If you won the lottery, would you choose the annuity for 20 years or the lump sum instantly?
I would create a trust prior to claiming the money and if my state allows,the trust would be the winner. In some circumstances, a trust may protect the money from lawsuits. The more money you have to invest, the more your winnings will earn. A lump sum payment reduces your payout by between 25 to 30 percent. So let's assume you win 100 million, and take a lump sum payment of 70 million. Figure to spend 50% in taxes, and you are left with 35 million. So, take 10% to spend, that’s 3.5 million. Buy a house, clothes, car, whatever. That leaves 31.5 million to invest. At 5% interest that is 1.575 million the first year. Now have the trust pay you an annual annuity of let's say 500K. You reinvest the rest; so added to the original 31.5 million you now have 32.575 million. The next year you’ve earned 5% again, 1.628 million. Again you pay yourself a 500k annuity and reinvest the rest. Now you have $33,703,750. You’re living luxuriously on $500,000 a year and your winnings continue to grow. In 20 years you may have doubled your original investment of 31.5 million.
I would create a trust prior to claiming the money and if my state allows,the trust would be the winner. In some circumstances, a trust may protect the money from lawsuits. The more money you have to invest, the more your winnings will earn. A lump sum payment reduces your payout by between 25 to 30 percent. So let's assume you win 100 million, and take a lump sum payment of 70 million. Figure to spend 50% in taxes, and you are left with 35 million. So, take 10% to spend, that’s 3.5 million. Buy a house, clothes, car, whatever. That leaves 31.5 million to invest. At 5% interest that is 1.575 million the first year. Now have the trust pay you an annual annuity of let's say 500K. You reinvest the rest; so added to the original 31.5 million you now have 32.575 million. The next year you’ve earned 5% again, 1.628 million. Again you pay yourself a 500k annuity and reinvest the rest. Now you have $33,703,750. You’re living luxuriously on $500,000 a year and your winnings continue to grow. In 20 years you may have doubled your original investment of 31.5 million.
