I can see the logic behind the annuity strategy. One question for you, though: any concern about a scary future world where the highest income tax brackets get to the point of 60, 70, or 80%? In theory, now might be the lowest taxes are ever going to be looking forward - would it be more tax efficient to tax everything in the lump sum now?
Annuity strategy is not the mathematically optimal one. It is largely recommended due to the behavioral aspects. Worst case is you win and 5 years later blow it. Do you really want to go and work a $100k a yr job again and go back to scraping by?
With a 9figure win, you are making 7 figures after tax. More than enough to upgrade your life and invest the excess in various tax-efficient strategies.
If you have a really strong team of advisors, you can certainly take the lump sum, put part in an actual annuity from an insurance company and plan with the rest.
We still feel like a "you won the finance game, your only goal now is don't blow it" is a solid strategy for the vast majority of people.
Totally agree. I even have the advisor I would pick if I won. Dude is clutch with asset protection. I was surprised with the conclusion to take the annuity. Always figured I would take a lump sum but you convinced me I was wrong. Cheers
They allegedly buy UST that mature at the time and amount needed to make the payment.
So always the risk the US Govt defaults or it is outright fraud, but shouldn't be huge.
You can also pay for a cash settlement after the fact for a part of it where you give up some of the future payments for a third party to give you a lump sum. If that is a major concern.
These articles really are enjoyable to read, and shows how knowledgeable you are on finances! Thank you for the hard work on it.
Appreciate it G.
Over a dozen years deep in it both professionally and personally. Picked up a thing or 2.
Let us know if you have anything you want covered.
I can see the logic behind the annuity strategy. One question for you, though: any concern about a scary future world where the highest income tax brackets get to the point of 60, 70, or 80%? In theory, now might be the lowest taxes are ever going to be looking forward - would it be more tax efficient to tax everything in the lump sum now?
Good Q.
Annuity strategy is not the mathematically optimal one. It is largely recommended due to the behavioral aspects. Worst case is you win and 5 years later blow it. Do you really want to go and work a $100k a yr job again and go back to scraping by?
With a 9figure win, you are making 7 figures after tax. More than enough to upgrade your life and invest the excess in various tax-efficient strategies.
If you have a really strong team of advisors, you can certainly take the lump sum, put part in an actual annuity from an insurance company and plan with the rest.
We still feel like a "you won the finance game, your only goal now is don't blow it" is a solid strategy for the vast majority of people.
Great article
Thanks man. These are all fun to write, but this is a neat little thought experiment.
Totally agree. I even have the advisor I would pick if I won. Dude is clutch with asset protection. I was surprised with the conclusion to take the annuity. Always figured I would take a lump sum but you convinced me I was wrong. Cheers
Math wise, lump sum can look better if you get returns > Treasury rate
If you got a team you know is clutch it may make sense.
And you could always take a few mili and buy an annuity.
But the above is what we would do. At 8-figures+ we view it as a 'how not to lose' risk minimization game not a outcome maximization game
Any chance the lotto fund goes bust and can’t pay annuity? Like redacted?
They allegedly buy UST that mature at the time and amount needed to make the payment.
So always the risk the US Govt defaults or it is outright fraud, but shouldn't be huge.
You can also pay for a cash settlement after the fact for a part of it where you give up some of the future payments for a third party to give you a lump sum. If that is a major concern.