BJ while I agree that you might end up with more in the long run.
I would rather have complete control over my winnings then rely on the state to handle it.
During that 20 years they are making interest gains on that money.
I would rather take one lump sum for the same reason I'd rather pay the IRS at the end of the year than get a refund.
I feel I know best how to handle and what to spend my money on.
If you know best how to handle your money, why are you giving them so much of it up front.
See, that's the problem I have with a lump-sum payment. You not only sacrifice roughly third of the jackpot anyway, you also have ZERO control over the taxation. In other words you are giving the goverment the most money you possibly can.
Besides even after the excessive tax grab, (which as stated before isn't any more than if you made that annually)
It's still free money.
I would have the ability to invest it in various ways that over a 20year period could easily make up and exceed the "lost" revenue by taking a payout plan.
Okay, let's say you won a $100 million jackpot. You take the single payment option so you only really get about $60 million of that. The government will get a third, so you actually take home about $39.6 mil. Now you put that into investments which perform at ... oh ... say 10% (and I think that's being pretty generous). That's $3.96 mil a year gross revenue.
Take the same $100 mil in payments over 25 years. That's $4 mil a year gross revenue.
Now you also factor in that you begin structuring your finances to ward off at least some of the tax man's bite. Let's say you are lucky and figure out a way to decrease your marginal rate to 25%. At roughly a 4% savings over full marginal that's an additional $160,000 a year in retained revenue.
By having direct access to a larger sum of money your opportunities for investment in new or existing business ventures is increased.
Not to mention the wonders of compound interest on 1million versus 100K come into play.
You do realize that money invested in a business venture will often not return anything for at least the first 3-5 years? In other words, no interest at all on a big chunk of your money. Also, with that money invested in a venture, you have no source of long-term regular revenue for the bank to use as a reason to load you more.
The REAL challenge is to see if you can maintain your current lifestyle and actually use the money for the future.
Rather than taking on a billionaires "monthly lifestyle" immediately.
I'm sure we would all buy a new car and home. But just what car and how large of a home is the key.
I could have a home paid for (including all future projected property taxes) and have several cars paid in clear. With just 100K
It all depends on your attitude going into it.
The fact is that those with the dicipline to handle it that way simply don't, are hardly ever play the lotto.
The problem is that people who've never had money, or been tought to manage it, think that 100K is more than anyone could spend in a lifetime. It's like play money - it means nothing to them until it's gone. In the meantime they are buying up all the stuff they could ever want.
As you've pointed out it's the choice of lifestle that determines how well an amount of money will work for you. Most of the people who win these jackpots don't have the foggiest clue about money management other than ignoring the bills collection notices in the mail. Me? I've always been a budgeter and a long-term financial thinker. That's why they payment method is so appealing to me. Winning a big jackpot would be no different for me financially, except that the budget numbers would be just a tad larger.
Brad
