ST Alpha - "ST Poll: You win $1.2 Million." (Reading a Post)

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ST Poll: You win $1.2 Million.

Posted by Strongbad (aka Rambler14) Jul 30 '24, 17:38

You're 50 years old and in relatively average health for your age. Not great but not horrible.

A) 1.2 Million paid out in annual installments over 20 years
B) one time payout of 800K which will be about 400K after taxes

(No, this did not happen to me)

Responses:

What you are missing is, with an annunity you spend that money with a lump sum invested you still have the lump sum at the end of the 20 years - zeitgeist Jul 30, 20:40 1
- the lump sum is always better, and it becomes more obvious as you increase the $ -- nm - rollo Jul 30, 21:19
Lump sum, change nothing, bide my time. -- nm - colin Jul 30, 19:10
I'm in Canada. I take $1.2m with zero taxes. -- nm - Beryllium Jul 30, 18:37
Picking the annuity gives you time to move to a state with no state income tax. -- nm - ty97 Jul 30, 18:12 8
- Looking at that list... NV, WY or SD I could handle. -- nm - Strongbad Jul 30, 18:20 1
  - I'd rather pay the taxes -- nm - Krusty Jul 30, 18:42
- It's sad that I don't have any desire to live in *any* of those states -- nm - ty97 Jul 30, 18:13 5
  - You can establish residency in TX very easily without living there. It's a popular move for full time RVers. - colin Jul 30, 19:22
  - What's wrong with New Hampshire? -- nm - Beryllium Jul 30, 18:45 1
    - Property taxes and car registration are $$$$ -- nm - amandaphone Jul 30, 18:47
  - I’d go to Washington. -- nm - kelly Jul 30, 18:22 1
    - That's a good option. -- nm - Krusty Jul 30, 18:48
I'd pick the annuity because I'd like the knowledge that more is coming. The hard part would be trying to give back to those who have helped me... - Qale Jul 30, 18:04
A -- nm - Epiphany Jul 30, 17:58
NPV that shit. ~4.2% is break even. Above that lump sum is better, below annuity. I go lump sum. -- nm - mafic Jul 30, 17:46 11
- You have to discount for the differential in marginal tax rates as well. -- (edited) - znufrii Jul 30, 17:53 4
  - So many accounting nerds here.... -- nm - Baron of the Rings Jul 30, 17:55 3
    - Then you have to consider the marginal propensity to spend vs. save the annuity payments. -- (edited) - znufrii Jul 30, 18:10 1
      - redid the model to include state taxes (resulting in an after-tax lump sum payout of ~$472k) and drops the break-even return to ~6.5% - znufrii Jul 30, 18:46
    - Right? - Epiphany Jul 30, 17:57
- I misread! Thought you had $800k after tax. With $400k after tax break even is like 14%. I probably go annuity. -- nm - mafic Jul 30, 17:48 3
  - But Madoff promised me at least that much! -- nm - Baron of the Rings Jul 30, 17:54
  - Said another way, do you trust your ability to triple your money over 20 years? -- nm - Strongbad Jul 30, 17:53 1
    - You’d need just under a 6% annual return (using the Rule of 115) based on that question. -- (edited) - znufrii Jul 30, 17:57
- I was doing some similar (but much rougher) calculations. :) -- nm - Baron of the Rings Jul 30, 17:48 1
  - But beyond the math, I think it also depends on what the current state of your retirement savings is. - Baron of the Rings Jul 30, 17:53
If I were 50 I'd take the installments. Today I'd take whatever I could get right now. -- nm - Meg Jul 30, 17:45
$400K lump sum now. -- nm - Peglegpete Jul 30, 17:44
i think (b) should be $800k after taxes, if I won $1.2m. is the $60k/yr tax free as well? -- nm - mr mooch Jul 30, 17:43 1
- The 60k year is taxable at whatever bracket you would be in. -- nm - Strongbad Jul 30, 17:48

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ST Poll: You win $1.2 Million.

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