• We’re currently investigating an issue related to the forum theme and styling that is impacting page layout and visual formatting. The problem has been identified, and we are actively working on a resolution. There is no impact to user data or functionality, this is strictly a front-end display issue. We’ll post an update once the fix has been deployed. Thanks for your patience while we get this sorted.

Winning the Lottery BIG TIME: WHY do you get such a small payout??

Page 2 - Seeking answers? Join the AnandTech community: where nearly half-a-million members share solutions and discuss the latest tech.
Originally posted by: 95SS
Originally posted by: Eli
Originally posted by: 95SS
Originally posted by: Eli
Originally posted by: sygyzy
You actually don't get more money over time if you take the annuity payments, due to the time value of money. Also, it's not some sort of "penalty" to take the lump sum. It is *always* better for you.
Click to expand...
What do you mean it isn't a penalty?

What else could it be?

Taxes take half.

If you take the lump sum, it is halfed again.
Click to expand...

From a calculator on the web

$75,000,000 compounded quarterly @ 4% for 20 years = $166,253,641
$7,500,000 initial + $7,500,000/yr for 19 years (same rate) = $230,012,013

I'd take the payments. Even if you spend 500K a year, you'd still have $214,677,879. Now if you spend 7.5 million a year, take the lump sum. 😀
Click to expand...
Well, I'm not talking about that. I think it's more complicated than that, since you also have to take into account how much the moneys vaule will go up each year. It gets pretty complex.

The OP asked where the money went when you take the lump sum, and my answer is that the lottery imposes a penalty for taking the lump sum; they get to keep the money.
Click to expand...


I know, that was just a rudimentary calculation, showing with proper $$ management, it's better to take the annuity payments. But like I said in a previous post, I don't believe that there ever was any money missing, since if the winner chose payments, future lottery sales would pay for them. It reminds me a little of Social Security, in that the current players would be paying for the past winners prizes and so on. That's why I think that the lottery would prefer to have the winner take payments as well. Of course, I don't work for the lottery, so I could be completely wrong. 😛
Click to expand...


If the winner chooses payments the money is invested in low risk bonds (state I think). Future lottery payments do not pay it or the prize could not be guaranteed. This also accounts for the small return (only doubles after 2? years).
 
Originally posted by: thatsright
With the tax rate being the being the same for Annuity Vs. Lump sum, isn't the State Lottery Ripping you off and using false advertising. I mean if you get the annuity and get $100 Million over 20 years, but only get $60 of that $100 Million with lump sum, isn't that false advertising. Sounds illegal to penalize you $40 million or so if you take lump sum up front, compared to you spreading it out over 20 years.

I mean, you will still get taxed up the ass whether its the annuity or lump sum, but why does the lottery get to withhold so much just because you want the lump sum?

Sounds illegal, and just generally wrong. Thought I know someone will be quick to point out how stupid of a post this one here is! Hurry up and get to it.....:thumbsup:

(Sorry, my logic isn't in tip-top-shape at 4am)
Click to expand...

I think its because the advertised payout rate is assuming you take a annuity option. The annuity amount would probably be based on interest earned.
Its like me saying I have 5 dollars in my bank. If you want I can give you 5 dollars now or 15 over the course of 20 years, with the remainder of the 10 coming from the interest. So, to make it more hyped up I advertise I'm giving away 15 dollars, not 5.
I think 😕
 
Originally posted by: thatsright
With the tax rate being the being the same for Annuity Vs. Lump sum, isn't the State Lottery Ripping you off and using false advertising. I mean if you get the annuity and get $100 Million over 20 years, but only get $60 of that $100 Million with lump sum, isn't that false advertising. Sounds illegal to penalize you $40 million or so if you take lump sum up front, compared to you spreading it out over 20 years.

I mean, you will still get taxed up the ass whether its the annuity or lump sum, but why does the lottery get to withhold so much just because you want the lump sum?

Sounds illegal, and just generally wrong. Thought I know someone will be quick to point out how stupid of a post this one here is! Hurry up and get to it.....:thumbsup:


The money payed by the annuity is the money gained in intrest over time. When you choose lump some you are choosing the initial investment amount .
Click to expand...
 
Originally posted by: Eli
Originally posted by: 95SS
Originally posted by: Eli
Originally posted by: sygyzy
You actually don't get more money over time if you take the annuity payments, due to the time value of money. Also, it's not some sort of "penalty" to take the lump sum. It is *always* better for you.
Click to expand...
What do you mean it isn't a penalty?

What else could it be?

Taxes take half.

If you take the lump sum, it is halfed again.
Click to expand...

From a calculator on the web

$75,000,000 compounded quarterly @ 4% for 20 years = $166,253,641
$7,500,000 initial + $7,500,000/yr for 19 years (same rate) = $230,012,013

I'd take the payments. Even if you spend 500K a year, you'd still have $214,677,879. Now if you spend 7.5 million a year, take the lump sum. 😀
Click to expand...
Well, I'm not talking about that. I think it's more complicated than that, since you also have to take into account how much the moneys vaule will go up each year. It gets pretty complex.

The OP asked where the money went when you take the lump sum, and my answer is that the lottery imposes a penalty for taking the lump sum; they get to keep the money.
Click to expand...

EXACTLY Eli!!

I don't care how you spend the lottery winnings, or invest it, or blow it like a coked up M.C. Hammer. I'm just interested in when your sitting there in the Lottery Office and you tell them how you want it, what penalties (if any) do they tell you about. And from $300 Million, how does the payee walk home with only $74 million or so. Thats a helluva lot of lost value. From the Lottery's own account holding the(in theory) $300 Million. From that bank account holding the $300 mil, to the check in your hand if you win, what happens in between those two?
 
Originally posted by: fredtam

The money payed by the annuity is the money gained in intrest over time. When you choose lump some you are choosing the initial investment amount .
Click to expand...
Ooohhh....

This makes sense.

So it is kinda like how Shockwave puts it?
 
Originally posted by: Eli
Originally posted by: fredtam

The money payed by the annuity is the money gained in intrest over time. When you choose lump some you are choosing the initial investment amount .
Click to expand...
Ooohhh....

This makes sense.

So it is kinda like how Shockwave puts it?
Click to expand...


Yes.

As I said:

If the winner chooses payments the money is invested in low risk bonds (state I think). Future lottery payments do not pay it or the prize could not be guaranteed. This also accounts for the small return (only doubles after 2? years).
Click to expand...
 
Think of it like a savings bond. If you withdraw early, you get less money than if you let it mature. But just because you get less money doesn't mean some is missing if it was never there to begin with.
 
Originally posted by: thatsright
Originally posted by: Eli
Originally posted by: 95SS
Originally posted by: Eli
Originally posted by: sygyzy
You actually don't get more money over time if you take the annuity payments, due to the time value of money. Also, it's not some sort of "penalty" to take the lump sum. It is *always* better for you.
Click to expand...
What do you mean it isn't a penalty?

What else could it be?

Taxes take half.

If you take the lump sum, it is halfed again.
Click to expand...

From a calculator on the web

$75,000,000 compounded quarterly @ 4% for 20 years = $166,253,641
$7,500,000 initial + $7,500,000/yr for 19 years (same rate) = $230,012,013

I'd take the payments. Even if you spend 500K a year, you'd still have $214,677,879. Now if you spend 7.5 million a year, take the lump sum. 😀
Click to expand...
Well, I'm not talking about that. I think it's more complicated than that, since you also have to take into account how much the moneys vaule will go up each year. It gets pretty complex.

The OP asked where the money went when you take the lump sum, and my answer is that the lottery imposes a penalty for taking the lump sum; they get to keep the money.
Click to expand...

EXACTLY Eli!!

I don't care how you spend the lottery winnings, or invest it, or blow it like a coked up M.C. Hammer. I'm just interested in when your sitting there in the Lottery Office and you tell them how you want it, what penalties (if any) do they tell you about. And from $300 Million, how does the payee walk home with only $74 million or so. Thats a helluva lot of lost value. From the Lottery's own account holding the(in theory) $300 Million. From that bank account holding the $300 mil, to the check in your hand if you win, what happens in between those two?
Click to expand...


It is not lost value take the money before taxes and invest it in low risk bonds. In 2? years how much do you have?
 
Originally posted by: 95SS
Think of it like a savings bond. If you withdraw early, you get less money than if you let it mature. But just because you get less money doesn't mean some is missing if it was never there to begin with.
Click to expand...
Yep.... I understand now.

Pretty interesting.
 
Hm. How interesting. Quick question: Say you take the payments in annuities. And you hire a really good tax attorney and buy boatloads of tax deductable assets so that you shrink your taxable income to a reasonable amount. Couldn't you realistically be able to keep MUCH more than if you had just taken it as lump sum taxable income? Of course, you'd have hotels and apartment complexes instead of cash in the bank, but i'd much rather have those anyway...
 
It's not taxes - they are paid after you take the lump sum. The reason they give a small lump sum is because the total winnings for a lottery are misleading in a big way. They'd prefer you to take yearly payments over 20 years, because in the interim they can continue to hold that other money and invest it. It's cheating you out of money, essentially. If they have 300m and only give you 74M now it's costing them 74, not 300. If they do it over 20 years it still costs them around 74M because of compound interest. It's a big scam. I'm sure it says in the rules though that it's over 20 years, so a lottery of 300M. it's just a lottery of 74M. You can mimick the effect of having the 300 divided over 20 years yourself if you take just those small payments and invest the rest. It would be like having a lottery of 900 M, but wait you get it paid over 40 years. Same misleading thing.
 
well, yeah, but i meant that it's going to be hard to write off 74m worth of taxes in one year. OTOH, if you take annuities at around 9 mil each year, you can probably hire a good tax guy to write off a considerable amount of that. So realistically in the long run, you're paying less taxes, even if it's approx the same deal with the lump sum/annuities scam.
 
Aren't there companies out there that will buy your lottery winnings with the anuity option for more money than the lump sum payoff the state will give you?
 
its because of time value of money. take an average interest rate, put the PV as 143 million, payments as zero, and years as how ever many years the annuity option was and you will get a future value of the 289 million.
 
New York City is an example of cities that collect taxes. Thought I have never heard of school districts doing this?? But if they do, it sounds like it would happen down south a lot.
 
Originally posted by: DJFuji
Hm. How interesting. Quick question: Say you take the payments in annuities. And you hire a really good tax attorney and buy boatloads of tax deductable assets so that you shrink your taxable income to a reasonable amount. Couldn't you realistically be able to keep MUCH more than if you had just taken it as lump sum taxable income? Of course, you'd have hotels and apartment complexes instead of cash in the bank, but i'd much rather have those anyway...
Click to expand...




Nope, not going to work that way. Me and others did ALL the calculations in a static?s class and it?s always better to take lump sum.

There?s better interest rates to take lump sum and save, and very few LARGE right offs to warrant the annuity. Even with the idea of buying property you have to pay taxes every year, let alone mantaince and management cost, on that and you can only write off certain %.

So if anybody ever wins the lottery, take lump sum and invest it.
 
Originally posted by: Red Dawn
Aren't there companies out there that will buy your lottery winnings with the anuity option for more money than the lump sum payoff the state will give you?
Click to expand...
Yep.....
 
It's my understanding that the store that sold you the lottery ticket gets a percentage of the winnings as well - not sure how much.
 
The OP asked where the money went when you take the lump sum, and my answer is that the lottery imposes a penalty for taking the lump sum; they get to keep the money.
Click to expand...

No they don't, the money doesn't go anywhere, because it doesn't even exist yet. If you pick the annuity option, they just take the jackpot and "invest" it for you.
 
Originally posted by: CFster
It's my understanding that the store that sold you the lottery ticket gets a percentage of the winnings as well - not sure how much.
Click to expand...

Here's some great info on the California lottery. Page 10 has the payout scale for the 26 year payment option.

I can't find how much the retailers get, but IIRC it's .5% for winners and 1% for payouts.
 
Originally posted by: 95SS
From a calculator on the web

$75,000,000 compounded quarterly @ 4% for 20 years = $166,253,641
$7,500,000 initial + $7,500,000/yr for 19 years (same rate) = $230,012,013

I'd take the payments. Even if you spend 500K a year, you'd still have $214,677,879. Now if you spend 7.5 million a year, take the lump sum. 😀
Click to expand...

Your taking the lump sum post taxes and the annuity pre taxes. Since 7.5 million still gets you to the highest tax bracket, you need to take the same amount away from the annuity, which gives you less then your 166mil.
 
someone in El Paso won the Texas Lottery a couple of weeks ago of $145,000,000....he took the lump sum and after taxes, took home only $45,000,000. Personally, I'd take the annual payments over the 25 year period instead of giving up half the winnings right off the bat.
 
You must log in or register to reply here.

TRENDING THREADS

Back
Top