunate complication", I think I would end up taking the lump sum and investing it whilst taking a regular amount each month. It may be different in the US, but here the lump sum would be tax free (no tax on gambling winnings), and it is possible to invest in many tax free investments such as personal pension plans and ISA products.

Unless the winner knows their way around the tax system and the investment industry, they should seek professional advice before committing themselves to a decision on whether to take a lump sum or regular payment, as well as advice on where to invest the lump sum and minimise tax.

 

[GrandMaster]

If you're actually faced with making this decision, hire a tax attorney in your state prior to making your choice.

From following lottery wins in the news, most winners seem to choose the lump sum option, so I think there must be some real advantages to it. One of the big advantages is you have your money to invest and spend as you see fit.

25% of lottery winners in the UK go bankrupt. For them it would be an advantage if they could not spend or invest as they see fit.

 

[Gomar]

25% of lottery winners in the UK go bankrupt. For them it would be an advantage if they could not spend or invest as they see fit.

I the U.S. same story. Biggest jackpot winner, Jack Whittacker, lost $360m in ten years... including his granddaughter for whom he bought a new car that she crashed into a tree.
That's why to enforce disciple into my spending I would take annuity, and spend 1/4 or 50% of annual get, and invest the rest.
I've figured you could get %25 more after 26 years anyway than with lump sum.