Author Topic: Lottery. $1000/day for life or $7,000,000  (Read 9859 times)

K-ice

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Lottery. $1000/day for life or $7,000,000
« on: November 25, 2016, 07:47:38 PM »
Just curious.

There was a new lottery winner in Canada & he has to make this choice.

Would you take $1000/day for life or a one time payment of $7,000,000?


http://edmontonjournal.com/news/local-news/edmonton-man-wins-7-million-in-new-lottery-game




marty998

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #1 on: November 25, 2016, 08:36:40 PM »
$365,000 a year is a yield of just over 5% on $7m.

I'd take the $7m and throw it in an index fund... after 25 years you'd probably be getting the equivalent of $2,000 a day in dividends.



human

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #2 on: November 25, 2016, 08:45:05 PM »
I'm almost 40 so wouldn't want to wait 25 years. Would definitely need to play with the numbers. What about 5 mill in an index fund and 2 to spend? Croaking after a few years while taking $1000 a day would be kind of sad. No taxes in Canada though.

JAYSLOL

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #3 on: November 25, 2016, 08:58:16 PM »
For me it would take 12 or 13 years or so for that $1k a day to compound into $7M, and slightly longer if I use some of that to FIRE in the mean time (which i would).  If i went for $7M at the start, I would have more than doubled my original winnings with the same 7% return by the 12 year mark.  So, if it were me, i'd go $7M, no question.  Especially in Canada, no tax on lottery winnings, so no tax benefit to stretching out payments. 

I think for most un-mustachians, the $1000 a day might work out better for them, as they weren't going to invest much of it anyway.  The un-mustachian winner might do something like this.  The $7M payout: Half gets spent right away on a fancy house, cars, toys, boat etc.  The remaining $3.5M gets put into a GIC at 3%.  The monthly spending to maintain the new fancy house, cars, toys and constant trips, restaurants etc inflates to $25k/month and they run out of money after less than 15 years.  On the other hand, if they take the $1k a day (assuming they have a while to live), and spend the same insane $25k/month and put the rest (around $5k/month) into that same GIC at 3%, they end up supporting their crazy lifestyle just fine and have over $1M in savings after the same 15 years. 

bigend

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #4 on: November 26, 2016, 02:43:41 AM »
Depends of course, do you plan to spend it all? leave an inheritance? how old are you?

If you just look at the cashflow and consider the 4% rule a good rule of thumb you should take the $1000/day. The 7 million produce ~765$ per day at 4% and there's no worrying about sequence of returns, markets going down, etc.

An important one for me would counterparty risk, i.e. who is paying the $1000/day forever? I'm I sure they will be around in 20-30 years?

potm

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #5 on: November 26, 2016, 03:53:27 AM »
The 4% is designed to go up with inflation. The 1k doesn't. What happens if the person dies? The payment stops? I would take the $7 million.

2Birds1Stone

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #6 on: November 26, 2016, 05:08:52 AM »
A bird in the hand is worth two in the bush.

Retire-Canada

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #7 on: November 26, 2016, 07:36:42 AM »
I'd take the $7M and say thank you very much. :)

Heckler

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #8 on: November 26, 2016, 08:06:13 AM »
A bird in the hand is worth two in the bush.

That's why I don't pay lottery taxes.

Brokefuturedoctor

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #9 on: November 26, 2016, 08:19:00 AM »
That $7 million is worth more now than the $1000 a day would be worth over time. I would take the $7 million now; I would also work in a free clinic for the rest of my life with no pay

SnackDog

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #10 on: November 26, 2016, 08:35:14 AM »
With an investment return of more than 3-4%, the lump sum more valuable.  The NPV of the daily payments over 30 years is about $5MM assuming 6% investment return.  I don't think taxes make a difference unless you live in a country that would tax the two options very differently, but there may be ways around that as well.

v8rx7guy

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #11 on: November 26, 2016, 12:04:22 PM »
Id probably take the lump sum.  One issue with that is that people would probably come out of the woodwork asking for money from you.... happens all the time to lottery winners.  If you took $1k/day I think it would be less likely that people would beg you for a piece of that.

sparkytheop

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #12 on: November 27, 2016, 01:10:25 AM »
Lump sum.

Retire.  Invest.  Say no to people who want to mooch.  Travel.  Get tired of flying then get a dog and travel in a camper.  Make pretty quilts.

I wouldn't trust that that $1k/day would keep up with inflation or continue through my lifetime.

plainjane

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #13 on: November 27, 2016, 05:33:30 AM »
For me it would take 12 or 13 years or so for that $1k a day to compound into $7M, and slightly longer if I use some of that to FIRE in the mean time (which i would).  If i went for $7M at the start, I would have more than doubled my original winnings with the same 7% return by the 12 year mark.  So, if it were me, i'd go $7M, no question.  Especially in Canada, no tax on lottery winnings, so no tax benefit to stretching out payments. 

Wouldn't the 'no tax on lottery winnings' argue for taking the daily?  Because you would be paying at least dividend taxes on your $7M, but no taxes on the annual $365k. 

I think for me the biggest argument is inflation (if you are in the market, your money will likely grow with inflation, while it won't with the lump sum payouts), and whether the remaining 25 years of payouts would go to your spouse/heirs if you died early.

Retire-Canada

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #14 on: November 27, 2016, 07:29:56 AM »
Wouldn't the 'no tax on lottery winnings' argue for taking the daily?  Because you would be paying at least dividend taxes on your $7M, but no taxes on the annual $365k. 

No that doesn't make sense. The dividends on the $7M are in addition to getting the $7M tax free. You are still way ahead. If you don't spend the full $365K/yr you'll pay taxes on the dividends you get from the money you save/invest from your winnings as well.

radram

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #15 on: November 27, 2016, 08:31:15 AM »
Lump sum for some reasons:

1. No guaranteed daily payout. You could net $1000 if you die today under the daily payout.
2. Lottery winnings are not taxed today, but that could change anytime with future payments.
3. Maths show about a 5.5% return over 40 years would favor the lump sum.

If I really wanted the feeling of a guaranteed income stream, I would think about taking the lump sum, take half to do as I please(mostly invest),and buy an annuity with the other half that pays $200,000 annually and guarantees the return of the full $3,500,000 to my beneficiaries. I would most likely wait to do that, because annuity payments suck right now.

MustacheAndaHalf

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #16 on: November 28, 2016, 08:09:03 PM »
Most (non-MMM) people should take $1000/day, because most people go through a lump sum lottery in a few years and wind up broke surprisingly fast.

catccc

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #17 on: December 02, 2016, 02:05:38 PM »
$7M hands down.  What if I was in a freak accident the next day?  At least my family would have something.  Heck, even if it was $3M, I'd still take it over the $1K/day, just because $3M is already way more $$ than I'd need.

PAstash

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Re: Lottery. $1000/day for life or $7,000,000
« Reply #18 on: December 02, 2016, 10:00:25 PM »
Just curious.

There was a new lottery winner in Canada & he has to make this choice.

Would you take $1000/day for life or a one time payment of $7,000,000?


http://edmontonjournal.com/news/local-news/edmonton-man-wins-7-million-in-new-lottery-game

taking the 1k a day. I am 32 years old. Now follow me here.......

I've never had 7mill. Nothing even close to it. I've managed maybe 125k? maybe. I'd protect myself by taking the 1k a day. 7 million is dangerous amount of money for someone to handle who has 1. never had that kind of money 2. grew up with nothing. 3. grew up around people with nothing 4. has any jilted lovers family members or friends. sadly I fall into all of those categories.

Hope I'd see it this clearly if I ever win that kinda cash.