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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