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Saturday, March 03, 2007

Powerball Lump Sum, or Annual Payments?

A woman in my home state of North Carolina won the Powerball recently. Seventy-four and a half million dollars. When given the choice between 29 annual payments totaling $74.5M or a lump sum, which, after taxes would yield about $24M, she said I want it now!!

I'm always amused by the sheer greediness of those who choose to discard two thirds of their winnings in order to have it all to spend right away.

Yeah, I know. Statistics have been run both ways and can prove whatever you want. Some say with proper investing one can turn the lump sum into more than the original total prize would have been. Somehow, though, I don't think that the folks who choose the lump sum are looking to become investors.

Nope. I think they're more interested in becoming consumers. BIG time consumers.

And who gets richer when these suddenly wealthy start spending their new found cash? The average Joe? Of course not. The true "winners" of the Powerball Lottery lump sum windfall are usually those that are already rich. Who owns the massive mansions the lump summers buy? Who owns the luxury European automobiles? Who's name appears on the pink slips of the yachts, the private jets, and the fine Italian sports cars these instant millionaires snap up? Why, the rich, of course.

Now, I'm certain that the newly "minted" could care less if the rich get richer and the poor get poorer after they cash that great big check. (Not the great big check in the publicity photo, the REAL check.) Most of them might say It's about time I got mine. The fact that they cannot hold onto what they "got" for very long just shows how such instant wealth can create short-sightedness.


The annuity

But let's look at the annuity for a bit. With the annuity, instead of getting 24 million in one shot, this "lucky" NC winner of the Powerball would have gotten about two million dollars a year after taxes. The winner quit her job as a corrections officer. Now according to the North Carolina Department of Correction, the salary range for a corrections officer is between about $26K and $40K. As she held this job for about fifteen years, even if she was at the top of her pay scale, a $2,000,000 per year lottery payout still exceeds her salary by a factor of fifty.

Imagine that. Take a look at your most recent paycheck. Now multiply that amount by fifty. Like what you see? Now imagine that this is what you'd get every month for the next twenty nine years. Oh, and by the way, you no longer have to do your current job to get this. You got it because you were lucky. Think of the things you could do with that money. Travel, go hunting, fishing, take up a sport you've always wanted to try. You could still get that mansion, the boat, the cars, the big screen TV, the swimming pool, and make payments just as you always have. You could even help friends and family members by tossing them ten or fifteen hundred per month for twenty-nine years. I'm sure they would appreciate that in the long run more than a $50,000 addition to their house. Really.

Or, you could even contribute to charity. Imagine what several hundred dollars a month to a few select charities would mean to them over that time period.

So picture that. Take the lump sum and the rich get richer. Take the annuity and the poor may find themselves a little better off at the end of the day.

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8 Comments:

Anonymous Dan said...

I don't know that I agree with you here. You make the assumption that by limiting your annual sum of money, you will decide not to be a big spender on luxury items and that if you choose to get a lump sum you will clearly not give back to friends, family, and other poor people. How is a $50000 addition to a house which will likely help improve their home's value by even more as the years pass worse than a thousand or two each year? If anything, the first is more a teach a man to fish and the latter give a man a fish situation. I would probably take the lump sum though clearly either is a good deal. It's more about personal responsibility than anything else.

Friday, March 30, 2007 2:09:00 PM  
Blogger The Sarcasticynic said...

Sorry, Dan, it wasn't my intention to imply there would be no crossover. Certainly there are many who take the lump sum and use it wisely, just as there are those who squander the annual payments. I shouldn't have used such a broad brush in my descriptions.

My point about the $50K for the house addition wasn't about the value when they sold the house, it was about the value of having a nice income they could invest in their kid's education, or to help elderly parents, pay bills, etc. I believe that in the long run many recipients would admit they preferred the gift that trickled than the one that surged.

By all means, take the lump sum if you win. As you said, it's about personal responsibility, and that was the point I was trying to convey.

Friday, March 30, 2007 5:14:00 PM  
Anonymous Richard said...

My concern is the possibility that the lottery will not remain in business for thirty years. If they went bankrupt due to corruption or some unseen circumstance, I might not receive all 30 payments. "A bird in the hand is worth ..." Does this make sense?

Sunday, August 16, 2009 6:18:00 AM  
Blogger The Sarcasticynic said...

Richard, your argument makes sense, but only if the assumption is made that the lottery pays the annuity. I've not researched it, but I suppose the annuity is held by an insurance company, as is many retirement annuities. Large insur. cos. may have a greater likelihood of outliving the lottery, but these days, who knows?

Sunday, August 16, 2009 7:39:00 AM  
Anonymous PowerBall Lottery Tips said...

This is a really good read for me, interesting and very informative, I appreciate you work. The true "winners" of the PowerBall Lottery lump sum windfall are usually those that are already rich.

Monday, October 05, 2009 5:18:00 AM  
Anonymous Anonymous said...

I've had this discussion many times with my friends, and I can see (and argue for) both sides. If I opt for the annuties, I know that I'll always have a source of income next year no matter how stupid I get this year (assuming I don't get that deep into debt). On the other hand, the payments are not transferrable if I die. If I take the lump sum and can exercise some self control then I'll be able to leave something to my descendants or a trust fund.

Sunday, February 07, 2010 1:57:00 AM  
Anonymous Anonymous said...

If you want someone to get these payments after your death such as a spouse they must sign the ticket as well.

Sunday, April 15, 2012 12:07:00 PM  
Blogger aalpha said...

Heirs can inherit PowerBall Payouts. It's in their FAQ.

Friday, May 17, 2013 3:53:00 PM  

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