Lotterys are usually paid out in annuities where you would get that amount over a period of 10-30 years. However, they also give a lump sum amount which is usually ~half the stated amount and after taxes you could expect to receive 1/3 the stated amount.
Still, it’s generally best to take the lump sum unless you have very bad self control and would blow through the money.
Statistics show it’s literally best NOT to take the lump sum and that most people have no self control.
most people have no self control.
Most people who gamble have no self control.
Interesting… The fact that they’re eligible to win the jackpot makes them statistically unable to handle it …
Feels similar to the Plato quote “those who seek power are unworthy of that power”.
“I’m an cryptocurrency trader now, despite no finance education whatsoever. It’s easy, just look at the chart and predict when it’ll go up or down.”
Isn’t that the entire plot of the movie “Trading Places”?
…which is a Christmas movie.
Give me the winning lottery ticket and I’ll show you how it’s supposed to be done.
The issue is the mathematically best outcome in a vacuum does not take into account the fact that gambling has a negative expected value, and anyone participating in it was already more likely to be really bad with money. There can be a mathematically ideal outcome that is different than the statistically best outcome in real life situations. Probably anyone considering this the mathematically ideal option will work best, but the average gambler the statistically best is.
The expected value of buying a video game is about -$60, but people keep doing it, what chumps!
Some people get pleasure from playing the lottery occasionally. The value of the ticket, to them, is the same as the price. There are gambling addicts and people who buy lottery tickets as a way to try to make money, and they have made an error, but I don’t think that’s most people who buy tickets, even if it may be who most tickets go to.
I don’t think those are even close to equivalent. The enjoyment from video games does not come from a hope of it “paying out.” The fun of gambling is usually from the chance of getting a reward. If the reward were not there, would they still enjoy it? Probably not, so they’re not just enjoying the act. Sure, there’s some dopamine release that’s driving the behavior, which is enjoyable, but there are methods to get this with better EV and more rationally.
As i said
unless you have very bad self control and would blow through the money.
Which is why you can work with a financial advisor and other wealth management strategies to set yourself up for success.
But yes, lots of people have lack of self control but if you’re going to throw around big words like statistics then show those receipts. And i mean actual studies not an article pulling numbers out of their ass.
Statistics is a “big word”?
No, but it has meaning. So claiming statistics without said statistics is just speaking out of your ass
Ah, big as in meaning, not just “difficult big word.” Misread, and totally agree.
i’ve seen bigger
Statistics is a big word, yet you toss around “wealth management strategies” as if that isn’t meaningless textbook bullshit.
I opened a bank account today and put $20 in it. It’s a “wealth management strategy.”
Yeah i knew you didn’t have the data but thanks for confirming with this logical fallacy trash.
Wealth management are certified professionals who would be able to look at your entire balance sheet and help manage assets, provide financial advice, tax advice, etc. I specifically was referring to setting up an LLC or trust to claim the funds through and structure those entities in a way that you don’t have direct access to all the funds to avoid burning through all the funds.
To your nonstatistical point: people have no self control, just look at you and me needing to reply to each other, but someone who wins the lottery will be able to afford professionals whose job it is to help beat those odds.
Anyway I’m glad you’ve saved $20 today and hope you have a great day
Statistically, people may tend to blow their lottery winnings and end up broke if they take the lump sum.
Financially, the lump sum is the better option because if it’s well invested, it will grow faster than the full payout over the term of the full payout. It turns out that if you have near unlimited money for the best financial advisors, you will make a lot of money.
Most people are stupid and don’t understand that even before you claim the ticket that you need to hire and consult with lawyers and financial advisors.
Why? Why would you want to do that? I’m a stupid person — I would just spend the money by investing them into stocks and opening a bank deposit, so that at least one of these enterprises has a chance to become a sustainable source of income. Organize a business I always wanted to maybe. Certainly wouldn’t spend a single dime on ‘lawyers’ and ‘financial advisors’.
So you can maintain some semblance of anonymity and not get murdered for the money when the news publishes your identifying information, and you dont get completely fucked by the IRS for not knowing every rule about being a millionaire
Money at this level has some pitfalls. Once you get into hundreds of millions, you can single-handedly move the market just by making a trade of that volume. That may or may not work to your advantage.
It’s not like you can’t go into debt and lose the annuity too.
it’s generally best to take the lump sum
Why? I would assume it’s the other way round.
The lump sum will grow to be worth more than the annuity over the same period if properly invested
if properly invested
Ah yes, the thing nobody is ever actually taught nor follows.
plenty of people do, they just don’t have 400 million to do it with
like my brother used the cheapo student loans here in sweden to just chuck a bunch of money into low-risk index funds (i think that’s the term) and he’s gotten 2000 bucks from that for basically 0 effort.
now imagine doing that with millions of dollars
I don’t fault him, but also that sounds probably illegal. That money is the state investing in education, expecting a return from a more educated populace. If you’re just taking the money to invest it yourself, that’s not helping their goal, and is probably breaking something you’d agreed to if I had to guess (or it probably should if it isn’t).
i can see nothing about any limitations on what you can do with the loan at all, it’s not investing in education as much as it’s an incentive and aid to get people to study more, what you do with the money is wholly up to you. Should it be illegal to buy an e-bike so you don’t need a car, and thus save tons of money?
the fact that you can invest the loans is part of the incentive to get you to study, if you start putting limitations on what you can use the money for (which i’m not sure is legal anyways, i don’t even have any sort of limitations on what i spend my welfare money on, i could blow it on alcohol if i wished) then you start eroding part of why many people study in the first place.
In most countries though, loans are given by a bank for a specific purpose and not allowed to be used for other purposes. Now money is fungible though, so if you had enough money to not need a student loan, and you took the education loan anyway and then used it for education, and spent money you had anyway which you would have used for education but now you invest it, that’s all cool.
Edit - I realised I typed this very badly. What I meant was, say you had 10,000 BSD in your bank account, and took a student loan of 5,000 BSD, you now have 15,000 BSD. Now if you pay 5,000 BSD for college, whether it came from the original 10k or the loaned 5k, it doesn’t matter. And you could have paid the college from your original money and invested the 5k from the loaned money and it’s all the same since it’s from your fungible pool of 15k.
I guess that’s a fair point. However, I do think there should be some limitations. There’s limited money, and the governments job should be to spend it in ways that create the best outcomes (if it’s a good government working for the people). If they’re throwing it away in ways that aren’t beneficial then there’s an opportunity cost where it could be better spent on something else.
As for if it’s legal, I have no idea on how your government works, but the government creates the laws, including the one providing the loans, so they could presumably create a law saying a certain portion must be spent on certain things (transportation, school materials, classes, etc.).
All kinds of low risk things go down occasionally. Think of the 2008 financial crash for example. On average, or over a long time, you are very likely to make gains. But that’s not nevessarily true for shorter periods like 10 years even if you invest in low risk assets.
Edit: I also invested some of my student loans in Finland. Or officially, my other income that was freed up due to the loan ¯_(ツ)_/¯
well he made the profit in like 2 years lol.
Also there’s at least one bank here that specifically only has savings accounts, with pretty decent interest (like 2.7%) and free withdrawals at any time. And because it’s sweden the state will protect any money you deposit under like $100k per person.For the last year or so getting a 5% (1-3 yr) CD was not unheard of, so literally leaving it in a bank account is better than the annuity option by the above poster’s math.
I don’t think you quite understand what I mean. You can’t extrapolate from the last 3 years. What you can extrapolate from is longer periods of time, where we occasionally see assets going generally down for some time. So you have maybe 90% chance of your stock portfolio going up in the next 5 or 10 years, and 10% chance of it going down (rough numbers but the point holds).
So you can end up in a situation where you lose money, but it’s unlikely. If you are very risk averse, you would prefer a 0% increase over these odds.
If you win a large amount of money, you don’t need to learn how to invest it. You now have the money to pay someone to do that for you. You just need to not be stupid enough to skip this.
But you do need to be smart enough to hire good trustworthy finical advisers. And the more people you need to hire for a task the greater the chance of hiring poorly.
People investing any amount of money with someone need to make sure they’re using a fiduciary advisor, because they are supposed to act on your best interests with your money. Non-fiduciary advisors can funnel your money into vehicles that enrich them at your expense.
Good luck not hiring a scammer…
Or… you know… it gets fucking wasted and scammed out of peoples hands because they have no idea to handle big money.
This is probably the most likely outcome. It doesn’t take much intelligence to just hire someone to handle your investments, but it also doesn’t take much intelligence to recognize that gambling is profit-negative. Sure, someone gets lucky, but more money is lost than gained so the expected value is negative. People who can’t realize this are more likely to be scammed, because they already were at least once.
just hire someone to handle your investments
Thats usually exactly where the scammers start scamming from what i have seen. With that kind of money, people get greedy very quickly.
But then how much utility can you get out of the lump sum early on with those calculations?
There has to be some break even point, if your burn rate is high enough the annuity is better.
For a smaller amount this would be a much more important question. However, 550 million dollars is such a large amount that the gain in utility up to 2 billion is questionable. You could buy a private jet and still have half a billion to invest. That half a billion nets you 25 million a year (with 5 % interest/roi) without ever shrinking.
The usual math goes something like
Annuity: $2B paid monthly over 30 years is $5.5M/month; $3.5M after taxes.
Lump sum: $1B, $670M after taxes. Invested in index fund at, say 8%, can be expected to earn $4.5M/month, $3.6M after more taxes, which are lower for capital gains & dividends.
There’s more complicated maths, if you want to model taxes, future values, and variable market returns, but they all say pretty much the same thing. They have to: the annuity works because They put the lump sum into escrow, pay a trustee to manage it well enough to pay the annuity and pay the trustee’s salary. That means the trustee will invest said lump sum (before taxes) in low-risk, low-return assets, take his vig, and pay out the annuity from what’s left.
I didn’t think about risk management on lump sum vs annuity from the management side, that changes things.
Much better to take the lump sum, and manage it as aggressively or conservatively as you want. Unless it’s government insured, and the government will step in to continue paying you if the fiduciary goes tits up.
Wouldn’t you pay a lot more taxes on the lump sum and subsequent capital gains?
Not when invested properly. Using easy examples, if you win a million dollars and take it over 30 years, say you’re taxed 20%, you get $800k. You choose to take a lump sum and they only give you 30% of the value, you get $300k. Investing that $300k at 5% over 30 years, you’ve got an additional $55k over what you would have gotten over the same time period. Now, the average market return rate is closer to 3-5% higher than that, so that 5% return is a conservative estimate of what you have after fees and pulling some out for yourself (3% is a recommendation I’ve heard), putting you well above what you’d get from the annuity.
Properly investing takes a lot of time and your big lump of money is not protected if the bank goes under. But yes, that is the best strategy.
Yeah for protection you invest it into US Treasuries or German Bunds and collect the interest. Not very likely that the US or German economy will collapse before any bank will go under. If the US economy is collapsing everyone is fucked anyway even the crypto bros, since there is a world war going on.
It’s just down to generally investing the lump sum you can outperform the annuity option. If you search “lottery lump sum vs annuity” you’ll get a lot of results. Here’s one
If they die before they’ve been fully paid out, the lottery keeps the remainder of the money, and their loved ones don’t receive the money.
That seems like a very unlikely scenario though unless you are very old.
He’d get 14 million dollars a year for 30 years assuming the total payout was the same. I get that advice for people who are looking at a 100k payout. But at some point it’s just irrelevant. His first year alone would be a respectable total payout.
Yeah but he would get 47 million in interest a year if he took the lump and spread it across the market using the 10 year average. 11%
So using your 14 million number, he could invest half and leave the rest in something guaranteed like bonds or savings accounts and make more money and guarantee his family has it in the future.
It’s enough money to buy everyone in your family a multi million dollar house the first year and not have touched the original balance… : /
Arguably he could borrow against his annuity and save on taxes with loans. He could also setup a charity in which he donates a max amount and set up family on the board avoiding other taxes and making write offs as if he is ceo he can buy company property stuff that he can write off too.
Then he could, just grabbing an example out of the air, pay a painter to paint a portrait of himself, get that painting evaluated and valued for several million dollars, and then donate it to the charity and write off the value. Not that anyone would do that mind you.
I wouldn’t use the most aggressive numbers on that, I’d plan for 5 percent. Which is 20 million but then you also have capital gains tax. After which you’ll have 15 million a year instead of 14 million a year. The annuity also generally comes with a larger total payout though. So in reality it’ll be higher than 14 million.
So yes you can get lucky in the stock market to beat an annuity, but that’s not the reason people get told to take the lump sum. Most lottery payouts are 100k or less and 10k a year isn’t going to do much, while 100k starts a retirement fund. Once you’re high enough that the annuity itself is “quit your job money” it flips. Then if you screw up you know you’re getting back on your feet next January.
Those aren’t the aggressive numbers though, that was the market average. So hoping for 5% is a little low but I understand it is always good to be skeptical. Any way we look at it though, it’s fuck you amounts of money haha. When someone says what’s your budget this month and their answer is “I mean I don’t really want to spend over a million…”. You know that guy really doesn’t need to check the price of eggs that week.
Such a joke. While I personally believe everyone should pay their fair share… Winning lotto or winning at the casino ect, should not be taxed.
However if you use that money and make more money with it you should be properly taxed.
I think if they only advertised the post-tax number, there wouldn’t really be a problem. Like, “hey, the jackpot is some amount, and after tax you could win 400 million”—that would be fine. As it is, they’re kinda just building resentment for taxes in general by making your final winnings seem so disappointing, even though it’s still 400 million.
It’s always on the consumer to pay all taxes for some reason. Even with sales tax. I didn’t make a sale why am I the one paying the tax?
Hey, now. We don’t want to charge business taxes! That’s anti-business! We’re anti- people in this country. Businesses are tax exempt because they’re the real citizens. Those gross, floppy pEoPlE are what we use to make money for businesses!
God, I hate sales tax. “This thing is $1.99? No it isn’t.”
But the amount is also variable as it’s not a lump sum…
If you take lump sum and not the 30 year annuity, you take about a 50% hair cut off the prize money alone.
Hmm…
I mean, they could advertise the 30-year annuity as a separate number, then. There are still ways to make this work. I’m just saying, not framing taxes as if they were a punishment would make the whole thing much less annoying.
Not taxing the winnings at all, or just taxing them before they get into the pot, might be the easiest solution, I guess. My only contention with that is, well, now we’re just edging into the fact that I don’t really like lotteries. Certainly not on this scale.
And its not like it is business profit, unless you can put the tickets you buy as business expenses. To me, it is in the same category as gifts. Should not be taxed.
I violently disagree with you.
Gambling and playing lottery is a method to take a risk and get essentially free money by doing nothing, other than taking the risk. Personally I think anything like this gambling related should be taxed up the wazoo. Definitely more than 50%. And that taxed amount should ideally go back to fund things like schools and stuff good for everyone.
Final note, if you ain’t happy with 400M free money, you cray cray.
In my country the lottery is taxed at the collection step, so the money divided and advertised is already after taxes. I think that makes more sense, you collect the money and the law specifically distributes this taxed money for specific budgets and the winnings advertised are the real one.
The US effectively does both: the lotteries are run by the states and total prizes are much less than total ticket sales, generating net revenue for the state. Winnings are taxed like other income, meaning there are federal taxes and in many states state taxes.
The whole system gets even worse when you look at it. They prop it up as an “education lottery”, “This will help finance our schools!” In reality, they supplement education funding. I.E. they remove 2mil from state funding and put 2 mil in from the jackpot. They will continue lowering educational spending and use the assets in other areas they want.
When the lottery legislation was first written, it stated, “The net revenues generated by the lottery shall not supplant revenues already expended or projected to be expended for those public purposes, and lottery net revenues shall supplement rather than be used as substitute funds for the total amount of money allocated for those public purposes.” However, this sentence was removed right before voting, opening the door for legislators to use lottery revenues as a replacement for state funding.
The 2005 legislation stated lottery proceeds for education purposes would be allocated by the State Lottery Commission in the following manner: 50% for class-size reductions, 40% for school construction, and 10% for college scholarships. In 2013, lawmakers passed legislation giving themselves the power to allocate lottery proceeds for any education purposes, not just class-size reductions, school construction, and college scholarships.
In FY 2018, the majority of NC Education Lottery funding (57%) went to non-instructional support personnel, with 19% going to school construction, 12% to pre-kindergarten, 6% LEA transportation, 4% to need-based college scholarships, and 2% to UNC need-based aid. (link)
non-instructional support personnel, you know the over inflated administration that plagues education, now being supported by a lottery. Like most legislation, it started as something grand but slowly got mutilated till it’s a net-negative effect.
I’m in NC. The radio pundits during the runup to the General Assembly’s lottery vote were about the potential revenues being around $300 million. Further discussion was how that was the total budget for Forsyth County (Winston-Salem vicinity) schools. NC has 100 counties, some smaller, some larger, and for the GA to vote for it was viewed by the pundits as a really dumb thing.
The very thing of it becoming a replacement rather than a supplement to the school budgets was obvious to anyone who knows American (and especially NC) politics.
It’s even more insane when you realize that lottery tickets are basically double taxing, because you already pay the sales tax when you purchase the ticket so not only are you getting taxed on the purchase of the ticket but you’re also getting taxed on the winnings, so essentially they’re getting double the tax per ticket
Or the winning amount should represent the money you get after tax just like in every other country.
I personally think the tickets should be hella taxed, not the winnings. However lotteries are immoral ASF anyways and should probably be banned so 🤷♀️
The stated jackpot isn’t just before tax, it’s the future amount that it would be worth after collecting interest for 30 years.
They should hold onto the lottery ticket and borrow against its value.
Instead of taking out the lump sum, you can have it paid in installments, they probably asked for lump sum, thus they get a much lower value.
Then you can do the math of whether or not it’s worth it to receive monthly payment or taking out the lump sum, paying off all your debts, then putting it into S&P 500 and drawing down 4% a year and never run out of money.
At 400 million, that’s what, 16 million a year? Never have to work again a day in their life, can spend 365 days a week in a 5- star hotel at a 1000-2000 dollar a night a 250 thousand car every year and haven’t even spent 1/16 of his yearly liquidation.
Thanks for your comment. People keep forgetting that even a couple of million would be enough for you to never work a single day in your life and have a nice middle class life. 400m is just the equivalent of 200 “comfortable middle class lives, forever”
We don’t forget that, the comments are pointing to the fact that any rich person that got 2 billion through investments would end up paying less, no one is saying that 400 millions are not enough.
424 millions is still a mighty respectable amount
80% taxes how does that work?
suddenly germany feels like a tax haven :D
It doesn’t. Just headline gore.
Lottery payouts typically have two options: lump sum at half the value of the winnings or a 30 year annuity at the full value. So this headline assumes lump sum reward and cuts the face value on that alone, then does a bunch of other hand waving to get you down the next 58%.
News journals that are owned/advertised by anti-tax republicans love to run out the “lottery was taxed too high” story, specifically targeting people who fancy themselves future lottery winners. It’s all bullshit.
That’s insane. In Europe when you’d win 1 billion € you get 1 billion €, no taxes, no lump sum reward.
Its a moot point because you’re never going to win the lottery.
Are the lotteries state owned? In Quebec, that’s why lotteries is not taxed. State lottery is a voluntary taxes in a itself
Lotteries historically were setup as a fundraising efforts by governments, hence taxing lottery winnings
It’s not taxes… well not all of it. The lotto advertises its prize as the sum total of a 30 year annuity. Currently Powerball has an estimated Jackpot of 163 Million. You can take the lump sum up front though. At present that lump sum is 73.9 million. After you get that, then you get taxed on it, reducing it to probably something like 40-50 million.
That seems incredibly scammy to me. They’re pretending the prize is double what it actually is and then claim even more of that back as taxes. If the actual prize money is only 20% of what you’re advertising that’s dishonest at best.
Where I am lottery winnings are tax-free and without an insane hidden 50% “claimed your winnings” fee. What they advertise is what you get if you win.
That seems incredibly scammy to me
Of course it does, it’s the lottery
A lottery isn’t necessarily inherently a scam, at least no more than gambling is in general. In practice the odds of winning are pretty poor compared to alternatives but as long as they’re up front about the odds of winning I wouldn’t call that a scam. Eg, this lottery lists the odds of winning each prize, though it would definitely be better if they published those on the main page rather than in the terms. A fairer lottery is possible pretty easily by adjusting the prize values, range of numbers to select, or how many numbers the gambler selects. This would kind of defeat the purpose of most lotteries to raise money for government, but personally I’m for more progressive taxes anyway.
Advertising one prize when the real prize is significantly lower is just lying and not an inherent trait of lotteries.
The US doesn’t advertise taxes included generally whereas other countries do. Americans don’t expect tax to be included on any price or income advertised. There are people who say we should change that, but we’re stuck in the 1800’s in so many ways.
On one hand, it does feel a bit scammy. On the other, I’m not gonna lose a lot of sleep if I only took home 50 million dollars from a 150 million jackpot. It’s still a “Work? Sorry, I’m unfamiliar with peasant slang.” amount of cash.
You’re walking down the street and see a sign in a new sandwich place saying they have a three-for-one deal on, buy any one sandwich and get two sandwiches completely free. Sounds like a great deal, it might be a bit much but you skipped breakfast today and you can always keep one for later anyway, right? So you head inside and think about what you want, maybe you’re cutting back on red meat and you’re tired of chicken so you go with a tuna or cheese sandwich. You get to the counter to pick up your tuna+cheese sandwich, the worker hands over your two freebies and you walk out. Turns out you’re hungrier than you thought so you practically inhale your tuna+cheese, barely savouring the flavour. You reach for your second sandwich but when you unwrap it you discover it’s not the same as the one you ordered; it’s bread with a thin smear of butter, technically it is a sandwich but it’s definitely not what you wanted or expected when you ordered.
Did you get scammed? Are you okay with that since you still got one sandwich even though you chose that vendor because they advertised three?
It really shouldn’t be a controversial statement to say that lying to people to get their money is wrong. If it really makes no difference as you’re suggesting why can’t they just advertise the real value instead?
Not gonna read that incredibly tortured analogy. I hope you took it out back and shot it after you did those awful longwinded things to it though.
They do note the lump non-annuity value. The numbers I pulled were off the powerball website and were right next to each other. Different states (and even municipalities possibly.) tax differently (not at all in some cases), so its not as if they can give a solid number there.
Okay, I’ll simplify. Store advertises three sandwich. You buy three sandwich. You get one sandwich. Store says fees+taxes ate other sandwiches. You say it’s fine, you got sandwich. I say it’s not, store lied.
They absolutely can give a solid number even when a lottery runs in areas with different taxes, they simply choose not to because they make more money that way and for some reason you lack regulation there. See for instance here where the prize money may be partially subjected to income tax, meaning tax varies wildly depending on the winner’s other income:
£10,000 every month for 30 years. […] However, based on tax rules and rates at the date of these Procedures, the monthly payments will not be less than £10,000 after tax.
So there’s three obvious choices: mislead customers, calculate the correct prize after relevant taxes and advertise that, or give a fixed value and eat the cost of any taxes themselves. They chose the first one.
Best. Billionaire. Ever.
Why does he look like lil bow wow
Should have bought the ticket in the Cayman Islands.
Or Canada.
I’m kind of surprised the USA taxes lottery winnings and I live in one of the heaviestly taxed countries. We don’t tax lottery winning or other winnings from games of chance. Only winnings from games where some skill is involved (like poker I believe) is taxed.
They say the taxes generated are used strictly for education but they just cut the amount the lottery tax generates out of the budget and using it on tax breaks for the wealthy and still continue to pay teachers dog shit. This country is truly depraved in every way.
I’m sure if I was the lottery winner I’d be salty in this scenario, but you only get half as a lump sum anyway, and having $1 billion taxed at roughly half is probably how it should be.
The thing that makes it painful is as OP said, all billionaires should be getting taxed like this, not just that one who can’t exploit tax loopholes.
idk what’s worse. the punchline of this joke, with pre-existing elites not being taxed, or the fact that someone could look at recieving 420 million, and find an excuse to get mad about it
No one is mad about getting 420million. We’re mad that there are billionaires.
I can tell you what I would do with $424m, disappear. I’d still do good with most of it but I’m going to leave human society and go join a herd of elephants.
OH NO! Only $424M USD?! How will he get by?
Good job to missing the fucking point
Technically, he isn’t getting taxed like a billionaire either. He’s being taxed like a lottery winner who took the lump sum. That’s how lottery taxing works. Bro will be a billionaire and avoiding taxes easily with some financial planning
Talking about the guy who does get taxed doesn’t really help us tax the rich, so I see your missing-point and I raise you one Whoosh.
Would you consider going back to reddit?
Lol gottem, gj mate.
If you don’t like it here then go start your own instance with hookers and blackjack.
What the actual fuck is wrong with your brain?
You’re both trolls, stop that!
By your definition the entirety of Lemmy is just trolls, which makes it a useless term
