# Lottery installments vs. buying a huge annuity **URL:** \ **Category:** In My Humble Opinion\ **Created:** [October 21, 2018, 7:19pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297 "2018-10-21T19:19:10Z")\ **Posts on this page:** 7\ **Page:** 2
**Author:** ![Riemann](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/riemann/32/3133_2.png) [@Riemann](https://boards.straightdope.com/u/Riemann)\ **Post date:** [October 25, 2018, 11:07pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/21 "2018-10-25T23:07:10Z")
> [@Mama\_Zappa](#): > > …Can’t deposit in a bank and expect FDIC to look after you - the limit there is a few hundred thousand at best. > > Any other investment doesn’t even have that much of a guarantee… Of course it does. You can buy U.S. Treasury fixed income in any amount you want. ---
**Author:** ![ftg](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/ftg/32/2801_2.png) [@ftg](https://boards.straightdope.com/u/ftg)\ **Post date:** [October 26, 2018, 12:41pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/22 "2018-10-26T12:41:39Z")
> [@DrDeth](#): > > There are basically three types: > > 1. Your life, nothing goes to heirs. > 2. Ten year certain, which means if you die before ten years, some goes to heirs. Somewhat reduced payment > 3. You and your wife, which of course means a reduced payment. Your #2. needs some corrections. For a fixed term annuity it seems that the general rule is that if you die before the term is up the annuity pays to whoever you specified. Usually specified as part of the annuity setup (with changes allowed) but can also be done via a will. The “Somewhat reduced payment” part is somewhat of a misnomer. For a fixed term, your age doesn’t make a difference. So compared to a life annuity it may be higher or lower for the same amount put in. For an 80 year old, life annuity payments will be higher. For an 18 year old, they will be much lower. Note there can be mixed versions. We have life annuity with a guaranteed minimum 20 year payment. So it’s sort of all 3 of yours combined. If we both die, then our kids get the rest if there is still time left on the 20 years. We only did this for tax reasons. The money put in was pre-tax and it seems likely to work out better to have the money evenly distributed rather than pulled out via required [RMD](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) which is heavier in the early years and light to nonexistent in the later years. For lottery winnings, there is no RMD so our biggest pro-annuity reason goes away. ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [October 26, 2018, 3:37pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/23 "2018-10-26T15:37:38Z")
Also, I wouldn’t sell an annuity like that, Deth. The one’s I have sold at least have a return of principle rider included. So at a minimum you and your heirs get back what you put in. Example: You put $500,000 into an annuity. You begin taking income at some point. Immediately, five years, whatever. You die. Very sad. If the total of what you’ve taken does not equal $500,000 then your estate - however you’ve defined it - gets $500,000 minus what you’ve been paid as of the date of your death. That said, I generally don’t like annuities as investments. They tend to be restrictive and expensive. For someone interested in risk free investments in such a lottery scenario I might put together a laddered muni bond portfolio. Rates aren’t that high but they are tax free. At 4% you’d get a Tax Equivalent Yield of approximately 4.88%. Not great but very secure. So doing that you’d end up with $900MM \* 4% = $36MM per year without any of it being taxable. $3MM per month untaxable. ---
**Author:** ![Jasmine](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jasmine/32/2964_2.png) [@Jasmine](https://boards.straightdope.com/u/Jasmine)\ **Post date:** [October 26, 2018, 3:43pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/24 "2018-10-26T15:43:19Z")
I think age is a big factor. If you are over 60, taking the lump sum and doing a lot of living seems to be the logical way to go. Below that age (health permitting), taking the yearly payments allows you to live more within your means, and it is better tax wise I would think. It’s amazing how many lottery winners manage to blow their whole wad and end up literally going broke. ---
**Author:** ![DrDeth](https://avatars.discourse-cdn.com/v4/letter/d/b487fb/32.png) [@DrDeth](https://boards.straightdope.com/u/DrDeth)\ **Post date:** [October 26, 2018, 7:20pm UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/25 "2018-10-26T19:20:39Z")
> [@ftg](#): > > Your #2. needs some corrections. > > For a fixed term annuity it seems that the general rule is that if you die before the term is up the annuity pays to whoever you specified. Usually specified as part of the annuity setup (with changes allowed) but can also be done via a will. > > The “Somewhat reduced payment” part is somewhat of a misnomer. For a fixed term, your age doesn’t make a difference. So compared to a life annuity it may be higher or lower for the same amount put in. For an 80 year old, life annuity payments will be higher. For an 18 year old, they will be much lower. > > Note there can be mixed versions. We have life annuity with a guaranteed minimum 20 year payment. So it’s sort of all 3 of yours combined. If we both die, then our kids get the rest if there is still time left on the 20 years. Yes, my answer was simplistic, there are many options. ---
**Author:** ![TruCelt](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/trucelt/32/523_2.png) [@TruCelt](https://boards.straightdope.com/u/TruCelt)\ **Post date:** [October 28, 2018, 12:37am UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/26 "2018-10-28T00:37:38Z")
> [@DrDeth](#): > > The state doesnt pay it. The Lottery comm buys an annuity for you. Yes, but they buy municipal bonds and/or US treasury bonds. We’ve had bankrupt states lately, and the Federal deficit is increasing without even a war on. If any government entity starts to go under, there will be pensions to protect and government functions to continue. Lottery/investment payouts will be at the bottom of the list - as they should be. ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [October 28, 2018, 12:50am UTC](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297/27 "2018-10-28T00:50:58Z")
> [@Jasmine](#): > > It’s amazing how many lottery winners manage to blow their whole wad and end up literally going broke. Its probably just because a lot of people who play the lottery aren’t financially literate or good at long range planning. Supposedly 44-70% of lottery winners go bankrupt in a few years, which isn’t far off from the number of professional athletes after they retire. [Previous page](https://boards.straightdope.com/t/lottery-installments-vs-buying-a-huge-annuity/823297.md?page=1)