Powerball Jackpot - Disgraceful

[MamaLema]

Here in Canada, the government doesn't tax any lottery winnings. Not that I've ever won so it doesn't affect me anyway

 

[Jennasis]

I saw video of the winners on the news last night. Each was holding a check for 22.1 million. There you go!

I doubt any of them are complaining about it. (Ok...maybe a little bit) But income is income whether earned or won and you still have to be taxed on it I suppose. I would take the lump sum pay out.

NEVER EVER take the annual payments! Why? Lottery winnings are not part of your estate. If you die, any remaining payouts will not be paid out to your family/heir...they get nothing. Take the lump sum payout and invest wisely.

 

[brerrabbit]

The $177 million they received is actually a calculated number based on the net present value of an annuity. The Powerball lottery is normally paid out over 26 years. With a $365 mm jackpot that would have resulted in 26 payments of $14,038,461 a year for 26 years. The winners however chose to take the money lump sum in year one. The present value of a future annuity is considerably less when that annuity extends over 26 years. Thats why they get so much less. Whenever I buy a lottery ticket, I always opt for the payments. Thats because one of the largest factors in determining the NPV of the annuity is the discount rate. Thats essentially the interest rate you think you can earn on money over the life of the annuity. That interest rate should be as close to risk free return as possible. Currently that rate is pretty low, like 4 or 5% because long bonds are not returning that high a rate. (It's why mortgage rates are so low, because these are the securities that are used to back those rate). Unfortunately, when they discount the lottery winnings they use a much higher discount rate, I have heard as much as 10 to 12%. That means your up front dollars are considerably less that your total over time. Thats why I always take the payments.

 

[mtdevine615]

Not necessarily true. If you setup a trust and had the trust claim the prize, that trust would get the payout for the entire 20 - 30 years. No matter if you died or not. It's still wiser to take the lump sum payout and invest it. It's all about the Time Value of Money.

 

[salmoneous]

Huh? Powerball winning are paid out to your survivors. Take a look at the Powerball FAQ http://www.usamega.com/powerball-faq.htm (which also answers a bunch of other questions from this thread). Here's the key section:

What happens if I win an annuity and die before all the installments have been paid?
Your designated beneficiaries will receive the remaining payments.

While it's possible there is some other lottery where your heirs don't get the payments, I've never heard of one.

EDIT - One other point on the annuity vs lump sum question. If you take the lump sum, the goverment taxes out taxes on the full amount and you get to invest the rest. If you take the annuity, the lottery folks invest the full amount. *From a tax and investment standpoint* you are better off taking the annuity unless your investments can substantially outperform what the lottery folks will invest in (which may be true since the lottery folks tend to play it safe.)

 

[brerrabbit]

I have heard the stories that you should take the lump sum because there is no survivorship benifits. I don't know the truth about that story because I've never won, but I have several attorney friends and everyone of them have said that there is a very easy way around that, you just create a trust and the trust is the lottery winner. The trust lives on even if you were to die and it will receive every penny of the payout so thats not an issue.

 

[dianeschlicht]

I knew that but never understood why people would go for the lump sum instead of the annuity. I mean, $800,000 a year income would be more than sufficient for our family!!

Taxes, yes, necessary evil. I wouldn't complain either when I was raking in that much!

Yes, but if you take the lump sum and invest it YOURSELF instead of the annuity and letting the lottery do the investing, you can pass it on to your heirs and possibly earn a LOT more if you have a shrewd investor.

 

[cardaway]

The tax situation sure does sound right, it's always been about the state getting tax money.

Just curious - Do the lottery commercials in other states end with quickly voiced directions to a problem gamblers help line?

It always seemed odd that many states allow lottery gambling but frown on other forms of gambling and other "sin" laws like prostitution.

 

[pixiemomma]

Nevermind. Interesting. Of course I have never played the lottery so I can't see this ever apllying to me.

 

[brerrabbit]

Yes, but if you take the lump sum and invest it YOURSELF instead of the annuity and letting the lottery do the investing, you can pass it on to your heirs and possibly earn a LOT more if you have a shrewd investor.

The only problem with that theroy is that the vast majority of lottery winners are not shrewd investors and don't know any they can trust. Once they win people come out of the woodwork and want to help them invest their money but it's no one they can trust. The reality is for a large percentage of lottery winners they are broke within several years of their winnings. Unfortunatly, statistics show that the majority of the people who play the lottery are in the mid to lower income brackets and just don't know how to deal with money so many of them loose it when they take it as a lump sum. I like to think if I won I have the investing savy to make money in the market but even so I would take the payments because if did have a bad year investing I would always know that another payment was coming. People always believe they can beat the market and get returns higher than everybody else but the reality of the market is that thats just not true. I'll take the payments every time, that means no matter what I a least get a super trip to WDW every year for the next 26.

 

[LaLa]

All I know is that I would love to have the opportunity to make that choice!

A bunch of us at work had gone in together and bought about 300 tickets for that drawing. There were 8 of us too. We keep thinking "Those are supposed to be our checks!"

 

[Jennasis]

Hmmm. Well I guess everyone has their personal preference about how they'd take their lotto winnings. I hope someday we all get the chance to excercise that choice!

I thinks it's wonderful that that group of people from the meat packing plant won. What a dream come true for them!

 

[Mishetta]

I knew that but never understood why people would go for the lump sum instead of the annuity. I mean, $800,000 a year income would be more than sufficient for our family!!

Taxes, yes, necessary evil. I wouldn't complain either when I was raking in that much!

I don't know how true this is but I "heard" that if you take the annual draw instead of the lump sum & you should die, you cannot "will" that money to your heirs. It just reverts back to the State. If you take the lump sum payout then your money will go to whomever your heir is or whomever you will it too. Make sense? Again, don't know how true this is but seems to make sense to me. Heck, I'd take the lump sum & run anyway!

BTW, weren't those guys so funny? I laughed at the guy who said he'd been retired for 4 days already & also the other guy who said that when he was fantasizing about the jackpot (before he won), he said he'd buy an island or a plane. Then he said on TV, don't much like to fly & don't really like water..." thought I'd die laughing! I was so excited to see hard workers get this money too. Imagine, no more handling animal flesh or as a comedian said "no more touching pig guts!" Hope they all make a wise decision with thier money (AND SHARE IT WITH ME!!!!)

**Edited to add that I just skimmed over some of the previous posts & I see there is discussion on what would happen if you took the annuity & you died....Sorry if my input had wrong information.**

 

[dianeschlicht]

The only problem with that theroy is that the vast majority of lottery winners are not shrewd investors and don't know any they can trust. Once they win people come out of the woodwork and want to help them invest their money but it's no one they can trust. The reality is for a large percentage of lottery winners they are broke within several years of their winnings. Unfortunatly, statistics show that the majority of the people who play the lottery are in the mid to lower income brackets and just don't know how to deal with money so many of them loose it when they take it as a lump sum. I like to think if I won I have the investing savy to make money in the market but even so I would take the payments because if did have a bad year investing I would always know that another payment was coming. People always believe they can beat the market and get returns higher than everybody else but the reality of the market is that thats just not true. I'll take the payments every time, that means no matter what I a least get a super trip to WDW every year for the next 26.

That decision is probably dependant on the age of the recipient. FOr those of us who are "older" the annuity doesn't mean much. We want to make sure we are passing it on. The smart winner gets legal and financial help BEFORE they turn in the ticket. It does concern me that most of these winners were younger people. Often they are so overwhelmed by that much money, that they make poor choices and it's gone before they know it. In that case, yes, the annuity would be best.

Does anyone know if they all were required to take the cash payment or could some do cash and some annuity?

 

[Dan Murphy]

It's more of a personal gripe with me than anything.

When I lived in the town I grew up in, I never complained about taxes. Roads were taken care of, snow was removed, garbage was removed, etc. I moved to a bigger city about 2 years ago, pay MUCH more in taxes, and they don't do anything. There's 4 pot holes on my street alone, the roads are never plowed, and the main streets are just a disaster.

My wife and I sit there some nights and just wonder - What is our local tax money going to?

's boom. I'd look at movng again.

 

[mickeyfan2]

I just read this and it makes me sick.

8 people pooled in, won the $365 million jackpot. After taxes, for taking it in a lump sum, they get $15.5 million each. That means, $124 million goes to the winners, and $241 million goes to the government.

I'm sorry - That is absolutely disgusting.

Sorry you are wrong on this one. The 365 is the value over the next 20 years if paid out in 20 payments. They chose to take a lump sum. The lump sum is the amount that the lottery would have invested to get the 20 payments. So the government got a few million per person.

 

[mickeyfan2]

OK - I see. I didn't realize that. Since everyone almost always takes the cash, why don't they just say $177 million?

The other looks more impressive!!!!

 

[mickeyfan2]

I knew that but never understood why people would go for the lump sum instead of the annuity. I mean, $800,000 a year income would be more than sufficient for our family!!

Taxes, yes, necessary evil. I wouldn't complain either when I was raking in that much!

But you can invest the money yourself and will more likely make more money.

 

[Tigger_Magic]

The tax situation sure does sound right, it's always been about the state getting tax money.

Just curious - Do the lottery commercials in other states end with quickly voiced directions to a problem gamblers help line?

It always seemed odd that many states allow lottery gambling but frown on other forms of gambling and other "sin" laws like prostitution.

Yup. Our state's tag line used to be "You can't win if you don't play!" At the end was the blurb: "Gambling problem? Call 1-800-I am a gambling addict" or something like that. Usually spoken so fast you wouldn't catch it.

Odd? Not really since we have "riverboat casinos" that don't actually go anywhere on the river -- they are permanently locked to the dock.

 

[cardaway]

Odd? Not really since we have "riverboat casinos" that don't actually go anywhere on the river -- they are permanently locked to the dock.

Are you from WA? Yes, it's quite odd, what do you expect from Tacoma.