My co-worker just won the $126M Mega Millions Jackpot

[Darth Ape]

http://www.dallasnews.com/sharedcont....5b9c66b1.html

They announced today. He found out last week but told no one. He was mobbed by about 15 poeple after the announcement and took off... permanently.

[Janett_Reno]

Wow, could he get us season tickets to the Mav games? Congrats and as close as i have heard was a good friend of mine hit 1 million pennies earlier this week on a slot mahine. 10 Grand and 3 grand went for taxes.

[Flacolaco]

That is nuts!

I wouldn't tell a soul if i could help it. You can keep it private if you want to right?

[bernardos70]

Mother.......

[Dirkadirkastan]

One less thing...

[DubOverdose]

Random question- how old is the guy? Is it someone that now can retire at 25, or someone that's close to retirement?

[Darth Ape]

early thirties. he took the annuity option. About $6M payout per year for the next 26 years.

[MavsX]

i am going to get him!

[bobatundi]

Originally Posted by Darth Ape

early thirties. he took the annuity option. About $6M payout per year for the next 26 years.

bad idea. the discount rate they use for cash value option is only about 5%. easy to beat that on that kind of money (lump sump would have been $71.5MM).

yes, these are sour grapes.

[MissNU]

I would make very good friends with this co-worker of yours........

[ocelot_ark]

Any finance student with even a basic understanding of money knows that a dollar today is worth more than a dollar tomorrow. No telling how much that dude screwed himself out of by not taking a lump sum now, IMO.

[Nemesis]

Originally Posted by Dirkadirkastan

One less thing...

He can now mow lawns for free.

[sike]

and that is as close as I will get.

[Dirkadirkastan]

Originally Posted by ocelot_ark

Any finance student with even a basic understanding of money knows that a dollar today is worth more than a dollar tomorrow. No telling how much that dude screwed himself out of by not taking a lump sum now, IMO.

The lottery company pays the same amount of money no matter what. You can either get that lump sum, or they will divide the money and place it in bonds that all mature to the same number of dollars each year. The bonds that mature sooner get more of the initial money because they have less time to mature. The interest on the bonds is set at a constant rate and is not affected by the market, so the lottery company is indifferent about which method of payment you choose.

The market rate does impact the winner though, because that will determine the purchasing power of the dollar amount he receives each year. If the market rate is slower than the rate of interest on the bonds, then the bonds increase in value each year and the winner made the correct decision to receive yearly payments. But if the reverse is true, then the lump sum would have been better. Since the rate of the bonds is supposed to be an estimate of the market value, either situation may arise. It's a risk either way.

This is NOT a question of whether one should receive $126M now, or $126M divided up over a long period of time. That question is just too easy.

[MavsX]

i would have taken the lump sum, gone on some crazy lindsay lohan/paris hilton drug/ alcohol party craze for a month, dropped $3-5 mil, contracted AIDS...

but it would have been one hell of a ride....

[bobatundi]

Originally Posted by Dirkadirkastan

The lottery company pays the same amount of money no matter what. You can either get that lump sum, or they will divide the money and place it in bonds that all mature to the same number of dollars each year. The bonds that mature sooner get more of the initial money because they have less time to mature. The interest on the bonds is set at a constant rate and is not affected by the market, so the lottery company is indifferent about which method of payment you choose.

The market rate does impact the winner though, because that will determine the purchasing power of the dollar amount he receives each year. If the market rate is slower than the rate of interest on the bonds, then the bonds increase in value each year and the winner made the correct decision to receive yearly payments. But if the reverse is true, then the lump sum would have been better. Since the rate of the bonds is supposed to be an estimate of the market value, either situation may arise. It's a risk either way.

This is NOT a question of whether one should receive $126M now, or $126M divided up over a long period of time. That question is just too easy.

The choice was $126MM in 26 annual installments, or $71.5MM lump sum. The lottery company is indeed indifferent as explained above. This is equivalent to about a 5.25% discount rate. So you have to figure, can I get a better return on my money over time than 5.25%. The S&P 500 has averaged 11.5% annual rate of return over the last 35 years--so, I daresay, yes. Is it riskier? Of course. Not suggesting you put all $71MM (call it $44MM after tax) in an index fund...but in theory you could and you'd be better off in the long run.

Additionally, you could party like a rock star now with the lump sum.

[chumdawg]

He may have bought a ticket without even thinking about it. I don't know about you, but I certainly wouldn't fret over the ramifications if I were in his shoes.

[Dirkadirkastan]

Originally Posted by bobatundi

The choice was $126MM in 26 annual installments, or $71.5MM lump sum. The lottery company is indeed indifferent as explained above. This is equivalent to about a 5.25% discount rate. So you have to figure, can I get a better return on my money over time than 5.25%. The S&P 500 has averaged 11.5% annual rate of return over the last 35 years--so, I daresay, yes. Is it riskier? Of course. Not suggesting you put all $71MM (call it $44MM after tax) in an index fund...but in theory you could and you'd be better off in the long run.

Additionally, you could party like a rock star now with the lump sum.

Excellent. Thank you for filling in the numbers, I had no idea what they were.

[mary]

Yeah..I'm sure the guy is kicking himself in the pants for *only* getting 6 million for the next 26 years. But discount rate aside, if you die while you are collecting the annuity, what happens to the rest of it? Is it paid to your estate?

[MissNU]

Most likely paid to the estate unless you have a beneficiary designated?

[bobatundi]

Pretty sure the annuity is payable to your heirs. As Dirkadirkastan pointed out, the lottery is paying the same amount either way--they're either paying a lump sum or buying bonds with varying maturity dates. Otherwise the annual payment option would ALWAYS be stupid.

And no, I wouldn't complain about $6MM a year for 26 years either. I don't expect the average lottery ticket purchaser to grasp the finer points of discounting cashflows. Of course, I bought a ticket for this one. Lump sum option, natch.

[MavsX]

lucky bastard

[OzMavs]

Originally Posted by bobatundi

The choice was $126MM in 26 annual installments, or $71.5MM lump sum. The lottery company is indeed indifferent as explained above. This is equivalent to about a 5.25% discount rate. So you have to figure, can I get a better return on my money over time than 5.25%. The S&P 500 has averaged 11.5% annual rate of return over the last 35 years--so, I daresay, yes. Is it riskier? Of course. Not suggesting you put all $71MM (call it $44MM after tax) in an index fund...but in theory you could and you'd be better off in the long run.

Additionally, you could party like a rock star now with the lump sum.

Wow. Not that I'd complain if I won, but I'd want my 126 million up fornt!!

And you guys get taxed on your lottery wins? Well, we don't get 126 million lotteries in Australia, but we don't get taxed on them either!

[alby]

its not 126 million up front.

what a lucky guy, damn.