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Ohio Mom wins $1 million - takes annual payments!
Old 06-01-2007, 01:24 PM   #1
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Ohio Mom wins $1 million - takes annual payments!

Ohio mom wins $1 million in lottery - Wonderful World - MSNBC.com

At least she knows herself well enough to know she'd blow it all ASAP if she took the lump sum!

What would you do?
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Old 06-01-2007, 01:25 PM   #2
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Lump sum.
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Old 06-01-2007, 01:45 PM   #3
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Originally Posted by Fireup2025 View Post
Ohio mom wins $1 million in lottery - Wonderful World - MSNBC.com

At least she knows herself well enough to know she'd blow it all ASAP if she took the lump sum!
She has the right idea, but 20 years at no interest... If she really was afraid of herself, I'd take the lump sum and buy a SPIA paying around 3-4%.
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Old 06-01-2007, 01:49 PM   #4
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I'd take the lump sum, but for people who have spending issues, obviously the annual payout is best. Good for her!
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Old 06-01-2007, 02:07 PM   #5
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Well, the article didn't say what the lump sum was. I'm sure it wasn't $1 million. Typically, they use some type of present value. At 5%, the PV of 20 years of 50K payments is 623K, so that might be close to what she would have gotten. That would have put a lot of her winnings in the top tax bracket. My guess, is that as a single mom with kids, who works as a cashier in a gas station, she may actually be better off after taxes taking the payment stream.
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Old 06-01-2007, 02:55 PM   #6
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Even with annual payments, what is the bet that she will be broke 11 months of the year?
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Old 06-01-2007, 04:20 PM   #7
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Well, the article didn't say what the lump sum was. I'm sure it wasn't $1 million. Typically, they use some type of present value. At 5%, the PV of 20 years of 50K payments is 623K, so that might be close to what she would have gotten. That would have put a lot of her winnings in the top tax bracket. My guess, is that as a single mom with kids, who works as a cashier in a gas station, she may actually be better off after taxes taking the payment stream.
I would say she probably is better off with the annual payments too.

If she takes the $50K a year in annual payments, her annual taxes would be about $4K, leaving her with $46K. Over 20 years that would equal $920K.

If she takes the $623K, her one-time tax would be $192K, leaving her with $431K. If she invests it at 5% a year and uses $46K a year to live on, that money will only last 12 or 13 years.
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Old 06-01-2007, 04:37 PM   #8
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Most of my fellow Americans would probably be better off taking annual payments just to protect them from themselves. I'm tired of reading about lotto winners filing for bankruptcy 5 years later!

Sure most of the financial over-achievers that post here would do much better by taking the lump sum and stashing it in your favorite index fund and going to sleep. But most of America would not even consider reading one of these posts muchless taking the time to become financially literate!
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Old 06-01-2007, 05:24 PM   #9
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Agree she is one smart lady. The right solution for her.
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Old 06-01-2007, 07:00 PM   #10
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Sounds like the best decision for her (and who knows, there also may be relatives/friends who'd love to help her spend a lump sum.)
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Old 06-01-2007, 09:48 PM   #11
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The article says she'll get $34,500 /yr after taxes. She has NINE maxed out credit cards! Definitely she needs the money spread over 20 yrs. I agree she'll probably be poor 11 months of the year.
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Old 06-01-2007, 11:44 PM   #12
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Good for her, she knows her limitaions and won't be broke next year.
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Old 06-01-2007, 11:47 PM   #13
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Good for her, she knows her limitaions and won't be broke next year.
Well, at least not for the whole year.
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