Hypothetical question: I win the California State Lottery Super Lotto Plus drawing, let’s say the payout is $50 million, and I’m the only winner that drawing.
Do I select the “26 annual payments” option or the “cash value 1-time payment” option? Which should I choose to maximize my investment potential (i.e. never have to go to work again)?
The cash value option is explained by the following from the CA state lottery website: “If you mark the Cash Value box, and you win, you will receive the estimated present cash value of the announced jackpot in one lump sum. This amount will be less than the announced jackpot. For example, if the announced jackpot is $7 million, the winner would receive about $3.2 million in one lump sum. This example is based on the average market cost, as of June, 2000, of 26 annual payments funded by the U.S. Treasury Zero Coupon Bonds.”
The 26 annual payments option changes the amount each year. The first payment is 2.5% of the prize, every year it increases by about 0.1%, until the 26th payment is 5.1% of the prize.
(CA state lottery info: http://www.lottery.ca.gov/games/superlottoplus/paymentoption.asp)
Obviously, there are factors such as inflation, changing tax rates, rate of investment return . . . any others?