Smart Lottery winner

[chuckywang]

Originally posted by: DLeRium
The first thing you do when you get a fat jackpot like 50 million is to hire a financial planner. Don't fvck up. But 1 million.. ehh... that's not even half the cost of my house >.< I would take that 690k out fast and pay out the mortgage because clearly when my parents retire, I still have a mortgage to deal with.

Sometimes it's actually better to not pay off your mortgage early.

 

[RaistlinZ]

Originally posted by: OulOat

Originally posted by: RaistlinZ
She would have been better off taking the lump sum.

She's getting $34,500 a year for 20 years. So basically, she's getting 69% of her payout after taxes.

If she would have taken a lump sum she would have gotten $690,000.00 (69% of 1 milllion). If she were to invest that $690,000 and get a modest return of 6% a year she would make $41,400 in the first year just off the interest. That is more than she would have gotten from her annuity payment and she would still have her $690,000 nest egg continually earning interest for her.

And the best part, with compound interest that nest egg will grow substantially over the next 20 years and the interest she could make on it would easily outpace inflation.

Am I wrong?

You get less if you take the lump sum and you get taxed more. However, I still agree with you that you could make a lot more money if you take the lump sum and invest it.

Oh, shoot I forgot about that. Usually when you take a lump sum they cut it in half then they tax you on it. So she probably would have been offered a lump sum of $500,000 then taxed like 35% on it for a true payout of $325,000.

Can someone do the math for me to see if $325,000 gaining 6% interest a year compounded over 20 years will be worth more than $690,000? Thanks.

 

[xSauronx]

Originally posted by: chuckywang

Originally posted by: DLeRium
The first thing you do when you get a fat jackpot like 50 million is to hire a financial planner. Don't fvck up. But 1 million.. ehh... that's not even half the cost of my house >.< I would take that 690k out fast and pay out the mortgage because clearly when my parents retire, I still have a mortgage to deal with.

Sometimes it's actually better to not pay off your mortgage early.

i remember reading about this once, but the only situation i can *recall* it being helpful in is if its useful to itemize on your taxes to be able to write off the interest to get a better refund or some such

its been a while, and i kinda breezed over it. anyone else?

 

[smack Down]

Why do so many people think taking the lump sum is better, do you think that the accounts the state has are retarded and just want to give you extra money?

 

[bunnyfubbles]

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

invest in boring yet stable stocks, live off of dividends

you could always tuck away a couple mil just for emergency

Originally posted by: smack Down
Why do so many people think taking the lump sum is better, do you think that the accounts the state has are retarded and just want to give you extra money?

because if you aren't retarded with money you can actually make more money from that money in the x amount of years it would take to receive all the payments

 

[cKGunslinger]

Originally posted by: mugs

Originally posted by: sygyzy

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

I asked this question and nobody could answer me. Imagine how much of a hassle it is to distribute your 100M amongst 1,000 banks. Most of the answers I got where: Rich people don't have all their money in cash, it's in assets so this is not a concern. That doesn't answer the lottery question though.

The FDIC limit only matters if the bank collapses. I don't believe that is a common occurrence these days. Spread it between a few large banks and you should be fine.

I thought it came into play if the bank collapses, *or* if it's robbed, etc.

 

[cKGunslinger]

Originally posted by: bunnyfubbles

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

invest in boring yet stable stocks, live off of dividends

you could always tuck away a couple mil just for emergency

But that's long-term. I'm talking about the time between you pick up your check and the time you have all your investments squared away. That could be a couple of weeks or so, I'd imagine. I'd want fast access for that impromptu, reckless small spending spree, yet still not have to worry about losing it.

I guess you could take it straight to the bank and put the check into a safety-deposit box until you found your planner and worked something out.

 

[Mill]

Originally posted by: smack Down
Why do so many people think taking the lump sum is better, do you think that the accounts the state has are retarded and just want to give you extra money?

No, but you are obviously retarded if you think payments out of an annuity are better than a lump sum.

 

[mugs]

Originally posted by: cKGunslinger
I thought it came into play if the bank collapses, *or* if it's robbed, etc.

Banks only keep a small amount of cash on hand

 

[Special K]

 

[greatfool66]

Can someone do the math for me to see if $325,000 gaining 6% interest a year compounded over 20 years will be worth more than $690,000? Thanks.

325,000*1.06^20= 1,042,319

That woman was dumb. Money has time value...

 

[mugs]

Originally posted by: greatfool66

Can someone do the math for me to see if $325,000 gaining 6% interest a year compounded over 20 years will be worth more than $690,000? Thanks.

325,000*1.06^20= 1,042,319

That woman was dumb. Money has time value...

That assumes she doesn't spend any of it. For a fair comparison, you'd have to add interest to her annuity payments if she didn't spend them.

 

[gotsmack]

Originally posted by: sygyzy

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

I asked this question and nobody could answer me. Imagine how much of a hassle it is to distribute your 100M amongst 1,000 banks. Most of the answers I got where: Rich people don't have all their money in cash, it's in assets so this is not a concern. That doesn't answer the lottery question though.

People with more than 1 million in cash have accounts at private banks with additional insurance to cover everything.

 

[cKGunslinger]

Originally posted by: mugs

Originally posted by: cKGunslinger
I thought it came into play if the bank collapses, *or* if it's robbed, etc.

Banks only keep a small amount of cash on hand

True, which would bother me even more. What if I have a need for a $3M impulse purchase?

 

[sygyzy]

Why is this still debated? It's a fact that a lump sum is better if you properly invest. In this scenario, she knew she was irresponsible so she is taking annuities, which is basically a way of having the state play nanny for her.

 

[chuckywang]

Originally posted by: greatfool66

Can someone do the math for me to see if $325,000 gaining 6% interest a year compounded over 20 years will be worth more than $690,000? Thanks.

325,000*1.06^20= 1,042,319

That woman was dumb. Money has time value...

Interest is usually compounded monthly, so it's 325000*(1.005)^240 = 1,075,816.45.

 

[FreshPrince]

where do you guys find 6% interest investments from?

the highest CD that I can find right now is around 5.6%

anything else out there that will yield higher percentage interest?

 

[ChaoZ]

Originally posted by: FreshPrince
where do you guys find 6% interest investments from?

the highest CD that I can find right now is around 5.6%

anything else out there that will yield higher percentage interest?

When you're rich, banks will bend backwards for you.

 

[Fern]

Originally posted by: cKGunslinger

Originally posted by: bunnyfubbles

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

invest in boring yet stable stocks, live off of dividends

you could always tuck away a couple mil just for emergency

But that's long-term. I'm talking about the time between you pick up your check and the time you have all your investments squared away. That could be a couple of weeks or so, I'd imagine. I'd want fast access for that impromptu, reckless small spending spree, yet still not have to worry about losing it.

I guess you could take it straight to the bank and put the check into a safety-deposit box until you found your planner and worked something out.

Who guarantees the FDIC $100K amount?

The Fed government. If it goes bankrupt the FDIC is hosed too. So, take your $50M and put into short term T bills. The holding period can range from a few days to 26 weeks. Keep the money there until you figure out where to invest it etc.

No safer place.

Fern

 

[FreshPrince]

Originally posted by: ChaoZ

Originally posted by: FreshPrince
where do you guys find 6% interest investments from?

the highest CD that I can find right now is around 5.6%

anything else out there that will yield higher percentage interest?

When you're rich, banks will bend backwards for you.

when you say rich, how much would you say is the minimum investment before banks start bending backwards for me?

 

[Smartazz]

Yeah, I think that was a smart decision for her.

 

[JS80]

3 words: Net Present Value

So no, she is not smart, she doesn't understand NPV.

 

[JS80]

Originally posted by: mugs

Originally posted by: sygyzy

Originally posted by: cKGunslinger
I'd take the lump sum and head straight to a financial adviser/investment broker.

So where do you safely keep $50 million while you are sorting out long-term solutions? Just deposit the check at your local bank? What about the FDIC $100,000 limit? An issue or not?

I asked this question and nobody could answer me. Imagine how much of a hassle it is to distribute your 100M amongst 1,000 banks. Most of the answers I got where: Rich people don't have all their money in cash, it's in assets so this is not a concern. That doesn't answer the lottery question though.

The FDIC limit only matters if the bank collapses. I don't believe that is a common occurrence these days. Spread it between a few large banks and you should be fine.

We have more things to worry about if a major bank in this day in age collapses.

 

[JS80]

Originally posted by: DLeRium
The first thing you do when you get a fat jackpot like 50 million is to hire a financial planner. Don't fvck up. But 1 million.. ehh... that's not even half the cost of my house >.< I would take that 690k out fast and pay out the mortgage because clearly when my parents retire, I still have a mortgage to deal with.

You would pay down a low interest loan that is tax deductible?

 

[ElFenix]

Originally posted by: mugs

Originally posted by: RaistlinZ
She would have been better off taking the lump sum.

She's getting $34,500 a year for 20 years. So basically, she's getting 69% of her payout after taxes.

If she would have taken a lump sum she would have gotten $690,000.00 (69% of 1 milllion). If she were to invest that $690,000 and get a modest return of 6% a year she would make $41,400 in the first year just off the interest. That is more than she would have gotten from her annuity payment and she would still have her $690,000 nest egg continually earning interest for her.

And the best part, with compound interest that nest egg will grow substantially over the next 20 years and the interest she could make on it would easily outpace inflation.

Am I wrong?

If she took the lump sum it would be taxed at a higher rate because she got it all in one year (someone correct me if I'm wrong on that). On a larger jackpot that's not the case, because you're in the higher tax bracket with the annuity too.

I don't feel like doing the math, but you're probably right that she'd still come out ahead with good investments. Of course, that requires self control which she admits she doesn't have (and the 9 maxed out credit cards back that up).

dullard, iirc, did the math one day. the results were that for smaller winnings, it is better to take the annuity because the difference in income taxes is so large that you would need nearly 10% rate of return to catch up by investing.