Author Topic: ABCNews: Lottery Jackpot Now at $540mn  (Read 4498 times)

menorman

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ABCNews: Lottery Jackpot Now at $540mn
« on: March 30, 2012, 09:59:20 AM »
In case we've all been very Mustachian and avoiding the news, the MegaMillions Jackpot is now past $500mn for apparently the first time ever. As is the custom when the jackpot gets large, all news organizations are out asking how everyone would spend the money if they won. So in that antimustachian vein of thought, what would one of you do with that level of lifestyle inflation opportunity?
Here's the story, in case anyone wants to see more.

Mactrader

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #1 on: March 30, 2012, 10:33:19 AM »
My office is going crazy and people think i'm nuts for not chipping in $5 to join the pool. Then mention how they'll leave me out when they're driving their 40' yachts.

Sure, good luck with that.

Daley

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #2 on: March 30, 2012, 11:37:15 AM »
OMG! $540 million!? With an extra six zeros after that number!? Really and truly!? *rolls eyes*

Even if I were stupid enough to buy into it and had the sufficient blind luck to win the entire jackpot on my own... let's just have a little thought game exercise, shall we? What would I spend that money on... what indeed...

I know! I'd probably pay my pound of flesh to the IRS, pay off all my remaining debts in full, and then proceed to shop around as many cashed strapped tiny and corrupt island-based banana republics as I could find that would sell and leave for the price of my remaining balance, and proceed to establish my own little dictatorship founded on mustachian financial policies and honest work, point the economy towards eco-friendly energy independence, and provide incredibly sane and simple immigration for reasonable adults like yourselves built on one question:

You're afforded a windfall of $1,000,000 USD, tax free. Do you:
a) Spend it all on as many possessions as possible and live a more decadent lifestyle.
b) Invest it wisely and use the interest and dividends towards living off of.
c) Not allow the money to change how you live and work.
d) Punch the person who chooses (a) in the face.
e) All of the above except (a).

Mactrader

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #3 on: March 30, 2012, 12:22:49 PM »
I like the exercise of $1M, rather than 540 (or 975 as they're predicting now).

Here's what the windfall does for me. Pay off all debts (around 450k, two mortgages, one of which is a rental which I am offloading ASAP). Fully fund my children's (3) education funds (~50k each to reach desired value in 14/18 years respectively). Leaving $500k.

That's it, leave it. Until I build it up enough to spin off enough income to support our family, which shouldn't take long, just haven't done the analysis on what the appropriate % return/distributions would be. With those debts paid off, I'd be able to put a solid chunk of my income away to build it up real quickly. When it reaches the point where I am comfortable with the distributions supporting us, I begin to do just that.

Fin.

sol

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #4 on: March 30, 2012, 05:30:01 PM »
Saying "pay off my debts" is kind of a silly answer to that kind of money, unless you're Donald Trump. 

A half billion dollars will pay of your debt and all of the debt of every person you know, if you so choose, and still have enough left over to father ten children and never have any of your descendents ever work again.

shedinator

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #5 on: March 30, 2012, 05:38:07 PM »
with $540M, you can afford to retire, along with 150 of your closest Mustachian friends :).

The question that always comes to my mind when people are discussing the Lottery is whether they'd take the 25 year payout, or the lump sum?

menorman

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #6 on: March 30, 2012, 06:52:49 PM »
with $540M, you can afford to retire, along with 150 of your closest Mustachian friends :).

The question that always comes to my mind when people are discussing the Lottery is whether they'd take the 25 year payout, or the lump sum?
Might as well take the lump sum. Assuming the old numbers (jackpot is now apparently $640mn), the sort of standard SWR of 4% would yield $16mn/year in income, which is pretty close to the $20mn/year that the payoff would be. That is far too much money flowing in, so I would more than likely try to keep it at around $1mn/year, which is 0.25% withdrawal rate. With a withdrawal rate lower than most mutual funds charge in expense ratio, one should be a billionaire several times over by time 25 years have passed, even while retaining the possibility of taking withdrawals that come close to or equal the yearly payout amount.

Mactrader

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #7 on: March 30, 2012, 07:12:55 PM »
Saying "pay off my debts" is kind of a silly answer to that kind of money, unless you're Donald Trump. 

A half billion dollars will pay of your debt and all of the debt of every person you know, if you so choose, and still have enough left over to father ten children and never have any of your descendents ever work again.

My response was on the much more probable (relatively speaking) windfall of $1m. $550m? Not even going to think about what I'd do, cross that bridge when I get there.

shedinator

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #8 on: March 31, 2012, 08:11:37 AM »
with $540M, you can afford to retire, along with 150 of your closest Mustachian friends :).

The question that always comes to my mind when people are discussing the Lottery is whether they'd take the 25 year payout, or the lump sum?
Might as well take the lump sum. Assuming the old numbers (jackpot is now apparently $640mn), the sort of standard SWR of 4% would yield $16mn/year in income, which is pretty close to the $20mn/year that the payoff would be. That is far too much money flowing in, so I would more than likely try to keep it at around $1mn/year, which is 0.25% withdrawal rate. With a withdrawal rate lower than most mutual funds charge in expense ratio, one should be a billionaire several times over by time 25 years have passed, even while retaining the possibility of taking withdrawals that come close to or equal the yearly payout amount.

Is the lump sum really 80% of the total? I thought it was closer to 60%. Plus, don't forget taxes. But the time you account for winnings and income taxes, and the decreased lump sum amount, I think the final amount in your bank account ends up being about 30% of the "sticker price" (this is based on a similar conversation I had 2 years ago, so the numbers could be off), while the 25 year payout nets you about 50%. Then any gains you see are taxed at 16% after the first 2 years.

If I remember correctly, the value of the lump sum, even accounting for capital gains, exceeds the value of the annuity after 10 years, provided you invest all of it and leave it alone for those 10 years. It would be interesting to see what maximum SWR you could assume on the lump sum such that at the end of 25 years, the total (sum + gains - taxes) still exceeds the annuity.

Rich M

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #9 on: March 31, 2012, 08:38:22 PM »
I see the lottery as the epitome of "antmustachian."

For me mustachianism is being "greedy" with lifestyle and time---it's really not greed actually.   I know we all want o retire early and be set, but I hope nobody mistakes it for monetary greed.  You earn your time by being frugal with money and not wasting it.   You work hard and play hard.  You do the opposite of winning the lottery.

While playing the lottery is foolish monetary greed--and given the low odds, a waste of money.  The average per capital spent on lottery tickets in Georgia is around $470 per year.  That means an average resident of Georgia could be socking away nearly five grand in a decade, guaranteed.  Or can be giving the state $0.40 on every dollar for a decade instead.  That is a differential of over $7000 in a decade between saving money and playing the lottery on average in Georgia.  And that doesn't include the investment gain on that $4700 compounded over ten years on a solid investment.

I also wonder why people get all excited when the jackpot hits hundreds of millions.  How much is enough?  Is a ten million dollar lottery too low-brow to play for these people?   The point being that lots of these people are playing or buying even more tickets because the huge size and not that it increases their odds much.  Buying 100 tickets when the pot is small has the same odds of winning for 100 tickets when it's large---very low---but you can still be rich enough to have TOO much money.   This lottery shows that the intrinsic greed in people is alive and well, even after the housing bust.   

Greed spawns irrational exuberance.

And the news does like the ride the wave of it all.








MrSaturday

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #10 on: March 31, 2012, 09:33:45 PM »
Quote
An economist says this Mega Millions is actually “a good bet.” The odds of winning the lottery are roughly 1 in 176 million. But after doing the math this time around — including tabulating the odds of winning and splitting the prize with others as well as subtracting taxes and lesser-prize payouts — an economist named Stephen Bronars blogged that it makes sense to play Mega Millions this week. In his estimation, right now the “expected value of a Mega Millions ticket is about $1.23.”

When you can get a PhD economist to say something stupid like this, what hope is there for the general public?

He apparently edited the original blog.  Here's the current version, where he now says each ticket is worth less than $1.

kolorado

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #11 on: April 01, 2012, 06:45:58 AM »
I have never bought a lottery ticket in my life, I don't even know how to or how "to play". I can understand regular gamblers setting aside $10 of their fun money every week for the chance of a big payoff. Many of those people truly have fun with their $10 and aren't addicted to playing or basing other life decisions on the hope that they'll win big.
But I find these big jackpots disturbing. When people who don't regularly play decide to play because the jackpot is so big it's a purely irrational greed response, greed for money of course but mostly greed for the attention and notoriety of having won the largest jackpot in history and the notoriety of being wealthy with instant celebrity status.
It's an irrational time to "hope" as compared to other lotteries since the odds of winning are better when the jackpot is lower, say $1 million. Logically $1 million is awesome and sufficient for just about everyone if "playing" was primarily about money, but it's not for the hoards that buy into the big jackpots. They want to be on tv. They want the assumed status that comes with wealth. They want the social circle wealth enables. They want the instant "respect" from others that wealth brings. They want their name in media history as a record breaking winner.
People say things like "I'd pay down debt" or "I'd take a vacation" but I don't believe the majority of people who "played" this were really doing it for financial reasons. I was tempted for a second to buy a ticket so that if I won I could give it all away just to make a point. Then I realized that when confronted with hoards and hoards of money, the temptation to keep it for myself might be too great to resist. There are enough occasions in regular life when it's a struggle to do the right thing so running to a temptation to see if I can handle it isn't the smartest thing to do. And I sure as pickles don't want any notoriety. I couldn't care less.

Guitarist

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Re: ABCNews: Lottery Jackpot Now at $540mn
« Reply #12 on: April 02, 2012, 11:06:26 AM »
Suckers! The lot of ya! I won! I won da money!
I'm going to go buy me a national monument! Woohoo! So much money.

You did hear someone from NE Kansas won, yes (as well as two others)?

Well, it wasn't me, just kidding. You have to play to win and I am not paying the "poor tax" on top of the others I already pay. It's funny to think that within the last few months, I've come to realize that I don't even need $1 mil. (or much more then that anyway) to get what I want out of life.
What would I do with the money?
Buy a nice, ocean-worthy, sail boat and see the world.
Put enough in the markets to live safely off of (I mean, if I had that much, I may go safer and tuck away $800k or something). Then put the rest in various trusts and charity's. Maybe have a kid's college fund so that they can get out of college debt free, with the understanding that they will work to earn scholarships and hold a job/get internships.

How about this one: I offer the money to the US government with the understanding that they will get it in 20 years if they reduce the budget by 5% (based on the preceding year's budget) every year for those 20 years.
Yeah I know, they would never accomplish it.