Lets say for hypothetical purposes that you just won 40 million in the Florida Lottery. Would you take 40 mil over 30 years or would you take, say 20 million up front.
If you take the 20 million lump sum, you would have to pay a lot of taxes up front and then more taxes every year. Right? But you would be gaining a lot in interest every year too. Would it be worth it?
Or would it be better to take the payments? You’d pay less taxes every year, but you would not gain much in interest. But what you failed to gain in interest, you’d be getting anyway because you have an extra 20 million coming.
If you take the lump sum, you might end up blowing it all quickly. But it’s possible to be responsible and still need more than 1 million up front. You might want a lot of stuff that first year like house, car and all that, and stuff for your family members too.
If you take the payments, you wont be able to get all that stuff the first year. You might have to take out some loans to get some things. And that loan interest would negate your savings from the lump sum penalty and the taxes you aren’t paying.
Also, who’s name would you put it in. Yours? What if you think you migh get a divorce in the next five years? Wouldn’t you rather put it in your mothers name so the wife couldn’t get half later.
Take the payments. It’s the closest thing to a guaranteed investment (you’re assured of getting your total winnings.)
Also, while IANALOA (I am not a lawyer or accountant), I would think the best option would be to set up a trust for the money. You can then name yourself as beneficiary.
If I win, I’ve got a plan for what I’m doing with the money. I pay off my schooling, help my fiancee move here, set up a college fund for my younger sister, and then I start “playing” with the remainder of the money. Might get a newer vehicle, probably a Powerbook, do some traveling (Cedar Point, Kings Island and SF Magic Mountain.)
I’d take the 20 mill right now. Maximum tax brackets are the lowest they’ve been in decades.
Then it’s your money, not something you hope you’ll get from Florida’s government every year for the next 30.
Buy the toys you want. Get professional advice about investing. Then ignore that advice to the extent that you put about half of your money into U.S. Gov’t bonds and certificates of deposit.
Live large off the interest and earnings. If you didn’t grow up accustomed to yachts and jet setting, the interest off, oh, say, 10 mill should provide a nice lifestyle.
It’s as much fun to go on a cruise as it is to own the yacht, and costs a lot less!
Take the cash payout. Pay the taxes on it, and that’s it. I’m sure I can invest money better than the State can.
Personally, I have a number of scholarships I would like to establish, and I really want to wave $5 million in front of…oh, CalBerkeley…for the endowment of a Chair in Dead White Male Studies. Just to watch them squirm.
The annuitized choice might be best if the next 20+ years of your life is going to be perfect. In particular, you don’t die and there’s no run up in inflation.
Otherwise (i.e., if you have any concept of reality), take the lump sum.
I’d take the payments over 30 years. In 30 years I’ll be 57, so it’s not as though I’d need to get the money all at once to have time to enjoy it. I hope. Most people in the US live to 57 if they make it to adulthood, don’t they?
No, I’m in Tampa. BTW, the winning ticket was sold in Tampa, not Naples.
But no. . . I didn’t win My brother’s wife’s mom’s sister’s husband won. So basically, I won’t see a dime of it. But I get to hear all about the new millionaires in the family. Grrrrrr. pizzabrat, am I “jealous” or “envious”??? I think I’m both!!
I’d take the lump sum and get the taxes out of the way. Here in CA, there are no state taxes on lottery winnings, so a $40M lottery win should turn into about $12.5M after taxes (assuming 38% federal taxes).
After the initial hit, your only income is interest/capital gains. Put $12.5M in a 12 month CD at 1.5% and you earn $187,500. That should more than pay the bills.
Please note that I’m ***not * ** advocating CDs as the most financially sound method of investing $12.5 million dollars.
Certainly take the lump sum. You can live quite well on say, 3 million dollars for the first few years. Get a great financial adviser to invest the remaining $18 million. He or she should easily be able to double it in 7 - 10 years. By that point, it is easy to live off the interest and still be super rich. The interest you don’t spend will work to increase the nest egg of the remaining $36 million.l That will eventually double it again. To put you in the superwealthy category.
I don’t think that anyone with any sense should ever take the yearly payout. You can easily be the return that the state is paying out to you over that 20 or 30 years. The only time that it would make sense if you know that you are a subidiot with money and you know that you will blow it all in the first two years, have nothing to show for it, and eventually have to declare bankruptcy. Unfortunately, many lottery fall into that category because why would they be playing the lottery in the first place if they understood the first thing about statistics, money management, investing, or the path to happiness?
My wife’s uncle won 3.5 millions (payed out) in the New Hampshire a few years ago. Today, all the money is gone, he has gained over 100 pounds, is unemployed, has no health insurance, and his wife just filed for divorce. His only asset is his average house that he bought in Florida. He has nowhere else to turn so he is seriously thinking about getting on Florida welfare and food stamps. The problem with dreams is that they sometimes come true and then you may not know how to manage it.
Lump sum, because I don’t trust the lottery officials to make good on their promise to pay me for 30 years.
As far as whose name it’d be put in, me and the Mr. would claim it together. We’re not getting divorced, I’ve trusted him for 7 years and he’s never given me reason not to. Why would I stop trusting him because of this?
Then I’d tithe it, build the standard new house (nothing too big), new car (a Lexus that I would drive until it died), pay off debts, take care of my family (except my father, who would promptly be told to kiss my ass when he calls wanting money). I’d find myself a great money manager, invest like crazy and live off of the interest. I’d set up a trust fund for my daughter, nothing big (quarter mil or so) that she wouldn’t know about and wouldn’t get until she was about 35. I’d send her to private school (which, ok, we’re doing anyway) but she wouldn’t get a car when she turned 16 and none of this Tommy Hilfiger garbage, either. She’d basically be raised like a po’ kid.
And then I’d go to school until I had degrees in everything I’m interested in. I’d set up a couple of scholarships at my old high school, and where I’d live now I’d put lotsa local kids through private school. Anonymously, of course.
I’ll take the annual payments. I’d sleep better knowing I could screw up one year, and will still get a payment next year to save my ass. And the amount of money you actually take from the lump sum is less than the amount from the annual payments, isn’t it?
Bear_Nenno, don’t forget that this is the perfect opportunity to let your relatives know that lotteries are for idiots, ie, a tax on people who don’t understand math/statistics. It should be a lot more fun to tell them that now that it is no longer an abstract concept.
Being Florida (no state Income Tax) you would have to pay a lot of Federal Income Tax up front, but as mentioned before your future taxation would be only on the product of investing your take-home payment: interest, capital gains, property tax. You don’t get taxed just for having money sit in the bank.
One key element here is recognizing your own circumstances and limitations. If you’re a level-headed person who knows how to pick a really good investment consultant, the lump sum is the way: get the income taxes out of the way now, and then invest wisely and live off the proceeds for the rest of your life, separating a reasonable amount in “secure” instruments until you reach old age, in case the market goes kablooey. A good financial advisor should be able to at the very least keep you at a pace with the government interest rate that the installment plan is based upon. OTOH if you just know that if you see so much money in the same place you’re likely to go batshit, you may want to keep your own hands off of it… AND STILL hire a good financial advisor in order to keep you from blowing every installment and ending up with nothing to retire on at the end of the 20 years.
Lump sump. If I can’t live comfortably off the interest on $10 million after taxes, I might as well just shoot myself, because that’s more money than I’d earn in 300 years.
My brother’s wife’s mom’s sister’s husband won. So basically, I won’t see a dime of it. But I get to hear all about the new millionaires in the family. Grrrrrr. pizzabrat, am I “jealous” or “envious”??? I think I’m both!!
