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Lotterule
(lemmy.world)
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this post was submitted on 30 Dec 2024
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Lotterys are usually paid out in annuities where you would get that amount over a period of 10-30 years. However, they also give a lump sum amount which is usually ~half the stated amount and after taxes you could expect to receive 1/3 the stated amount.
Still, it's generally best to take the lump sum unless you have very bad self control and would blow through the money.
Statistics show it's literally best NOT to take the lump sum and that most people have no self control.
Most people who gamble have no self control.
Interesting... The fact that they're eligible to win the jackpot makes them statistically unable to handle it ...
Feels similar to the Plato quote "those who seek power are unworthy of that power".
"I'm an cryptocurrency trader now, despite no finance education whatsoever. It's easy, just look at the chart and predict when it'll go up or down."
Isn’t that the entire plot of the movie “Trading Places”?
…which is a Christmas movie.
Give me the winning lottery ticket and I'll show you how it's supposed to be done.
The issue is the mathematically best outcome in a vacuum does not take into account the fact that gambling has a negative expected value, and anyone participating in it was already more likely to be really bad with money. There can be a mathematically ideal outcome that is different than the statistically best outcome in real life situations. Probably anyone considering this the mathematically ideal option will work best, but the average gambler the statistically best is.
The expected value of buying a video game is about -$60, but people keep doing it, what chumps!
Some people get pleasure from playing the lottery occasionally. The value of the ticket, to them, is the same as the price. There are gambling addicts and people who buy lottery tickets as a way to try to make money, and they have made an error, but I don't think that's most people who buy tickets, even if it may be who most tickets go to.
I don't think those are even close to equivalent. The enjoyment from video games does not come from a hope of it "paying out." The fun of gambling is usually from the chance of getting a reward. If the reward were not there, would they still enjoy it? Probably not, so they're not just enjoying the act. Sure, there's some dopamine release that's driving the behavior, which is enjoyable, but there are methods to get this with better EV and more rationally.
As i said
Which is why you can work with a financial advisor and other wealth management strategies to set yourself up for success.
But yes, lots of people have lack of self control but if you're going to throw around big words like statistics then show those receipts. And i mean actual studies not an article pulling numbers out of their ass.
Statistics is a “big word”?
No, but it has meaning. So claiming statistics without said statistics is just speaking out of your ass
Ah, big as in meaning, not just “difficult big word.” Misread, and totally agree.
Statistics is a big word, yet you toss around "wealth management strategies" as if that isn't meaningless textbook bullshit.
I opened a bank account today and put $20 in it. It's a "wealth management strategy."
Yeah i knew you didn't have the data but thanks for confirming with this logical fallacy trash.
Wealth management are certified professionals who would be able to look at your entire balance sheet and help manage assets, provide financial advice, tax advice, etc. I specifically was referring to setting up an LLC or trust to claim the funds through and structure those entities in a way that you don't have direct access to all the funds to avoid burning through all the funds.
To your nonstatistical point: people have no self control, just look at you and me needing to reply to each other, but someone who wins the lottery will be able to afford professionals whose job it is to help beat those odds.
Anyway I'm glad you've saved $20 today and hope you have a great day
Statistically, people may tend to blow their lottery winnings and end up broke if they take the lump sum.
Financially, the lump sum is the better option because if it's well invested, it will grow faster than the full payout over the term of the full payout. It turns out that if you have near unlimited money for the best financial advisors, you will make a lot of money.
Most people are stupid and don't understand that even before you claim the ticket that you need to hire and consult with lawyers and financial advisors.
Why? Why would you want to do that? I'm a stupid person — I would just spend the money by investing them into stocks and opening a bank deposit, so that at least one of these enterprises has a chance to become a sustainable source of income. Organize a business I always wanted to maybe. Certainly wouldn't spend a single dime on 'lawyers' and 'financial advisors'.
So you can maintain some semblance of anonymity and not get murdered for the money when the news publishes your identifying information, and you dont get completely fucked by the IRS for not knowing every rule about being a millionaire
Money at this level has some pitfalls. Once you get into hundreds of millions, you can single-handedly move the market just by making a trade of that volume. That may or may not work to your advantage.
Why? I would assume it's the other way round.
The lump sum will grow to be worth more than the annuity over the same period if properly invested
Ah yes, the thing nobody is ever actually taught nor follows.
plenty of people do, they just don't have 400 million to do it with
like my brother used the cheapo student loans here in sweden to just chuck a bunch of money into low-risk index funds (i think that's the term) and he's gotten 2000 bucks from that for basically 0 effort.
now imagine doing that with millions of dollars
I don't fault him, but also that sounds probably illegal. That money is the state investing in education, expecting a return from a more educated populace. If you're just taking the money to invest it yourself, that's not helping their goal, and is probably breaking something you'd agreed to if I had to guess (or it probably should if it isn't).
i can see nothing about any limitations on what you can do with the loan at all, it's not investing in education as much as it's an incentive and aid to get people to study more, what you do with the money is wholly up to you. Should it be illegal to buy an e-bike so you don't need a car, and thus save tons of money?
the fact that you can invest the loans is part of the incentive to get you to study, if you start putting limitations on what you can use the money for (which i'm not sure is legal anyways, i don't even have any sort of limitations on what i spend my welfare money on, i could blow it on alcohol if i wished) then you start eroding part of why many people study in the first place.
In most countries though, loans are given by a bank for a specific purpose and not allowed to be used for other purposes. Now money is fungible though, so if you had enough money to not need a student loan, and you took the education loan anyway and then used it for education, and spent money you had anyway which you would have used for education but now you invest it, that’s all cool.
Edit - I realised I typed this very badly. What I meant was, say you had 10,000 BSD in your bank account, and took a student loan of 5,000 BSD, you now have 15,000 BSD. Now if you pay 5,000 BSD for college, whether it came from the original 10k or the loaned 5k, it doesn’t matter. And you could have paid the college from your original money and invested the 5k from the loaned money and it’s all the same since it’s from your fungible pool of 15k.
I guess that's a fair point. However, I do think there should be some limitations. There's limited money, and the governments job should be to spend it in ways that create the best outcomes (if it's a good government working for the people). If they're throwing it away in ways that aren't beneficial then there's an opportunity cost where it could be better spent on something else.
As for if it's legal, I have no idea on how your government works, but the government creates the laws, including the one providing the loans, so they could presumably create a law saying a certain portion must be spent on certain things (transportation, school materials, classes, etc.).
If you win a large amount of money, you don't need to learn how to invest it. You now have the money to pay someone to do that for you. You just need to not be stupid enough to skip this.
But you do need to be smart enough to hire good trustworthy finical advisers. And the more people you need to hire for a task the greater the chance of hiring poorly.
People investing any amount of money with someone need to make sure they're using a fiduciary advisor, because they are supposed to act on your best interests with your money. Non-fiduciary advisors can funnel your money into vehicles that enrich them at your expense.
Or... you know... it gets fucking wasted and scammed out of peoples hands because they have no idea to handle big money.
But then how much utility can you get out of the lump sum early on with those calculations?
There has to be some break even point, if your burn rate is high enough the annuity is better.
For a smaller amount this would be a much more important question. However, 550 million dollars is such a large amount that the gain in utility up to 2 billion is questionable. You could buy a private jet and still have half a billion to invest. That half a billion nets you 25 million a year (with 5 % interest/roi) without ever shrinking.
The usual math goes something like
Annuity: $2B paid monthly over 30 years is $5.5M/month; $3.5M after taxes.
Lump sum: $1B, $670M after taxes. Invested in index fund at, say 8%, can be expected to earn $4.5M/month, $3.6M after more taxes, which are lower for capital gains & dividends.
There's more complicated maths, if you want to model taxes, future values, and variable market returns, but they all say pretty much the same thing. They have to: the annuity works because They put the lump sum into escrow, pay a trustee to manage it well enough to pay the annuity and pay the trustee's salary. That means the trustee will invest said lump sum (before taxes) in low-risk, low-return assets, take his vig, and pay out the annuity from what's left.
Wouldn’t you pay a lot more taxes on the lump sum and subsequent capital gains?
Not when invested properly. Using easy examples, if you win a million dollars and take it over 30 years, say you're taxed 20%, you get $800k. You choose to take a lump sum and they only give you 30% of the value, you get $300k. Investing that $300k at 5% over 30 years, you've got an additional $55k over what you would have gotten over the same time period. Now, the average market return rate is closer to 3-5% higher than that, so that 5% return is a conservative estimate of what you have after fees and pulling some out for yourself (3% is a recommendation I've heard), putting you well above what you'd get from the annuity.
It's just down to generally investing the lump sum you can outperform the annuity option. If you search "lottery lump sum vs annuity" you'll get a lot of results. Here's one
If they die before they've been fully paid out, the lottery keeps the remainder of the money, and their loved ones don't receive the money.
He'd get 14 million dollars a year for 30 years assuming the total payout was the same. I get that advice for people who are looking at a 100k payout. But at some point it's just irrelevant. His first year alone would be a respectable total payout.
Yeah but he would get 47 million in interest a year if he took the lump and spread it across the market using the 10 year average. 11%
So using your 14 million number, he could invest half and leave the rest in something guaranteed like bonds or savings accounts and make more money and guarantee his family has it in the future.
It's enough money to buy everyone in your family a multi million dollar house the first year and not have touched the original balance.. : /
Arguably he could borrow against his annuity and save on taxes with loans. He could also setup a charity in which he donates a max amount and set up family on the board avoiding other taxes and making write offs as if he is ceo he can buy company property stuff that he can write off too.
Then he could, just grabbing an example out of the air, pay a painter to paint a portrait of himself, get that painting evaluated and valued for several million dollars, and then donate it to the charity and write off the value. Not that anyone would do that mind you.
I wouldn't use the most aggressive numbers on that, I'd plan for 5 percent. Which is 20 million but then you also have capital gains tax. After which you'll have 15 million a year instead of 14 million a year. The annuity also generally comes with a larger total payout though. So in reality it'll be higher than 14 million.
So yes you can get lucky in the stock market to beat an annuity, but that's not the reason people get told to take the lump sum. Most lottery payouts are 100k or less and 10k a year isn't going to do much, while 100k starts a retirement fund. Once you're high enough that the annuity itself is "quit your job money" it flips. Then if you screw up you know you're getting back on your feet next January.
Those aren't the aggressive numbers though, that was the market average. So hoping for 5% is a little low but I understand it is always good to be skeptical. Any way we look at it though, it's fuck you amounts of money haha. When someone says what's your budget this month and their answer is "I mean I don't really want to spend over a million..". You know that guy really doesn't need to check the price of eggs that week.