Question

You just won the Oregon State Lottery for $34 million. You have the choice to take a lump-sum payoff or an annuity for 20 years. What factors would you consider in making this decision? Your answer should be a paragraph that contains at least four (4) sentences but no more than ten (10) sentences. The answer should be properly cited and provide good insight into the material.

Answer 1

Whether lump sum or annuity:

The factor to be considered is the tax bracket. Whether the person wants to go in for lump sum or annuity, he will be in tax bracket for next 20 years. If you take lump sum, you will be in the current tax rate and when you go for annuity, the rates keep fluctuating every year when you receive the payment.

So people who feel that the top tax rate will decrease over a period of time or the flat tax crowd will win can go in for annuity and people who feel that tax rate will increase over time can go in for lump sum. But in general people may prefer to go in for lump sum as they may have some immediate requirements to be met lie funds required for the business, to lead a rich life etc. Hence the decision to go in for annuity or lump sum depends on the type of return that the person can get.