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Author: TheBreeze Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 775934  
Subject: Re: Lottery Winner Date: 3/31/2001 9:01 AM
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Too bad they took the cash payout. The annuity would have paid $1M each person (assuming 24M and 24 people).
That's $40K every year for 25-yrs. $28,800 after taxes x 25-yrs = $720,000.
That's a BIG difference from $300K!


I come up with a 12.7% return. In other words, the winners would have to come up with a 12.7% investment in order for the $300K lump to outperform getting $40K yearly. Paying off credit cards would be a good trade off, but not many other investments offer a guaranteed 12.7%. That's before taxes...after taxes, you might be even better off with the $40K annually, since the first X dollars of your income are untaxed, the next part is taxed at 15% (soon to become 10%?).

The lotto makes money by paying lots less than they take in. They make money by claiming it's a $1 million, when it's not nearly that much TODAY, but spread out across 25 years. It looks like they also make money on "investments" like pre-paying the annuity.
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