I was checking the FAQ at the Powerball site and to me, the annuity makes the best sense.
It forces you to stick to a budget.
The kids and relatives will be aware that there is an annual limit of funds.
The annuity can be willed on after you die.
The annuity can be cashed out at anytime.
The annuity will gain 4% interest per each annual payment.
The annuity is worth more overall than the cash value.
There are so many positives, I can't see any other way but to take the annuity.
And the American currency can become worthless in 10 years, making your payout equal to the value of a hoagy sandwich.
There are plenty of ways to invest money. Diversity is good. Anyone who is mature and balanced can manage to say "no."
Well, yes, the economy could turn bad in ten years. There are a lot of fears to consider.
Yeah, I think both Powerball and Mega Millions shouldn't have annuities, simply because there's too much uncertainty in the years ahead.
When I started working 40yrs ago, the company I worked for had a saving and investment plan and I was surprised by the number of people who said it was bad because in 30 years money could be worthless and they were going to invest on their own. Five years ago when I retired they had changed their tunes, they hadn't invested or saved and they wanted to retire. Five percent of their salary at 3-4% over 35 years looked a lot better as they approached sixty.
If a person is young and doesn't have any idea how to invest and have to depend someone else for advice, annuity backed by the state in a good plan. Chances are if the state can't pay any other investments made privately aren't going to pay anything either. A lot of lottery winners have gone broke with bad advice and bad investments.
At my age I would take the cash because my future is now.
I have to agree with Cash-Only on this one.....has a Finance major in college right now....always take the cash.
The state invests in treasury bills issued by the United States....they bills have the lowest interest rates possible.
Take the money and even investing it in something will give you a much higher return over the next 25 or 30 years then letting the state put your money in t-bills.
The annuity only makes sense to the crack addled, marketers and companies selling annuities. Death would force the sale of the annuity, kids or others would be hit with gift taxes or other taxes making the tax bill very large. The annuity is also an excuse not to offer something valuable like cash.
Oh this is classic!
It'll come as no surprise to anyone that I think the Powerball annuity makes absolutely no sense whatsoever. But just for kicks let's take the points one by one:
1. It forces you to stick to a budget.
Please refer to the story on Lottery Post about the family in Florida who was recently arrested for tax fraud. THEY took the annuity.
2. The kids and family will be well aware that there is an annual limit of funds.
See the same story.
3. The annuity can be willed on after you die.
Ever hear of the Death...oops Estate Tax? If I remember correctly the Unified Family Credit (or whatever it's called) doesn't take effect until 2010. But even then Estate Taxes are crippling...even if a Trust is formed. Right now I believe the Estate Tax stands at something like 48% of the total value of the estate. That 48% has to be paid within 9 months after the death or it is subject to a 20% penality! Now if you leave an annuity that's still worth $100 million dollars where do you think your heirs are going to come up $48 million to pay the IRS? Borrow it against the annuity? Sell the annuity for a perchantage on the dollar? If they do that what will they have left? You better have a plan because they have to pay the Death Tax before they can collect the annuity.
4. The annuity can be cashed out at any time.
By who? Not the lottery. Maybe some schumck company that buys annuities for a perchantage...but then you'd get even less than you would have got taking the cash. You'd have been better off taking the cash in the first place.
5. The annuity will gain 4% percent interest per each annual payment.
Uh that's 4% TAXABLE interest! You can invest the money yourself and get close to 3% TAX FREE on municiple bonds. And you can still do better than 4% taxable with an extremely conservative investment plan.
6. The annuity is worth more overall than the cashvalue.
The annuity is a promise to pay. The cash value is money in hand or...as we used to say; Green, Train Riding Money! Which do you think is worth more? (Remember the old cartoon? I'd gladly pay you Tuesday for a Hamburger today.)
The bottom line is I can't think of a single reason to take the annuity.
Hey Uncle Jim,
That story you refer to reminds me of the title of Toby Keith's newest country CD.
It wasn't the annuity that failed them. It was the way they filed their tax returns that cooked their goose.
Plus, they were virtually dead broke the day they bought their winning ticket. It's stupid to use one's food and gas money to buy lottery tickets. And as the comedian Ron Wyatt says, "You can't fix stupid."
Let's say a person wins a $100,000,000 jackpot and takes the cash.
He will get around $50,000,000 before taxes and about 32,000,000 after taxes.
He will have to invest that money to protect it because the banks won't gaurantee protection.
Now, he has to put his trust in his investments which are guided by mutual fund managers or business managers, or any number of things that he hopes will be good for his money.
It can work out very well for that person and I don't doubt that.
But the person who takes annuity payments starts off with $100,000,000 before taxes and is only required to pay 1/30th of the value of the win on the first year. Or, he's just paying the tax on the first payment in his first year of being a millionaire.
It gives the person a lot of time to think and adjust to being a millionaire.
At anytime, the person can opt out for the cash if he wants and he may find a better deal than getting just half the value in cash.
So, the annuity is just a way to buy more time to allow the person to adjust to his new lifestyle. I'm talking about Powerball rules here and not Florida's lottery rules.
The main thing, is the adjustment time for the friends and relatives and not the person who has won. It can be a very tricky thing to keep the family intact when they know you are sitting on a fortune and they are having money problems.
Afterall, the whole value of life itself is about our relationships. It's the most important thing there is, in my opinion.
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