Powerball Winner Broke

Beaker

It seems like, if you take the lump some you only get what would have been taken out for taxes if you just took the whole load of money. If you opt to get paid over 20 years, then they take about 1/3 of the total out for taxes, and if you take the lump some, you only get 1/3. I think I could live off of the lump some, I'm not that greedy.

U MAD

Mr. WikipediaSpamBot

It's've not just the money. Taking the lump sum means you also have the temptation to spend it on crap.

Blitzkrieg

I would like getting the check all the time. You always know the check is coming to save the day.

Beaker

Yea, I understand the temptation thing. If they took 1/3 out, you would get about 200,000,000 smackaroo's. Which would be a weekly check of about $208,333 or monthly check of $833,333. I think I could handle that

U MAD

Inogenius

With the smart person though lump sum can result in more money through investments. Sure $20,000 a month sounds nice, but it's not going to allow you to buy/start/seriously invest in a company. $113 million will though. Either way both are tremendous options and I'd probably pick the monthly payment over the lump sum, and use it to supplement my income, but both aren't a bad choice at all.

Blitzkrieg

But Terry, all you have to do is wait a few short months and then you can do some serious investing, unless you were considering purchasing a sports team or something, which I would also looooove to do..

Dr. Giganto

The reason why the lump sum is so little is because you have to account for the time value of money.

For instance, if I gave you option of me giving you $100 today, or $100 one year from now, which would you take? You would take the $100 today, because $100 will be worth less in a year, because of inflation.

Along a similar vein, what if I offered to give you $200 today, or $100 today and $100 a year from now. If we assume an inflation rate
of 5%, then the $100 I give you in one year would actually only be worth $95. So, in essence, your choices are $200 today, or $100 today and $95 in "today's money" a year from now. You would always take the money up front.

It's the same thing with the lottery. Dude won $315 million, and that gets paid out over 20 years. That's an annual payment of $15.75 million. Let's say hypothetically that the annual inflation rate is 5%. That means that next year, the $15.75 million he would receive would only be worth $14,962,500, and the following year, it would only be worth $14,214,375,

then $13,503,656.25
then $12,828,473.44
then $12,187,049.77
then $11,577,697.28
then $10,998,812.41
then $10,448,871.79
then $9,926,428.20
then $9,430,106.79
then $8,958,601.45
then $8,510,671.38
then $8,085,137.81
then $7,680,880.92
then $7,296,836.88
then $6,931,995.03
then $6,585,395.28
then $6,256,125.52
then $5,943,319.24

For a grand total of $202,076,934.44

Thats how muich the pre-tax lump sum should be. The Federal tax rate for that amount of income is 35%, and West Viginia's state income tax is 6.5%. So, you would pay 41.5% in taxes on that income. Take 41.5% away from the total listed above, and you are left with $118,215,006.65, which is very close to the $113 million he received.

So, thats why you get so little when you take the lump sum

Dr. Giganto

Also, like Terry said, you can invest. The average annual return of the S&P 500 over the last 50 years is almost 11%. So, you can far outpace the rate of inflation by investing in an S&P 500 index fund. Sure, you could put your monthly checks in there, but the more you put up front, the more the money compunds

Blitzkrieg

It's not that I don't trust myself with the cash, it's just.. wehn it's gone it's gone. There's no reason for it to be gone, but what if somehow (and I can;t think of a good example) it is?..

I just like having the check. That's what I've become used to.

Randy Orton

WC's Resident Alchoholic

I would take the lump sum if i ever hit. Taht way I could have all the money. I would prob end up dying before I spent it all anyways cuz I would just get drunk and do drugs all day lol