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

Discussion in 'Off Topic' started by thatsright, Jul 3, 2004.

  1. cchen

    cchen Diamond Member

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    there's something called inflation..... look into it
     
  2. stultus

    stultus Golden Member

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    Personally, I'd hire an accountant and do what he said. This would be to take the lump. But use your 145 > 37 logic if it makes you happy.
     
  3. mugs

    mugs Lifer

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    Let me see if I can explain this better. The $145M is not the actual jackpot. The actual jackpot is probably around $70M. The $145M is the total of the payments you would receive if you let the government take the money and put it in an annuity for you (think of it as a no-risk, low-yield investment). Since the interest on the annuity is probably not much more than inflation, the net present value of the $145M is probably not much higher than the $70M you'd get if you took the cash (I'm leaving out the tax, because the tax rate is the same either way). Now the advatage of taking the cash is that you can invest it yourself and get a better return than an annuity. So it's a question of whether you want the government to invest your $70,000,000 in a low-yield investment, or you want to invest your $70,000,000 in a high-yield investment.

    Compare it to buying a car. If someone asks how much I paid for my Honda, I don't tell them the total of my payments, I tell them the price I agreed to with the salesman. The total of the payments is higher, but since the interest rate is lower than inflation, the total value of the money I'm using to pay for the car will be less than what I signed for at the dealership.

    sciencewhiz, 95SS was using the after tax payout. $300M/20 = $15M, minus tax is $7.5M. The reason the annuity came out ahead for him is because he was using a really low interest rate. You can invest in an index fund and get >10% a year over the long term. I calculated it myself with 10% APY spending $500,000 per year. Taking the cash payment you'd end up with $476M after 20 years, taking the annuity would net you $444M. Not a huge difference, but it's there.

    Also, with the big multi-state lotteries like the Mega-Millions and Powerball, the payout is over 25 or 26 years to make the "jackpot" seem even bigger.
     
  4. Howard

    Howard Lifer

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    At least they should advertise how much of it you actually get after taxes, even if only in small print.
     
  5. FelixDeCat

    FelixDeCat Lifer

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    :|
     
  6. thatsright

    thatsright Platinum Member

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    I just saw on the local news, the Indian-American (think Apu from the Simpsons) guy whose Liquor store in Lowell, MA sold the winning ticket. He gets $50k for doing so.
     
  7. kranky

    kranky Elite Member

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    I think there's been enough math here to compare the two payout options.

    I will say that it's really a stretch to call this a "scam" in any form. If they say the winning ticket is worth $300 million, the winner gets $300 million - just not all at once. Winners have the option to take a lump-sum payment if they want.

    So if a winner chooses the lump sum, knowing it's less money, that's no scam.
     
  8. Evadman

    Evadman Administrator Emeritus<br>Elite Member

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    Those are nto taken into acount. 300 m,il = 142 mil - taxes = 82 mil
     
  9. JeffreyLebowski

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    OK here is the simple reason to get annual payments.
    Look up any of the big prize winners and see what they are worth now. Most of them take home $70+ million, but are bankrupt within a few years because they don't save or invest, because to me or you and 98% of the rest of the population, that kind of cash makes you blind and you will spend like there is no tomrrow untill you realize that money is quickly drying up. A lot of these winners buy yahts and several exotic cars, and houses, and take extravigant vacations, and before they know it, the money is gone. They don't think about paying for insurance on all the stuff they buy, you buy a million or two in cars, you're looking at 100K or more a year in insurance. The houses will require a lot of insurance too.
     
  10. MillionaireNextDoor

    MillionaireNextDoor Platinum Member

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    300000000 is in future value
     
  11. Koing

    Koing Elite Member <br> Super Moderator<br> Health and F

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    Well in England the lottery is what you get.

    Say£25mill total and the jackpot is £4mill or more if it is a roll over. If you get the 6 numbers you win ALL the money as far as I'm aware. The jackpot use to be bigger but we have the lottery 2x a week. One on a Saturday and a Wednesday. And they also have other funky games to play. I use to spend £1 a week on random numbers. Now I hardly play and only play on roll overs and spend £5.

    Koing