Let's say you won the lottery

[BlackLight]

And let's say it was some huge amount. Mid/high nine figures. Do you take the lump sum or do the 25-30 installments?

Everyone you ask seems to say, 'Take the lump sum," but just doing some rudimentary math, it appears that, over the course of the full payment schedule, the difference in being paid installments amounts could amount to tens of millions, perhaps over a hundred million dollars extra.

I guess one has to assume the tax rates will stay below a certain amount for the full length of the installment period. And there's the possibility that the lottery will go broke and not be able to pay the full amount.

But most people who talk about this, act as though they're leaving money on the table by taking the annuity - in a way that you wouldn't be if you took the lump sum. If you die before the lotto finishes paying out, you can have a beneficiary in place to take the rest.

[TexasHusker]

Lump sum. First thing I'd do is buy a jet.

[disneysteve]

Better to take the lump sum and do your own investing.

With a 9-figure amount, we would be giving much of that to charity. We only need a few million to cover us for the rest of our lives. Maybe 10 mil just to be safe. Everything else would go to help others.

[kork13]

Better to take the lump sum and do your own investing.

With a 9-figure amount, we would be giving much of that to charity. We only need a few million to cover us for the rest of our lives. Maybe 10 mil just to be safe. Everything else would go to help others.

Agreed completely. I would take the lump sum, invest a VERY healthy amount ($10M-$20M), and give away the rest in various ways... Charities, education endowments, and so forth. I just wouldn't know what to do with that level of money. Once I have enough to fully fund anything and everything that I can imagine wanting to have/do, I'd just live off the interest, and do whatever I want to do with my life. I expect I'd try to work with a couple charities.

[BlackLight]

So to the investors out there - would you agree that by investing a large enough chunk of the lump sum conservatively (low risk, low reward), that it's fairly likely you'll post a better return than what you'd be getting if you took the annuity?

Or is it simply the case that, in the minds of most people, once you're talking about numbers that high, the extra money simply isn't worth waiting for?

[PeggyHefferon]

At my age, I would definitely take the Lump Sum.

If I were in my early 20s, I would probably go with the annuity to help protect me from stupid decisions.

[Milly]

We had this discussion when we did March Madness brackets a few years ago. I think there's a 1 Billion offer if you get a perfect bracket submitted somewhere. Anyways, the most I could figure out how to responsibly spend was only $10M (paying off our/parents debt, setting aside $5M retirement, giving to siblings, etc.) Apparently I have no imagination for that kind of money.

[breathemusic]

I could definitely see blowing a few million on my own private island!

I'd probably want to run some numbers to decide if I would take the lump sum or not since I'm still young. But I'm guessing that I'd take the lump sum just so that I could deal with investing the bulk of it at once and not have to mess with managing a huge payment regularly.

I would give some of it to charity for sure, but I think I'd keep most of it and do my donating over time rather than picking a set amount for myself and then giving the rest away early on. I would definitely help out friends and family. But I'd also just own a few homes, lots of toys, probably a few animal sanctuaries to support the overflow of kill-shelters, etc.

[phantom]

At the point where we're talking mid-9 figures, I think I'd take the installments. I'd probably run some numbers to have a better idea of what I might miss out on by not managing the money myself. But, with so much money, I could lose some money to suboptimal investing and still be very comfortable. I would rather not rush into spending, giving, or investing that money anyway. I think having it trickle in "slowly" while I learn how to handle it would lead to better decision making in the long run. It's not that I don't trust myself with money, but my views on how best to handle it have shifted as I've brought in more. I imagine I'd handle my 10th installment very differently than my first.

[disneysteve]

At the point where we're talking mid-9 figures, I think I'd take the installments. I'd probably run some numbers to have a better idea of what I might miss out on by not managing the money myself. But, with so much money, I could lose some money to suboptimal investing

The good thing about a huge amount like that is that investing actually becomes pretty easy. It's far harder for most of us right now with finite funds because you want to maximize your returns. With $500,000,000 to work with, there's no need to maximize anything. You could put it all in bonds paying 2%/year and be done with it. If you can get 2%, which shouldn't be difficult at all, that's $10,000,000 interest/year. I think we could all scrape by on that.

[phantom]

You could put it all in bonds paying 2%/year and be done with it. If you can get 2%, which shouldn't be difficult at all, that's $10,000,000 interest/year. I think we could all scrape by on that.

Sure, but at the point where I'm accepting 2%/year, is that really any better than the installment plan?

[disneysteve]

Sure, but at the point where I'm accepting 2%/year, is that really any better than the installment plan?

I'd much rather be the one in control and possession of the money.

[james.hendrickson]

Phantom,

I believe under the scenario you are considering you would get both the income AND the original payout. If you took the lump sum and then invested it, you would have both the lump sum and the investment income from investing the lump sum. So, cash and income.

Under the installment plan, the lump sum would be made in monthly payments. So, no big chunk of cash - just income.

So, yes, the monthly amounts may be comparable, but the overall amount of wealth you'd have under the two is much greater if you took the lump sum payout - under this scenario.

That said, there are a lot of things which would impact the decisions (e.g. your tax situation, your investing ability (you mention this), the future value of the annuity, if sold, interest rates, etc).

Finally, a better question is: how to get a big payout of cash without playing the lottery?

[disneysteve]

I believe under the scenario you are considering you would get both the income AND the original payout. If you took the lump sum and then invested it, you would have both the lump sum and the investment income from investing the lump sum. So, cash and income.

Under the installment plan, the lump sum would be made in monthly payments. So, no big chunk of cash - just income.

So, yes, the monthly amounts may be comparable, but the overall amount of wealth you'd have under the two is much greater if you took the lump sum payout - under this scenario.

I'm really not sure what you're trying to say here.

1. With the lump sum payout, you get a single payment that is smaller than the total jackpot. So for a $900,000,000 jackpot, you might get a $500,000,000 lump sum (just making up numbers).

2. If you pick the annuity, you get 30 annual (not monthly) payments totaling $900,000,000.

The question is are you better off taking the lump sum and doing your own investing and the standard answer to that question is yes.

[cypher1]

It's been close to 20 years when in HS, our math teacher broke down those payment options. If I remember correctly, the lump sum ended up being a better option due to inflation causing the value of the dollar to decreasing, especially over 30 years.

Personally, I'd pick lump sum. I may be younger, but age, health, level of discipline would be the biggest factors for that decision. I also have no problems telling family/friends "no" when it comes to money and bailouts.

I'm also assuming the majority of us on this forum would be a little more comfortable or confident with investing/spending that kind of money, vs the majority population. But then again, I could be completely wrong.