Technically the full amount is just the sum of payouts of the annuity that they buy.
The “cash value” is an estimate of the value of the bonds they are holding for the price and will changed based on the bond factor the day the winner claims the prize.
Really it is a choice between a state run annuity or the prize pool.
Being gambling, they market the lifetime sum of payouts of the annuity.
And of course the annuity doesn’t have an NPV equal to the announced amount, even if we ignore taxes.
And on both, you pay the federal tax- which the web link indicated was 24%. If you are getting millions a year, the difference in income tax over 20 years is probably minimal, as long as federal taxes don’t go up.
Also, I recall reading that the income is attributed to the state where you bought the ticket. If you live in CA or wherever taxes work out to 50%, moving to a low-tax state wasn’t going to help you. You keep getting your pay from the original state. (In the much earlier “$1.3B” jackpot for Powerball, some smaller states were talking about how much of a boost that win could give to their tax revenue…)
CA doesn’t tax lottery winnings.
Yes, true, they only take out Federal taxes.
Was anyone claiming they did?
Twenty or thirty years is a VERY long time. I would take the lump sum because I’m afraid due to “sudden, unforeseen circumstances” the government would have to “temporarily” suspend all lottery annuity payments until the governments finances are in better order (never).
What are you going to do? Sue the government? Ha Ha!
The other reason is that 2018 dollars are worth more than any future dollars due to inflation.
A lump sum invested in index funds or blue chip stocks will do better than the annuity would also.
But then again there is less risk of blowing everything with an annuity (if thats something that a person is worried about, blowing all their money).
Illinois suspended lottery payouts in 2015 and 2017, during budget impasses.
exactly!
And how many lost their investments during that same period?
Crap, given my current life-expectancy I could take the net of the lump sum after taxes for a 100 million prize and still live comfortably the rest of my life if I just stuffed the winnings in a mattress rather than invest it.
Of course, if I want to move to jet-setting life-style of travel and $1,000 bottles of wine I’ll need to do some prudent investing but that’s not really something I’m interested in.
I could probably spend some money taking up my flying hobby again, but I’m not interested in multi-engine or jets or the really expensive end of things there, either.
In reality, the first two things I’d do after a big lottery win is hire a tax lawyer and a professional financial advisor. But I’m not interested in an extravagant lifestyle. I’d probably get a nice house in a quiet neighborhood and work on writing the Great American Science Fiction Novel while taking an occasional break to work on my weaving loom. It takes a lot less than 100 million for that level of lifestyle.
They stopped sales of the big lottery tickets. They suspended payments on new claims on lottery tickets over $25k.
This did not affect annuity payments to previous winners at all. Those are already purchased annuities that the state’s messed up politics have no control over. (Note that these annuities are purchased by the multi-state organizations that run these from the payments received from the individual states.)
Just tell me exactly what protection you have against an “emergency” suspension of lottery payouts by a US state government due to “unforeseen circumstances”.
The state will readily agree that you are owed the money and that you will be paid, (just not now and they aren’t able to tell you when you will be paid!). This is not idle speculation, every single US state is in debt.
Take the lump sum.
Just tell me exactly what protection you have against an “emergency” suspension of bank and government payouts by a US government due to “unforeseen circumstances”.
Agreed, 100%. Anyone that is dependent on any sort of government payout, from Social Security to Welfare is skating on thinner and thinner ice as the years go by.
However, I will say that suspension of lottery payouts will probably proceed the suspension of SS payments.
It’s apples and oranges since on one hand the US federal govt is a stronger credit than any state (or group of states’ joint lottery), but on the other Social Security is not a contractual obligation. Lottery payments generally are. IOW the state or lottery commission can’t actually just tell you there are unforeseen circumstances, sorry. You can take legal action to seize assets etc. They have breached a contract. A state or joint lottery commission also doesn’t have the same level of immunity from legal action the federal govt does.
Also most lottery annuity payouts are funded with separate money set aside for the purpose, which the state(s) has limited legal ability to take back. IOW they are pre-funded.
But it’s mainly just technical info if of any interest. It is a concentrated risk in a typically good but not perfect credit. It would be foolish for example to take the lump sum and invest it all in any one issue of municipal bonds, you’d diversify. That probably means take the up front, I agree, on a life changing payout.
Although that could cost a considerable amount in tax. Say you live in NJ and win a super big payout. You owe 10.75% state tax on the amount over $5mil. You probably can’t avoid that by moving to FL before you get the lump. You could avoid that 10% on 19/20’s by taking the annuity and moving to FL. If you want to be clever (moreover have somebody sophisticated and trustworthy to advise you) you might take the annuity, move to FL, then sell the other 19 annuity payments to JG Wentworth or whoever. Who would want their cut, obviously, but you might still come out ahead that way compared to getting clipped by NJ for 10.75% on almost the whole amount.
In-laws of an acquaintance won a 1m plus jackpot in the 1990’s. They paid off their mortgage, bought the car they always wanted, started college funds for the grandkids and did some travelling. They invested the bulk of their winnings, kept working and are still comfortable.
Friend of a friend won a very sizable jackpot (over 50m) several years ago. He quit his job, followed his dreams and did the full-time volunteer work he was always wanted to do. He has donated quite a bit of it to various causes. You really wouldn’t know he has an insane amount of money. Very low-key guy.
People who squander their money make better stories I guess.