4 ms·

Does that include the fact that the money is paid out over time, and apply standard discount rates to that future money? Because that makes it even worse.

strictnein 11y ago
The $1.5 billion figure is paid out over time. There's also a lump sum option that gives you $930 million right away. That's what the calculations are based on.
- Someone1234 11y ago
  I didn't realise the $1.5B was paid out over time. Does anyone know what that period is by chance? Just curious.
  - spydum 11y ago
    i believe it's an annuity paid out over 29 years (payment annually). First payment comes up front.
    - logfromblammo 11y ago
      If you do the TVM calculations, you have probably never seen a lottery payout schedule that works out to have greater current value than the lump sum for any reasonable annual rate of investment returns. The $1500M is actually a 30-year annuity due with payments of $50M. In order for it to be worth $930M in present value, the assumed rate of return can only be about 3.7%. If you have even a bare inkling that you can invest at a rate better than 3.7%, you should take the lump sum. For reference purposes, the worst historic 30-year rolling rate of return on a S&P500 index fund is 8%, for a period including the entire Great Depression. Mostly, people get at least 10% over that span of time. Accounting for federal taxes, which I assume to be 39.6% for a sum that large, the lump sum winner takes $930M and keeps $562M. For tax reasons, you arrange for your ordinary annual income from the low-risk investments to be $400k, on which you pay $116k in tax, and spend $284k. So you set aside $13.3M at 3% for this. With the remaining $549M, you invest at an average 10% over 29 years, occasionally paying 15% long-term capital gains tax, to get $5850M. The annuity winner pays $19.8M in income tax every year, resulting in a net annual payment of $30.2M. If you subtract $284k as expenses, and invest the rest at 10% with occasional 20% long-term capital gains tax (the tax reason from the previous paragraph), you end up with $3390M after 29 years. This is almost 7 years behind the lump sum investor. Conclusion: take the lump sum payment.
      - jandrese 11y ago
        On the other hand, most people who take the lump sum end up declaring bankruptcy after 2-4 years. The annuity at least prevents them from spending it all in one place.

strictnein 11y ago

The $1.5 billion figure is paid out over time. There's also a lump sum option that gives you $930 million right away. That's what the calculations are based on.

Someone1234 11y ago
I didn't realise the $1.5B was paid out over time. Does anyone know what that period is by chance? Just curious.
- spydum 11y ago
  i believe it's an annuity paid out over 29 years (payment annually). First payment comes up front.
  - logfromblammo 11y ago
    If you do the TVM calculations, you have probably never seen a lottery payout schedule that works out to have greater current value than the lump sum for any reasonable annual rate of investment returns. The $1500M is actually a 30-year annuity due with payments of $50M. In order for it to be worth $930M in present value, the assumed rate of return can only be about 3.7%. If you have even a bare inkling that you can invest at a rate better than 3.7%, you should take the lump sum. For reference purposes, the worst historic 30-year rolling rate of return on a S&P500 index fund is 8%, for a period including the entire Great Depression. Mostly, people get at least 10% over that span of time. Accounting for federal taxes, which I assume to be 39.6% for a sum that large, the lump sum winner takes $930M and keeps $562M. For tax reasons, you arrange for your ordinary annual income from the low-risk investments to be $400k, on which you pay $116k in tax, and spend $284k. So you set aside $13.3M at 3% for this. With the remaining $549M, you invest at an average 10% over 29 years, occasionally paying 15% long-term capital gains tax, to get $5850M. The annuity winner pays $19.8M in income tax every year, resulting in a net annual payment of $30.2M. If you subtract $284k as expenses, and invest the rest at 10% with occasional 20% long-term capital gains tax (the tax reason from the previous paragraph), you end up with $3390M after 29 years. This is almost 7 years behind the lump sum investor. Conclusion: take the lump sum payment.
    - jandrese 11y ago
      On the other hand, most people who take the lump sum end up declaring bankruptcy after 2-4 years. The annuity at least prevents them from spending it all in one place.