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Investment Advice from Lottery Winners

Commonwealth Magazine continues to be the most well-written, well-investigated publication covering Massachusetts.

An article in the Winter edition described how the state is making extra money when lottery winners take a smaller lump-sum payout rather than the per-year option.  Why would these winners leave money on the table?  “Our players were not doing very well on the open market.”

It’s almost as if she’s suggesting that people who play the lottery are bad at making decisions about money . . . .

Comments

Comment from Quantum Mechanic
Time: January 23, 2011, 9:59 pm

Enh. Not impressed at all. That CW article is rather facile.

There’s no a priori reason for someone’s personal discount rate to be same as MA’s discount rate. If my discount rate is higher (maybe I want to start a business and need the lump sum, or I have a low life expectancy and want to enjoy the $ myself rather than letting my heirs have it, or a whole host of other, quite legitimate reasons) then the NPV to me of the annuity could easily be less than the value of the lump-sum payout and therefore it would be quite rational for me to take the lump-sum.

Comment from Rob
Time: April 6, 2011, 10:57 am

I agree that it is better to get it in a lump sum. BUT. I would recamend that they get conservitive financal advice first. In most cases the full payouts after taxes are abought 30% of full value . If people would make 7.2% or more and live on 4% or less they will do very well and have abought the same amount after the 20 years or more for the payments full amount.