purposes?

Since winnings are taxed as ordinary income, would it matter how you elected to receive it? Would it be better to go with the current tax rate for that much money, or take a gamble on the top rate being lowered some years down the road? Because the top marginal rate is going to be at least 39.6% starting in 2011 (not sure how many years it will be in effect). But the top rate now is 35% on income that is over $373,650, plus $108,421.25.

So I figured that amount would come to $34,869,222.50 + $108,421.25=$34,977,643.75.

And SS tax is 6.2% on the first $106,800 ($6,621.60) and Medicare tax is 1.45% (1,450,000).

That comes to about $36,434,265.35 not including state tax (if the its paid in that state).

That’s about 36% total. My numbers may be off, but just assuming you could walk away with a little over $60,000,000 right now, would it be better to take that or (let’s assume) $5,000,000 (pre-tax) for 20 years?

I would take the annuity certain over a lump sum. But not for tax reasons.

If you take a lump sum, they only pay you the present value of the annuity certain. At today’s interest rates, that’s around half of the gross amount. Since you are getting a discounted payout up front on the lump sum, inflation is largely a wash. In fact, if the 20-year rolling averages on inflation hold true, and there’s little reason to think that they won’t, you may even come out a bit ahead with the annuity certain.

From a tax perspective the savings will be minimal with the annuity certain. Taking the annuity does shift more of the income each year into lower brackets, but with a win that large you’ll be looking at the difference in net rates of between 34.2% and 34.5%. That does assume that rates stay static at their current levels of course, which is unlikely given the status of the deficits, but there’s no way to accurately predict future tax rates. Assuming that you took the lump sum and invested it wisely you’d still be hit with the increased taxes on the future income that it generated. Another wash on taxes.

None of that would influence my decision significantly though. What my decision is based upon is what happens to most people who have a win that large and who take the lump sum. Most of them wind up broke and bankrupt in a few years. With the annuity certain the odds of that are greatly reduced.

Many lump-sum winners give away a lot of their winnings to friends and family, blissfully unaware of the gift tax consequences of doing so. More than one has given away more than half of their winnings, only to be slammed by the IRS for every remaining penny. Gift taxes run as high as 55%. It does not take a mathematical genius to figure out that if you give away half, you won’t be able to pay the tax bill with the remaining funds. Some folks who took the annuity certain did run into financial trouble in the first year or two, but learned from their mistakes while they could still afford to get back on an even keel and did quite well in the out years.

The claim that you are depending upon the state to stay solvent in order to collect the annuity certain is pure FUD from someone with no financial savvy. The annuity is not paid directly by the state, but with proceeds from an actual annuity contract purchased from a highly-rated commercial insurance company. Many states now break the contracts up among several carriers as a hedge against one carrier going bust as AIG nearly did. For you to lose out would require that all of the insurance companies AND the state all became insolvent. If things ever get THAT bad, the guy who took the lump sum is probably going to be as broke as you are, even if he invested it wisely. And contrary to what that respondent claims, no state has gone bankrupt since the Civil War. A few cities have in the past 50 years, most notably New York and Miami, but no states have.

Note: Social Security taxes only apply to earned income. You would not pay any FICA taxes on a lottery win, regardless of how you took the payout.

The answer depends on how often the interest is compounded. Annually? Semi-Annually? Quarterly? Monthly? Daily? Depending on how often the interest is compounded, the annual interest rate for the annuity CHANGES!

In a lottery, the winner is paid 6.4 million dollars at the rate of $320,000 a year for 20 years. These payments form an ordinary annuity. If the lottery managers can invest money at 6.25% compounded annually, what is the lump sum they must put away?

This is a question in my textbook, and I cannot figure it out, any help?
Please?

I’m getting $3,597,030.57 using the present value function in Excel.

What is a complicated instrument that requires a sunk cost in the beginning, an annuity in some middle period, and an end-of-investment-horizon lump sum?
thnx
This is for a class. i need help..geesh smart mouth..lolz

I hope you didn’t Buy an Annuity from
some company and you don’t know
the terms of the contract. God help you.
Go back and ask questions .

When you are looking for a term life insurance policy it is very important that you find out the whole and true picture of the different companies that can supply you with cover, you will want to compare cheap term life insurance rates of all the companies, so that you know you will be receiving the best deal for your dollar.   This is a key point in the process as it will allows you to learn more about the different options and policies that are available from the different term life insurance companies that are out there.

When you, as an individual, complete a life insurance comparison, you are looking at comparing the different options that are available to you as well as the ones that will suit yourself, your life, your family and your budget.  You want a term life insurance policy that is right for you and not many others.

Acquire Knowledge of the Life Insurance Market
When you choose to complete a comparison of life insurance companies and options, then you should look at the different ways that you can get the information you are looking for. There are many different life insurance companies in the market offering a whole range of different policies that are available for most people, but there are only a certain few that are worth considering and really worth the time looking into further.

Some of these companies will be relatively new, such as ING, but they have gained respect in the short space of time that they have been established in the market as a company who offers good products and a great service to their customers. ING do not have any branches, they are all based over the phone or prefer dealing with you via the internet and this is why they can offer you a really good deal on many of their different policies that they offer individuals and families.

That said, there are many other companies in the market: Banner Life Insurance Company, AXA Equitable Life Insurance Company, Genworth Life and Annuity Insurance Company, MTL Insurance Company, West Coast Life Insurance Company, ReliaStar Life Insurance Company, and the Ohio National Life Assurance Corporation; these are just a few of the organizations who can help you with information on their life insurance policies and also help you get a policy with them that will suit you.  However, many will provide you with information on their own policies and not necessarily provide you with information on their competition, unless it is to say that they are a lot better than them.

Choosing the right one
You will want to be wary when choosing the right company and policy for you as it will be a decision that you may not be able to reverse; and is dependent on the company’s policies and procedures for what you actually take out – your comparison that you made earlier can help you immensely in making a decision that will help in the longer thinking of things. You should also think about asking a professional adviser for help too, as they are specially trained and their input and specialist knowledge in the field will be invaluable.  You will need to be sure that when you contact one that, they don’t just work for one company but for a range of different companies, this will make sure that they will give you valid information and that they know the market.

You should already have a little knowledge about the terms used in the market when you have looked at a comparison cheap insurance life term whole quotes from many different firms. Also, you should think of life insurance as a commodity, as a lump sum will be paid to the family of the policy holder who dies.  Because of this, you as an individual are able to choose amongst many of the different life insurance policies around the market because many of them are the same and the sole judgment for nearly all individuals is the monthly premium and how much you are covered for.

You should think of having a life insurance policy as being necessary, so having to compare cheap term life insurance rates will mean that you have a clearer understanding of the small cost you will have to pay for piece of mind and coverage in the market.

Ray Devine
http://www.articlesbase.com/insurance-articles/why-it-is-so-important-to-compare-term-life-insurance-quotes-692059.html

I need to know what to invest in conservatively and whether to use 72T. I have been told to stay away from annuities. Help I will be 56 in December and just retired last week so will probably not see any of it till January or so. I need it to last and do not know if I will be able to work and need suggestions. My home and car are paid for and no outstanding bills, just car and house insurance taxes ,utilities, and basic needs and I am single,
UPDATE : I am working with Fidelity and opened an IRA so I will not be paying any taxes out of it untill I actually receive any of it. I am thinking of using 72T for 5 years an also have some money in 401K and just want info for what to do with it in that IRA
I still have all my benefits from at&t so that includes insurance. I do know that we will be paying something for the insurance in the future but don’t know how much yet but I have heard that for retirees it will be around 13 a month for single. I also have applied for Social Security Disability but don’t know if I will qualify and have been on short term Disability for a year and needed to retire

If you have no pension and need to live on the income from $359,000, be prepared for a shock. You can’t get SS till 62, and then you are penalized for taking it early. so the lump sum is going to sustain you for at least 6 years.

A safe withdrawal rate of 4% of $359,000 is only $14,360/year. You probably can’t live on that, so even if you "round up" to $20,000-25,000, you will probably need a second job to get you to SS.

Another problem is health insurance. If you don’t have retirement health insurance paid for by your employer, figure on 10-20% of your income going for health insurance. National average for a family is $12,000+, not sure what single is, but that’s a good percentage of your $14,360. How are you going to cover health care until age 65 Medicare? (We are paying 25% of our income now, on COBRA, for 2 people.)

You need to find out how much your age 62 vs age 66 SS would be, then input some numbers into a retirement calculator at fidelity.com, vanguard.com, or troweprice.com. See what the numbers say before you make any decisions.

Don’t invest in anything you don’t understand. As the past year has shown, there’s nothing wrong with cash, esp. shortterm. Always keep a good cash cushion of 6-8 months living expenses in the bank or credit union. Annuities have high fees upfront (typically 7% of what you invest). Mutual funds from the above 3 companies are "no load", no fees up front; these companies have funds with good longterm records (see Morningstar.com or your library for more info).

The less money you have (and $359,000 is NOT a lot of money if you’re going to live another 30-40 years), the more conservative you need to be. A sound principal for longterm is 1/3 cash/CDs/money markets, 1/3 bonds, and 1/3 stock mutual funds (for growth). This canhelp you sit out downs in the stock market while letting some funds grow to counter longterm inflation.

Good luck! Don’t be intimidated by all this advice. Start with the retirement calculators and base your decisions on numbers, not wishful thinking.

Lets say you won the Megamillion jackpot (estimate to be worth $122 million as of today), is tax applied immediately on the winnings or do you have to pay it when taxes are due?

If you did win, would you select lump sum or annuity payments for 26 years?

If you select annuity payments, do you pay income tax every year on that?

I would take the annuity. That way if I made a lot of dumb mistakes because I don’t know how to handle big money, there would be another chance the following year to get it right. An amazing percentage of big lottery winners blow all the money.

Yes you do pay tax on it every year you collect. You should definitely make advance payments on any taxes that may be due immediately. If you wait until it’s time to file, you could get hit with penalties for under withholding. When you file, you report the advance payments that you have made and get credit for them.

Lottery winnings are considered "ordinary income". If the winnings are substantial, they will throw you into the highest tax bracket, but that’s only 35% at the Federal level. State tax on the money will vary. Most states will take their cut before you ever see a penny of lottery winnings.

Lets say you won the Megamillion jackpot (estimate to be worth $122 million as of today), is tax applied immediately on the winnings or do you have to pay it when taxes are due?

If you did win, would you select lump sum or annuity payments for 26 years?

If you select annuity payments, do you pay income tax every year on that?

I would take the annuity. That way if I made a lot of dumb mistakes because I don’t know how to handle big money, there would be another chance the following year to get it right. An amazing percentage of big lottery winners blow all the money.

Yes you do pay tax on it every year you collect. You should definitely make advance payments on any taxes that may be due immediately. If you wait until it’s time to file, you could get hit with penalties for under withholding. When you file, you report the advance payments that you have made and get credit for them.

Lottery winnings are considered "ordinary income". If the winnings are substantial, they will throw you into the highest tax bracket, but that’s only 35% at the Federal level. State tax on the money will vary. Most states will take their cut before you ever see a penny of lottery winnings.

I live in Canada if that matters. I have an option of lump sum or annuity. I was thinking pay student loans and buy a house and car, but what about investments? I am thinking it is smart to buy a house and never have to make mortgage payments… help…..
I have about $15 000 of my own money already saved, and about $17 000 student loans (dont have to start repaying for another year) Thinking of getting a volkswagen TDI probably used. I dont want to live the life of a rockstar, I want to make sure I secure my future.

First thing to do: NOTHING!

Go to your bank and open a Certificate of Deposit with a 6 month maturity. Then, for the next 6 months, consider all of your options and ideas.

DO NOT buy a car, clothes, trips, dinners, shoes, a dog, a horse, a house, a boat, a plane, a new anything or give any of it to anyone who needs it. WAIT the 6 months and consider a long-term plan.

Consult people who have money and have been able to hang onto it. Talk to no one under 50 about this matter.

I’m trying to find out wether they are any good. If they are, who does them?
I know you pay a lump sum and in return get payments for care for the rest of life (lump sum being approx 4 to 5 x the annual payment).
Where can I get more independant advice?
Thanks

An independent financial advisor can help you with that.