What would you do if you won the Powerball?

What would you do if you won the Powerball? Let's start off with the basics. Lump-sum or Annuity?

1.) Lumpsum equates to about 62% or NPV of the 700mm jackpot = ~420mm before taxes,
2.) Annuity equals 700/26 years = 26.9mm per year before taxes.

Now conventional "wisdom", finance theory/alchemy, time value of money etc. suggests that you should take the lumpsum and invest it. Money is worth more today than tomorrow. Inflation. Etc. However, I've been wondering whether this is a one size fit all blanket recommendation.

1.) You got major taxes that you owe. Assuming the max tax rate, state, city, federal, you're probably going to slice that jackpot in half down to 210mm.
2..) Then you got vultures coming out of the woodwork to mooch off of your extreme luck. And the very act of your generosity is going to take a bite out of your fortune on an upfront basis (ie gifts).
3.) Much like sports players early in their career when they sign that big contract, they blow it on a new house for their parents/family, pimp out their car, buy some bling for themselves/girlfriends, and wind up poor if their career faulters. The average good financial adviser to sports players indicate that they should invest extremely conservatively cause no one knows if their career will take off, injuries will affect them etc.
4.) Market investing can be treacherous and highly volatile. Millionaire today, pauper tomorrow.

So what about an Annuity for the next 26 years.
1.) You lose out on time value of money, are susceptible to inflation (hopefully not too bad in our life time cause we'd be screwed if 26.9mm is not enough.).
2.) Tax consequences could be interesting if you die before you collect the full annuity? Does it go to your estate? If you die after a few years, your estate is going to be stuck in limbo for awhile. Hence you better spend some money on setting up a trust. Future taxes are paid with future depreciated dollars.
3.) If your annual income today was 50k, and now it spikes to 26.9mm, you can definitely life larger and still save. It's like having a guaranteed job for 26 years. Should be enough to retire on if you stay modest.
4.) More importantly, you'll probably get jacked up every year for gifts and better to pay with future depreciated dollars then expensive present value dollars.
5.) If you blow away a year's worth of income partying, at least you got another paycheck coming in next year.

You know, sometimes we are our own worse enemy. I use to think lumpsum was absolutely the best and only way to go for an educated financier. The more I see people blow away their wealth, bankers buying only conservative treasuries, sports advisers going 100% fixed income regardless of rates, the more I think the annuity option becomes more viable.,

What do you guys think? Of course you need to win a massive winfall for this to matter, but who knows. We can all dream.

Quote: Asswhoopermcdaddy

What would you do if you won the Powerball? Let's start off with the basics. Lump-sum or Annuity?

1.) Lumpsum equates to about 62% or NPV of the 700mm jackpot = ~420mm before taxes,
2.) Annuity equals 700/26 years = 26.9mm per year before taxes.

Now conventional "wisdom", finance theory/alchemy, time value of money etc. suggests that you should take the lumpsum and invest it. Money is worth more today than tomorrow. Inflation. Etc. However, I've been wondering whether this is a one size fit all blanket recommendation.

1.) You got major taxes that you owe. Assuming the max tax rate, state, city, federal, you're probably going to slice that jackpot in half down to 210mm.
2..) Then you got vultures coming out of the woodwork to mooch off of your extreme luck. And the very act of your generosity is going to take a bite out of your fortune on an upfront basis (ie gifts).
3.) Much like sports players early in their career when they sign that big contract, they blow it on a new house for their parents/family, pimp out their car, buy some bling for themselves/girlfriends, and wind up poor if their career faulters. The average good financial adviser to sports players indicate that they should invest extremely conservatively cause no one knows if their career will take off, injuries will affect them etc.
4.) Market investing can be treacherous and highly volatile. Millionaire today, pauper tomorrow.

So what about an Annuity for the next 26 years.
1.) You lose out on time value of money, are susceptible to inflation (hopefully not too bad in our life time cause we'd be screwed if 26.9mm is not enough.).
2.) Tax consequences could be interesting if you die before you collect the full annuity? Does it go to your estate? If you die after a few years, your estate is going to be stuck in limbo for awhile. Hence you better spend some money on setting up a trust. Future taxes are paid with future depreciated dollars.
3.) If your annual income today was 50k, and now it spikes to 26.9mm, you can definitely life larger and still save. It's like having a guaranteed job for 26 years. Should be enough to retire on if you stay modest.
4.) More importantly, you'll probably get jacked up every year for gifts and better to pay with future depreciated dollars then expensive present value dollars.
5.) If you blow away a year's worth of income partying, at least you got another paycheck coming in next year.

You know, sometimes we are our own worse enemy. I use to think lumpsum was absolutely the best and only way to go for an educated financier. The more I see people blow away their wealth, bankers buying only conservative treasuries, sports advisers going 100% fixed income regardless of rates, the more I think the annuity option becomes more viable.,

What do you guys think? Of course you need to win a massive winfall for this to matter, but who knows. We can all dream.

Hookers and blow?

I would play craps until I rolled 18 yo's in a row or went broke.

Quote: rainman

I would play craps until I rolled 18 yo's in a row or went broke.

LOL.

Here's an interesting (and fun) article with Suggestions on what to do.

ARTICLE

"4. Quickly establish residence in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming"

I think it would be important to try and establish some sort of trust or whatever IF that could allow you to remain ANONYMOUS.

My first thought is to take annuity because as you said you have a guaranteed 16 mil a year after taxes. Although is it really guaranteed? What are the chances of their ever being a corruption issue where the lottery money disappears? At least with this amount if there was such a case 5 years from now you still have 100 mil and should be fine.

Can you imagine the tax and paperwork nightmare with 300 mil cash. Banks only insure 250k so you would need 120 banks.

Here's another weird little article on a lottery prize that was auctioned off in a bankruptcy case.

1000 per Month for Life

Lump sum

I'd make it clear that any person or organization that asked me for money directly would never see any of it.

Diversify. I'd put the money in a variety of financial institutions. I'd probably have each institution manage the money for me. I would have a certain amount of cash income generated.

Very little up-front spending, and then live off of the generated income.

Quote: Dalex64

Lump sum

I'd make it clear that any person or organization that asked me for money directly would never see any of it.

Diversify. I'd put the money in a variety of financial institutions. I'd probably have each institution manage the money for me. I would have a certain amount of cash income generated.

Very little up-front spending, and then live off of the generated income.

They would harass you until you pay them to go away.

Quote: JohnnyQ

Here's an interesting (and fun) article with Suggestions on what to do.

ARTICLE

"4. Quickly establish residence in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming"

I think it would be important to try and establish some sort of trust or whatever IF that could allow you to remain ANONYMOUS.

Purchasing a trophy wife/husband. Nice! Now you can afford it with 800mm.

I'm 61, so I'm taking the lump sum.

I have 4 sisters, and one daughter. My wife has a sister and a brother, and no close cousins. Everyone is doing okay, maybe one charity case (my artist sister), but she's made it into her mid 50s without anyone having to take her in, so there's that.

I don't put much value in things. Possessions are nice, but they're empty. I guess travel is okay, but I don't like getting there. I like being there, but I don't like getting there.

I don't much like friends. They're okay, as long as they don't get too close. I'm okay with being pleasant to people.

So, I guess I'd use the money to get left alone. I'd give a token amount to each close relative, and then that would be it. The rest would get put into investments and for health insurance, which we need right now.

What will wind up happening is that my daughter will need to figure out how to live with money. That can be much worse than living without money, if she isn't careful.

Quote: Mosca

I guess travel is okay, but I don't like getting there. I like being there, but I don't like getting there.

I think private charter jets would work for a big lotto winner, and are probably not crazy expensive, relatively speaking.

I think it depends on what stage of life you are in. If you are in your 50s or older, I think the lump sum is obviously the way to go. For me, at 35, I would be able to retire off of it, buy myself a summer home in Northern Wisconsin and a winter home in Vegas. Investing a chunk of it every year, riding out my years fishing

Compete with Dotty's and call it Lotty's.

WhIle it would obviously be great to be that wealthy it would surely ruin part of life. There is something to be said to be grateful for what we have. I know I have worked my ass off to get our home. The sense of accomplishment would disappear and life would change. I can't imagine ever going to a casino again, since winning even 20k would be a joke and that is 1 aspect that I would miss.

Smallest private jet that allows me to fly above commercial traffic & finding a way to redevelop my anonymity.

I'm with Gabes.
I'd go fishing.....

<edit> Actually, if Gabes wins I'd be willing to go fishing with him ;-)

One of the winning PB tix was sold about 10 miles from me. Sigh.

I'd pay off my bills, the mortgages on my families' houses (and I define "family", not blood only), and buy a casino in DT LV. Run it myself, make it what I think it should be, and I bet a large customer base would agree with me.

There would be a large donation to a couple pet charities. Any left would get invested.

I like the annuity option for the really huge win except for one thing; fed gov't is seriously considering raising top tax rates. They're the lowest they've been for that top tier in over 100 years, and it looks like low-hanging fruit to Congress. So I would probably lump-sum it and invest rather than let them skyrocket the taxes in the next decades, as earnings would be cap-gains rather than income bracket taxes.