Share

Why people who won the jackpot frequently decide to choose money cash over annuity money?

Avatar

Why people who won the jackpot frequently decide to choose money cash over annuity money? Someone told me that the money annuity can not be inherited; because,  when owner dies the annuity money  the U.S. government take possession this money annuities? This is true? are there some other reason?

maringoman's avatar - images q=tbn:ANd9GcTbRxpKQmOfcCoUqF2FyqIOAwDo7rg9G-lfJLAALPGWJWwiz19eRw

I don't know about that but I do know that I would take a lump sum payout because I don't know if taxes are going to increase or decrease <<<hahaha LOL  in the future. Look at the national debt to guide you on the direction taxes will go. Not good.

Avatar
In response to febausa

Check out the FAQs on the USA Mega page and the Powerball and MegaMillions pages for answers to that question and other similar ones. Winners to get to designate a beneficiary to receive their annuity.

There are plenty of reasons that people opt for the cash option:
- age. People want to spend, give and make decisions before they get too old.
- winner might think they can invest better and earn more than the sum the annuity will deliver
- some of the "winners gone bankrupt" stories involve winners with annuities who had huge mortgages, car loans, and credit card debt and managed to outspend their annual income.
- general uncertainty about future taxes and legislation that might effect annuities (including anxiety about inheritance laws)
- "A bird in the hand is worth more than two in the bush"
- etc.
- etc.

 

Good luck everyone.

mikeintexas's avatar - h87TsB4

Many people think they can beat the rate of return on an annuity by investing the money on their own.  That's debatable and depends upon a lot of factors, but it's a fact the lottery entity doesn't have to pay taxes on the investment income,  so that should be a consideration.  For some - such as myself -  choosing the CV option makes much more sense since we're over304050 past a certain age  and want to do things with or enjoy the bulk of the money while we still can.  (if I had known I was going to live this long, I'd have taken better care of myself) There's also the uncertainty of the future to think about.

I know a lot of "someones" like that.  Far too often, they give me bad advice or wrong information.  Try this instead.

Avatar

Okay, OP, whoever told you the annuity gets taken over by the government has no idea what they're talking about. That's such a stupid assumption that it truly bogles the mind. Anyway, the annuity is just like any other asset you have...you can put it in your will and designate an heir or family member to inherit that annuity. 

Second, yes most lotto winners, if you look at the PB winner's page, choose to take lump sum. Most think they can beat the rate that the lotto can get the annuity to you for...but I actually don't think in real world they can beat the annuity rate. Even with hiring a team of financial professionals...people assume they will get great returns. When we know that alot of the Wall St guys are only looking to pad their own bank accounts...

I would be very interested in seeing a study to see for real who comes out ahead. Because the norm thinking is that the lump sum guys will surely come out ahead. But does that pan out in the real world? There are tons of stories of people blowing their money. Also I would venture that from the investment sales industry, the life time return may not even reach the very conservative 3-4% return. Of course that 3-4% has to be inflation adjusted as well.

People scoff at the measly 3-4% return and even in the article they basically put 100+mil into an investment product and then calculate out the return based on annual returns.

But do the people know exactly WHAT to invest in? US Domestic equity index funds? Foreign government bonds? Municipal bonds? US Treasury bonds? Hedge funds? Private equity? Real estate? Some fancy named actively managed mutual fund? Commodities fund? Developed markets equity fund? Emerging markets equity fund? Individual stocks? Growth stock fund? Value stock fund? Momentum funds? Inflation-hedged bonds?

It would be interesting to go out and track down all the past winners, and see how much money they have now versus what they could've had, theoretically, with the annuity payments. 

And of course the lotto winners are fraught with terrible stories....look at Jack Whittaker. 

Another example: Abraham Shakespeare....

Avatar
In response to febausa

"Someone told me that the money annuity can not be inherited; because,  when owner dies the annuity money  the U.S. government take possession this money annuities?"

Just about every state lottery website explains what happens to an annuity if the winner dies and they explain it in depth to the jackpot winners. Would it make any sense to even offer a 30 year annuity if it's possible the government could get all the money if the winner dies?

Avatar

My guess would be that they think they would die before they could collect all the annunity, but hey you could drop dead 5 seconds after knowing you've won so I say take the cash take the annunity either way YOLO

Avatar

And on my short list of first things to do with a lump sum jackpot:

- create an annuity.

Avatar

CASH is king no matter how you slice it.

Avatar
In response to nist7seven

Every time players catch jackpot fever we get lots of inaccuracies and the "government keeps any annuity money" at death is just one of them.

"It would be interesting to go out and track down all the past winners, and see how much money they have now versus what they could've had, theoretically, with the annuity payments."

Found something interesting on USA Mega; the gross annuity payment increases each year making the idea of the losing it all at death even more silly.

Romancandle's avatar - moon

I've heard, but don't know if this is a fact... if you take the annuity and die before the full payout, your heirs or estate may be subjected to the entire tax bill at once for the value of the remaining payments.

So... for simplicity, let's say the jackpot's annuitized value is $30 and you get paid a dollar a year for the next 30 years and pay $0.25 each year in taxes. 

In year 15 you kick the can... Uncle Sam says... gimme $3.75 in taxes now.

Well if your heirs are only getting a $1 a year, it's gonna take them almost 4 yrs just to cover the current tax bill... you can see the dilemma?

As I said... I don't know if this is a fact, but I think there is a court case to back this on a lotto winner in texas years ago.

Maybe somebody can weigh in?

IPlayWeekly's avatar - avatarmoney

I'm taking the cash... depending on the amount, I'd bank 75% and spend the rest

LottoMetro's avatar - Lottery-024.jpg
In response to febausa

It's not always a conscious choice. Those who buy quick picks in states where making the choice post-win is prohibited are stuck with the cash.

mikeintexas's avatar - h87TsB4
In response to Romancandle

Yes, I've read that as well.  I've also read there's some sort of insurance to help with that.  It would certainly be something to consider. 

If I win, I'm taking the CV option but I'll also look into making sure taxes will be taken out of any remaining monies in my estate before it's distributed to my heirs.

music*'s avatar - DiscoBallGlowing

HI RC, I will weigh in. It is called an irrevocable life insurance trust (IlIT)  Hire an excellent Estate Planner to make it work for you. Do get all  your ducks in a row before cashing your winning ticket in.

PartyTime to party !

Welcome Guest

Your last visit: Fri, Sep 17, 2021, 2:13 am

Log In

Log InCancel

Forgot your username?

Forgot your password?