If you win the lottery should you take the lump sum or the 26 annual installments? You are lying if you say you have not debated this with someone at some point in your life. Well, here’s the answer from Bankrate:
The lump sum payout is, for most winners, the best choice. You know the tax consequences, you know the lump sum payout and you often have the opportunity to invest the proceeds to earn more than you could with the guaranteed return from the annuity payments.
Good to know. Now we just have to concentrate on the numbers… the numbers…
What lottery winners should do [Bankrate]
You won the lottery! Now what? [Bankrate]
(Photo:Maulleigh)
@shades_of_blue:
Except for taxes. After tax, it’s $70k/month.
I understand the time value of money, but taking the lump sum is the real problem for most people. Sure you could theoretically make more if you take the lump sum and invest. THEORETICALLY is the key word here. 99% of people do not have the self discipline, emotional stability, or expertise to do this.
If you hire lawyers and planners they will not/cannot stop you from blowing your money or having it stolen from you. The lawyers and planners might even scam you themselves. Even if you get perfect advice, you still must follow that advice for the rest of your life without fail, which is practically impossible for the average person.
If you take the annuity and never cash it in, the worst that can happen to you financially is that you get yourself into some short term trouble. The main thing is that nobody should have any chance of totally cleaning you out. If you take a lump sum, you accept the chance that you could be totally ruined by some unforeseen event or your own weaknesses.
I won a bunch of money playing poker and it only took about 1 1/2 yrs for it to be sucked out of me by corrupt people that I trusted so I know what I am saying here.
What is better:
1. $30 million now, a chance of going totally broke, and a chance of having $50 million in 10 years. Also you must work and worry to keep your investments good for the rest of your life.
2. $1 million per year allowance for 30 years, which for the average person is the rest of their natural life.
Don’t forget that you can live on less than your annual allowance and still do some investing if you choose.
I would live on the allowance and travel the world until I got good and tired of it. Then I would focus on small business investing, funding small scientific research groups, and charity.