If I were Filthy Rich
By JustAGraphNotebook+26 This is probably the millionth post like this but lump or annuity?
I see overwhelming support for the Lump but I can also see how much easier it is to lose it all in a few years. You always hear stories about former lottery winners being homeless now or something. Why wouldn't you pick the Annuity so you can have secure income in the millions for the next 30 years?
At the time of writing, the current mega millions is 311million. Which comes out to just under 110million after taxes with the Lump sum. I could see how you could invest that or save that in a high yield savings and make however much more it is.
But with the Annuity, the first payment would be just under 3.2million after taxes, increasing 5% percent every year. "But it's not as much money as the lump!" Okay and so what? 3.2 million is still several orders of magnitude more than my salary right now. What's stopping me from just taking like 100k from that (which is still much more than my current salary) to live off of and investing the rest of the 3.1 million? I could very reasonably live well with just the 100k. The next check would be just under 3.4 million. Take my 100k and invest the rest. My tenth check would be just under 5 million. Wash rinse repeat for the next 30 years. After 30 years, the total amount of my checks would be about 212 million, more than double the initial Lump.
"But if you just invest the Lump you could invest it all at once!' okay and I could also lose it all at once. But with the Annuity I'm guaranteed to be a millionaire at least for the next 30 years and still be luxurious with only spending a fraction of that.
I understand different people have different plans and different ideas for their lottery winnings, I'm the kind of person who doesn't have the greatest track record when it comes to money and having this level of income until I'm 50 seems like a dream come true. What I don't understand is all the animosity against the Annuity when I believe it has several benefits that put it at least as good as the Lump
Recent responses
+32 @TheLizardKing89 I think the idea that an annuity provides protection from overspending is vastly overrated. If you’re the type of person who’s going to blow a lump sum, you could blow an annuity too. There are whole companies that exist to buy out annuities for pennies on the dollar. Think JG Wentworth.
+20 @ThrowawayLDS_7gen My SIL would take the annuity. She says if she hasn't figured out how to save a few million over 30 years, then there's a problem. For myself, I think the lump sum would be okay. I would work on finding some good money managers and go from there. It also helps that I have a master's degree in accounting so i'm not that worried for myself. My SIL has a shoe and book fetish so that's how she could end up not saving money over 30 years. Her home library and walk in closet would probably be a few rooms combined for each so....
+18 @CaptainPeachfuzz Lump sum. You're gonna need to put the money somewhere anyway, might as well have as much of it earn interest/invest/borrow against as possible. Even if the market crashes. If you've diversified enough you're principal should be relatively safe. Right now the megamillions is $311M. Lump sum, after taxes, is $103M. Give that to someone at a big bank and you can split it between different types of investments to earn a minimum of 5% return, average, over the long term. And the long term here is the 29 years the annuity is paid out. That would be over $423M over that period of time. But even in year 1 you could earn like $3M, so you could take the lump sum, invest and just don't touch the principal. Borrow against it and over time, 29 years, you should come out ahead, even with taxes. And if for some reason in any given year you need more than the average earnings($3M/y) you can dip into the principal. But it's likely that $3M, which would be like getting a paycheck for $125k, would be too much to spend amd you'd pay off your debt and reinvest the rest, thus *growing* your principal, allowing you to spend even more over time. Savings accounts are giving close to 5%. I doubt it would hard to both keep your money safe and earn enough to live very very well off of.
+13 @taintedbow Lump sum. I think if someone is worried about not being able to control their spending, then they can immediately lock most of it away so it’s untouchable and then pay themselves a monthly salary from the interest earned.
+12 @YouGotMunsoned > Why wouldn't you pick the Annuity so you can have secure income in the millions for the next 30 years? Why wouldn't you pick the lump sum so you can have secure income in the millions forever? Anyone who has the slightest idea about investing would be taking the lump sum. There is really no reason to take the annuity at the current jackpot amount.