Lotto Question: What's a Better Deal?

There’s a new lottery in Canada called “Millionaire Life”

The top prize is 1M per year for 25 years or a one time cash payment of 17M.
Of course the lotto here is all tax free.

What is the better deal?

My friends and I debated the 17M would be a wiser choice because that would almost give you 1M a year in interest if you were careful.
(of course you would have to pay income tax on the interest)

Any math experts here? What’s the straight dope. which is the better choice?


I should have mentioned the clause titled “Death of Annuity Winner”

“In the event that the holder of the winning ticket who selected the annual annuity payments dies prior to the end of the 25-year period over which the annual annuity payments are to be paid, ILC shall pay to the executor(s) or administrator(s) of such deceased holder the commuted present value, as determined by ILC, of the annual annuity payments remaining to be paid.”

Can you help? What sort of tax rates are we talking about?

No math expert.

Assuming a pragmatical attitude with respect to spending and investing, take the initial lump sum. Even with having to pay taxes on any interest and earnings on the principal, one should easily be able to make up the 8 million difference in less than 25 years.

I’m not 100% sure, but I think around the 42% mark sounds correct, and that’s without having a good tax guy taking advantages of any special loop holes and whatnot.

I’m sure a Canadian well versed in tax law will come along :slight_smile:

If payments are at the end of the year, the present value of the annuity at the beginning of the first year is greater than 17 million only when interest rates are under 3.5%. You can do better than that with the lump sum, I hope.

Here we go to start for Canadian tax rates —>


I will leave it up to the experts to decipher all this.

I don’t think a math expert is going to help you much. What we need is an accountant or a broker. I’m neither, but as a semi-educated WAG, I’d say that based on market performance, over the next 25 years you can expect at least 10%-15% annual growth by simply investing in index funds.

For example, had you invested 17M into S&P 500 index fund 25 years ago and forgot about it your portfolio would be worth over 150M right now. Of course, once sold you would have to pay Canada’s equivalent of the capital gains tax on the profit, but I’d say getting the annuity is only a good idea if you entirely don’t trust yourself with the money.

I’d take the lump sum. Cash money right now is good. The lotto company might go broke, get looted by corrupt officials, or some other circumstance might occur to deprive me of the prize. $17 Million is way more than enough to retire on, live comfortably for the rest of my life, and pass on a sizable estate to my heirs.

It really depends on what your goals are. Are you looking to have the most money at the end of 25 years? What money are you going to use to live for the next 25 years? If your planning to use some of your winnings on living expenses how much are you going to use?
I’m sure people could tell you how to get the most money after 25 years but it’s not really worth much until you trade it in for goods and services.

I was under the impression that lottery winnings were not taxed in Canada.

That’d be why the OP said: “Of course the lotto here is all tax free.”

But interest income on the winnings is. So if you take the lump sum, you will have less to invest each year than the state does, because they do not pay tax on the interest.

Sorry I somehow missed that!

It doesn’t matter to the winner how much the state has to invest every year, because they’re getting a fixed ammount, anyway.