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Old 08-30-2016, 09:57 AM   #41
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In the case of a lottery winner, and a lower amount, the decision is not nearly as obvious. I have a friend who recently won $1.8 million in a Lotto jackpot. After the discount and taxes, his take home lump sum would be about $600k. The annuity payout would be $72k/year for 25 years. Of course, the annuity is taxable.

What would you do?
If I won the lottery I would take the payments, they make a lot more sense than the 5 mill or 50 grand a month deal. And of course you have less "hard luck cases" lined up at your door.
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Old 08-30-2016, 10:06 AM   #42
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Also guys remember it's not just about the math. You ask two different people in two very different situations and the answer maybe vastly different.

You ask a good friend of mine who unfortunately is living with the stress of a hubby who is a chronic gambler (add to the fact we're sandwiched in between a boat load of casinoes) and she's taking the 5K a month simply because she'll know where her next mortgage payment is coming from.

I took my late husbands pension in a lump sum even with the huge decrease not because of the math but because it had a no beneficiary clause, so when I became a single mom, if I got hit by a bus the very next day my kiddos wouldn't get a dime. I didn't like that so I took the decreased payout and it's part of my estate.

so let's take a break from patting ourselves on the back for mastering math because not all decisions come down to simple dollars and cents
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Old 08-30-2016, 10:44 AM   #43
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On the subject of lotteries, when you take the yearly payment, does it go up with inflation or does it stay the same? I was always under the impression they stayed the same, but I've read conflicting things on it.
If you are lucky they stay the same. Illinois Lottery winners again might not get paid.

This is a major reason I always lean toward the lump sum. I don't like "my" money to be under someone else's control.
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Old 08-30-2016, 02:06 PM   #44
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When people say the lump sum is "decreased", do you mean beyond what a present value calculation would be?
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Old 08-30-2016, 02:23 PM   #45
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When people say the lump sum is "decreased", do you mean beyond what a present value calculation would be?
The decrease is is based on the present value of the annuity payment. In the case I gave earlier it looks like the lottery used about a 5.5% ROR for the calculation, dropping the $1.8 million to around 950k (before taxes). After taxes he said the lump sum would be something just over $600k.
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Old 08-30-2016, 04:39 PM   #46
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You ask a good friend of mine who unfortunately is living with the stress of a hubby who is a chronic gambler (add to the fact we're sandwiched in between a boat load of casinoes) and she's taking the 5K a month simply because she'll know where her next mortgage payment is coming from.
She should take the $5 million, immediately divorce the gambling addict, and then live happily ever after with her $2.5 million half.
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Old 08-30-2016, 05:30 PM   #47
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She should take the $5 million, immediately divorce the gambling addict, and then live happily ever after with her $2.5 million half.
Lol, that is my advice even without the 5 mil. Unfortunately it's one of those "can lead a horse to water...."


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Old 08-30-2016, 05:42 PM   #48
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Also guys remember it's not just about the math. You ask two different people in two very different situations and the answer maybe vastly different.
<snip>
I agree but on the surface, the only reason one isn't taking the lump sum is because of a lack of self control or external forces burning through the lump sum faster than it can generate income.
On a board like this where next to everyone is striving for FIRE, any question is typically going to skew towards an answer that leans towards some form of efficient management your money. On a broader forum like FB, answers are going to be all over the place.
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Old 08-31-2016, 11:18 AM   #49
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When megacorp did the calculation for our golden handshakes, they used mortality tables for those who worked for full pension. But the reduced pension was granted right away. That was 22 years ago! They overlooked the fact that retiring early is good for longevity.
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