Author Topic: Win Free Rent for Life***  (Read 3627 times)

ingrownstudentloans

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Win Free Rent for Life***
« on: July 23, 2015, 08:01:02 AM »
So I have been seeing these commercials for free rent for life on TV through an online apartment search website, and today I entered.  When reviewing the official rules, I see that if you win you can choose between an annuity that will pay your current rent amount (without future adjustment) up to $1,700/month or a lump sum amount of $545,000.  This got me to thinking and daydreaming about what I would choose.

Because I will obviously be the one to win this*, I was wondering what each of you would select (so that I can make the best choice when my time comes).

Here are the rules regarding prizes

Prizes: The one (1) Rent for Life winner will receive their choice of: (i) an annuity for winner’s lifetime based on their current monthly rent as of the date of winner selection, not to exceed $1,700/month without any future adjustment to amount or value, or (ii) a one-time lump sum payment of $545,000. Rent for Life winner may select either option but selection of annuity is subject to the policy’s terms and conditions. (approximate retail value of Rent for Life Prize based on present day value: $545,000).

Factors that influence my decision.  I currently pay rent at over the maximum so I would get the $1,700/month for life.  I am 29 and intend to live beyond the 26 year break-even point.

Because of these factors, I am leaning towards the annuity.

This is just for fun, but would like to hear other's thoughts on lump sum vs. long-term payout.  It is nice to dream :)

*Also, because I know that I will be the one to win, nobody else here should enter the contest...but if you do and you win, maybe you could cut me in a little for letting you know about it :)

thedayisbrave

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Re: Win Free Rent for Life***
« Reply #1 on: July 23, 2015, 08:07:22 AM »
The $1,700 isn't adjusted for inflation? I would take the $545K and run :) (aka stick them in index funds)

robbyho

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Re: Win Free Rent for Life***
« Reply #2 on: July 23, 2015, 08:15:11 AM »
This is very similar to lotto winners who take a far lower lump sum rather than taking the monthly payouts. The math favors taking the lump sum every time. Assuming of course you invest it, not go buy Lamborghinis. 


A conservative interest rate of 5%

$1700/mo after 10 years = $263,000

vs.

$545,000 at 5% after 10 years = $887,000

Yeah, no brainer
« Last Edit: July 23, 2015, 08:21:04 AM by robbyho »

ingrownstudentloans

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Re: Win Free Rent for Life***
« Reply #3 on: July 23, 2015, 08:23:06 AM »
This is very similar to lotto winners who take a far lower lump sum rather than taking the monthly payouts. The math favors taking the lump sum every time. Assuming of course you invest it, not go buy Lamborghinis.

Yes, but with a twist.  This is a for life payment, the lotto winners are typically for a set term (20 year) payout.  I would probably buy a lambo if I won...my eyes are on this one http://www.collectablediecast.com/Kyosho-118-Lamborghini-Urraco-Rally-Orange_p_19303.html.  I would put it on my desk and enjoy it as I reviewed my index balances.

slugline

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Re: Win Free Rent for Life***
« Reply #4 on: July 23, 2015, 08:28:47 AM »
I used to think that everyone should take the lump sum in these situations. Now I realize that many (most?) simply aren't wired to handle it and would actually be better off with annuity-style payments instead of incurring a mighty "stupid tax." I'm pretty sure that most people that are inclined to frequently play the lottery are squarely in this group.

patrickza

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Re: Win Free Rent for Life***
« Reply #5 on: July 23, 2015, 08:29:02 AM »
4% of $545000 = $21800
$21800/12 = $1816.67

It's not a difficult choice...

mskyle

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Re: Win Free Rent for Life***
« Reply #6 on: July 23, 2015, 08:41:16 AM »
4% of $545000 = $21800
$21800/12 = $1816.67

It's not a difficult choice...

Ah, but you'd have to pay taxes on that lump sum $545,000, so you probably would only have ~$300,000 to invest (depends on your state taxes). The amount of tax you would pay on $21,800 each year would depend on your current and projected income, how much tax-advantaged space you have left to invest things in, etc. This is assuming you're paying tax on the income from the annuity, not on the gift of the annuity... I don't know how that actually works.

Anyway, I'd talk to an accountant before making a decision! It seems like if you're young, you might come out well ahead with the annuity.

beltim

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Re: Win Free Rent for Life***
« Reply #7 on: July 23, 2015, 08:42:25 AM »
4% of $545000 = $21800
$21800/12 = $1816.67

It's not a difficult choice...

If you're doing that simple a calculation you need to account for the difference in taxes for each.

ingrownstudentloans

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Re: Win Free Rent for Life***
« Reply #8 on: July 23, 2015, 08:49:01 AM »


Anyway, I'd talk to an accountant before making a decision! It seems like if you're young, you might come out well ahead with the annuity.

I thought that too, but I just ran some numbers on a bankrate retirement calculator and here are the results:

Take the annuity assuming 7%/year and invest all=
@ 55 y/o $1,290,280
@ 65 y/o $2,820,032
@ 75 y/o $5,829,286

Take the lump sum assuming 7%/year and invest all=
@ 55 y/o $2,957,951
@ 65 y/o $5,818,737
@ 75 y/o $11,446,336

If the lump sum was $300,000 (after tax) assuming 7%/year and invest all=
@ 55 y/o $1,628,230
@ 65 y/o $3,202,974
@ 75 y/o $6,300,736

It looks like the lump sum is the winner

beltim

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Re: Win Free Rent for Life***
« Reply #9 on: July 23, 2015, 08:52:02 AM »


Anyway, I'd talk to an accountant before making a decision! It seems like if you're young, you might come out well ahead with the annuity.

I thought that too, but I just ran some numbers on a bankrate retirement calculator and here are the results:

Take the annuity assuming 7%/year and invest all=
@ 55 y/o $1,290,280
@ 65 y/o $2,820,032
@ 75 y/o $5,829,286

Take the lump sum assuming 7%/year and invest all=
@ 55 y/o $2,957,951
@ 65 y/o $5,818,737
@ 75 y/o $11,446,336

If the lump sum was $300,000 (after tax) assuming 7%/year and invest all=
@ 55 y/o $1,628,230
@ 65 y/o $3,202,974
@ 75 y/o $6,300,736

It looks like the lump sum is the winner

So if you won you'd definitely still work to 55 before using any of the money?  Because that's the only scenario those calculations make sense.

ingrownstudentloans

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Re: Win Free Rent for Life***
« Reply #10 on: July 23, 2015, 08:56:46 AM »


Anyway, I'd talk to an accountant before making a decision! It seems like if you're young, you might come out well ahead with the annuity.

I thought that too, but I just ran some numbers on a bankrate retirement calculator and here are the results:

Take the annuity assuming 7%/year and invest all=
@ 55 y/o $1,290,280
@ 65 y/o $2,820,032
@ 75 y/o $5,829,286

Take the lump sum assuming 7%/year and invest all=
@ 55 y/o $2,957,951
@ 65 y/o $5,818,737
@ 75 y/o $11,446,336

If the lump sum was $300,000 (after tax) assuming 7%/year and invest all=
@ 55 y/o $1,628,230
@ 65 y/o $3,202,974
@ 75 y/o $6,300,736

It looks like the lump sum is the winner

So if you won you'd definitely still work to 55 before using any of the money?  Because that's the only scenario those calculations make sense.

I used those ages as benchmarks to see what the total amount would be if no money was used.  I figure if I would take out $20,000 in years x, y and z for some expenses, I would do that in either scenario.

beltim

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Re: Win Free Rent for Life***
« Reply #11 on: July 23, 2015, 08:59:54 AM »
The timing and amount of withdrawals make a huge difference in that sort of calculation.

ingrownstudentloans

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Re: Win Free Rent for Life***
« Reply #12 on: July 23, 2015, 09:03:45 AM »
The timing and amount of withdrawals make a huge difference in that sort of calculation.

Not being a math/calculations guy.  Does that hold true if you take the same amount out at the same time from either example?  It seems to me that if the one path came out 10% ahead of the other it would still come out about 10% ahead regardless of the time/amount of the withdrawals.

beltim

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Re: Win Free Rent for Life***
« Reply #13 on: July 23, 2015, 09:08:38 AM »
The timing and amount of withdrawals make a huge difference in that sort of calculation.

Not being a math/calculations guy.  Does that hold true if you take the same amount out at the same time from either example?  It seems to me that if the one path came out 10% ahead of the other it would still come out about 10% ahead regardless of the time/amount of the withdrawals.

Yes, in general it makes a difference. It's easiest to see if you use a withdrawal rate equal to or greater than the amount of the annuity.  If you take the lump sum, invest it, and withdrawal the amount of the annuity, then you'll have some failure rate because of market fluctuations.  It's basically the same idea as coming up with a safe withdrawal rate.  This is slightly different because the annuity isn't indexed for inflation, but it's the same general idea.