Annuity is the strictly worse option. Assuming you get a 3% return year-to-year on your investment, the overall payout over 29 years would be $831m (or, assuming that you spent $30m up front, it'd still be like $751m)
You're right of course, but most people are going to spend a good chunk of the principal, so it's unlikely to accumulate to $831m at 3% for 29 years unless you stay at your exact standard of living beforehand and are currently living within your means.
That being said there probably is some benefit to the annuity strictly for people who simply cannot control their spending habits. It makes it so they won't become one of those horror stories people buying a $300 million mansion and a 8 yachts and ending up totally broke within 5 years. Someone who has a basic understanding of money management, though, should always take the lump sum.
Like I said, even if you spent $30m -- which is a massive amount of money -- you're still looking at a larger payout.
AllstarSniper32 posted...
Zeus posted...
Annuity is the strictly worse option. Assuming you get a 3% return year-to-year on your investment, the overall payout over 29 years would be $831m (or, assuming that you spent $30m up front, it'd still be like $751m)
How is $568 million overall worse than $353 overall? are you just meaning investments? Since I didn't read that when I first read your post?
If you're getting $8 million for the starting payment, then it looks like you get more with each payment, you shouldn't have to worry about something like investments. But then again, I don't know anything really about investments though. That's something I'd have to learn if I were to win something like this though.
You can consistently get a 3% return year after year, so the final amount of money will exceed what you get over the 29 years.
Blaqthourne posted...
Zeus posted...
AllstarSniper32 posted...
Lump sum: $353 million Annuity: $568 million
It'd be tempting to get the $353 million in the lump sum, but I'd probably get the annuity option.
Of course, the harem route is always the best route.
Annuity is the strictly worse option. Assuming you get a 3% return year-to-year on your investment, the overall payout over 29 years would be $831m (or, assuming that you spent $30m up front, it'd still be like $751m)
Except you neglected to work in any interest on the annuity. Assuming the same 3% interest, given a $568M payout (or $18.9333M per year), the annuity would get you a little over $900M at the end of 30 years if you didn't touch any of the principle. It does take until year 27 for the annuity to pass the lump sum, though.
If you want to check my numbers, I made a simple Excel spreadsheet: Cell A1 is 353, B1 is 568/30 Cell A2 is A1*1.03, B2 is B$1+B1*1.03 Then just expand down to row 30.
You don't collect interest on the annuity payment option, it's already factored into the overall payout (hence why it's higher than the lump sum option). Unless you mean you're investing the money as you collect the timed payouts, but you have a far lower principle for the compounded interest.
And that's the formula I used to determine that the lump sum -- even with money taken out -- exceeds the total payout from the annuity option. ---