CA lottery payout options.

Cecil's Columns/Staff Reports
1

I like your analogous comparison of the CA lottery to the standard U.S. mortgage. I even agree with your calculated values that $100,000 @ 5% interest makes a monthly
payment of $659.96 and @ 3% interest a monthly payment of $554.60.

Now I ask what happened to the Rule of 72 (Rule of 70, Rule of 69.3, Rule of 69) or the Echart-McHale second order rule for us non-mathematical types.

Using the Rule of 72, an 8.92% annual interest rate would double an investment or lump sum payout in approximately 8 years.

Winning $1,000,000 with a one time payout of $500,000 means I need to double my
money over the next 20 years at 3.53%. 1.035265^20 = 2.00000.

LINK TO STAFF REPORT: If I win the lottery, should I ask for a lump sum or an annuity? - The Straight Dope

MODERATOR NOTE: Also please note that this thread is from 2011, until Post #5, revived in Sept 2014.

2

Assuming you never touch any of the principal. How likely is that?

3

Welcome to the Straight Dope Message Boards, 1densuke, glad to have you with us. When you start a thread, it helps if your provide a link to the Staff Report (or Column) so that others know where you’re coming from. Keeps us all on the same page, and avoids searching time. No biggie, i’ve added link for you, you’ll know for next time. And, as I say, Welcome!

4

Well, if I won the lottery, I would try to set it up so I never touched the principal. Okay, $100,000 is on the small side for that, so maybe, but my goal* would be to win enough to, say, get an annuity of $100,000, and then live off that. And hopefully set up so I have interest building the account so the annuity value grows each year.

And then I’d probably not spend the full value each year, and put the balance into a separate account to use for other things. Like carryover for a big vacation, or buying a new/fancy car, or gift to family members, or whatever.

So how much would I need to win for that? Including having enough to pay the taxes.

  • It’s a hypothetical goal, as I don’t play the lottery.
5

This thread showed up in my active list from the void. I assume it was resurrected by a spammer who has been vanished. I wouldn’t post so this thread could drop back off the active page, but I notice I asked a question that nobody bothered to try to answer.

So I guess I’ll repeat:

How much money would I need in order to set up an annuity such that I could have an annual payment starting at $100,000 and grows at a measly 3% per year? Assuming reasonable interest rates are available and stable/secure investments could be found.

6

Any respectable spreadsheet has built-in functions to do these calculations, and to do what-ifs on them.