Another Lottery thread... Annuity or Lump Sum?

[Sport]

His point about it being tax deferred is good one.

Don't quite get it. End of the day, after 30 years you end up with 1.5 b pre tax. I assume the tax rate on each payment is the same as lump sum. I think that you can easily turn 600 mil into 1.5 bil minus tax over 30 years.

[Aaaron]

Well isn't the return on what would have been the lump some  "gains"? It is not so easy to tax defer income on an investment of $900m that I know of? What are some of the plenty of ways you are referring to?

I'm not a tax professional, but off the top of my head: 1031, harvest losses, structured sales.

Go through the numbers with a financial professional or actuary and 9/10 (I'm being generous here) will tell you that the lump sum payment should be a given for 99% of the population.

[Joe4007]

I'm curious What the thought process of those that voted for the annuity is?

The way I see it, the 50-75MM more you'd get by investing it on your own won't really matter. The years you end up having the money will.

[aygart]

If you invest 900,000 at 3% for 20 years you end up with 1.6m while if you invest the post tax 600,000 without a tax deferral on returns you will need to make 8.5% to end up with a similar amount. If you defer taxes on the returns but not the original payout such as with tax deferred investments you will need to make 5.2% to reach the same value later.

I use 900,000 instead of 900,000,000 since that is what the calculator allows.

source:
https://www.allianzlife.com/retirement-and-planning-tools/tax-deferral-calculator
using 20 year investment and highest marginal tax bracket. Note this is only Fed taxes and the effect of state taxes accentuates this.

[grodnoking]

Go through the numbers with a financial professional or actuary and 9/10 (I'm being generous here) will tell you that the lump sum payment should be a given for 99% of the population.

You're saying 99% of america is financially literate?! If you are not financially literate and have no clue how to run your money thru a firm to invest it for you, I think you'd rather the annuity.

[Mordyk]

the answer is a mathematical one.

http://www.accountingtools.com/present-value-of-annuity-due

[aygart]

If you invest 900,000 at 3% for 20 years you end up with 1.6m while if you invest the post tax 600,000 without a tax deferral on returns you will need to make 8.5% to end up with a similar amount. If you defer taxes on the returns but not the original payout such as with tax deferred investments you will need to make 5.2% to reach the same value later.

I use 900,000 instead of 900,000,000 since that is what the calculator allows.

source:
https://www.allianzlife.com/retirement-and-planning-tools/tax-deferral-calculator
using 20 year investment and highest marginal tax bracket. Note this is only Fed taxes and the effect of state taxes accentuates this.

Also, these numbers are based upon the entire amount sitting. With the annuity you would be getting 1.6 without all of it staying in the annuity and assuming you place all of it in a zero return vehicle upon payment. If you invest the annuity payments you total amount will bee much higher.