What Would You Do: Lump Sum or Weekly Cash for Life?
By Kate Musgrove
April 23, 2015Here's a question I have been thinking about lately. If you were to win one of OLG's Cash For Life prizes, would you take a lump sum payout, or the weekly payment? The Cash for Life ticket available right now offers $2000 a week for life or a lump sum of $1.35 million. A quick call to OLG this afternoon confirmed that you do actually receive the money for life (some lottery programs offer "for life" payouts that last as little as 20 years) and that if you win the Cash For Life prize at the age of 71 or older, you can will the prize to someone else and it will pay out until what would have been your 91st birthday.
Here is the major pro for taking the lump sum: compound interest. Even saving half of the payout in a high-interest mutual fund would mean quite a bit of passive income as time went on. But you actually have to save and invest the money in order to get compound interest -- that's not something everyone is interested in or capable of doing.
Those are not erasable markers.On the side of the weekly payout, the big pro is that even if you're not great at managing money you've got a regular income source -- and it's $2000 a week, tax free, while any income generated by investing will be taxed. But, if you're worried about caring for a spouse and children, it's worth noting that, uh... the income will stop when you die. The passive income your lump sum generates, on the other hand, keeps on coming. But, macabre as it is, you might also want to consider your age and life expectancy when making the decision. With the lump payment at only $1.35 million, you're basically getting thirteen years worth of Cash For Life payments if you take it -- but if you live thirty years after winning the prize, you'd get more than double the lump sum payment. (And of course, if only live ten years after winning the prize, you're getting about $300,000 less than you would be if you had taken the lump sum.)
Either way, it's a interesting debate, and we're definitely curious to hear what you would do.
Showing 16 Most Recent Comments
View allAlso, don't think about passively investing the money...try to go for a medium-risk investment...because the dividends will be much higher.
Also, invest into a small business...that will bring hopefully a steady stream of money that might far exceed the 2000 weekly payments.
That's what I would advise...but don't put the money in GICs and such...with inflation...you are actually losing money instead of making it.
To do that, take the lump sum and with half of it (or some other percentage) buy an annuity. An annuity is where you give an insurance company cash and they pay you a monthly income that is practically tax free. You'll never see that cash again. You'll only get guaranteed monthly payments. You could live off those monthly payments. The older you are, the higher the monthly payments. The other half of the money you could invest and not spend and let it build up.
Gotta keep your money close to yourself!
The TSX earned a 10 year average of 7.4% or the decade ending December 31, 2014 and the 10 year average gov't bond yield was 2.6%.
Lump sum.
If i took the 1.35M, it would run out in 13 years. Any growth/income/dividends i get from investing this would be added with my other income for tax purposes. I think this wouldn't be very favorable because the tax on this new income would be in a higher tax bracket... I'd have to earn quite a bit of growth on a yearly basis to receive the equivalent 2k/week tax free on that 1.35M. all IMO. that was fun to think about haha
On the other hand, researchers say miserable person will stay miserable even if they won a lotter; happy person will stay happy even when crippled.
There's more to consider than just the highest total amount you can get. Money is certainly an important factor in life, but still not as important as time. Getting $2k a week would of course increase your standard of living and ease your financial stress (as long as you don't get accustomed to it and increase your spending until you reach your previous level of financial stress). But it would still take significant time to build substantial capital and do anything major with it. With a lump sum you could immediately upgrade everything in your life that's important to you, invest the rest, and live on it while building your next income stream - new business venture, etc.
Then again, most people could retire from their current work either way, and some just don't want to deal with the responsibilites of financial management and would prefer the comfort of a regular income of a known amount. I've just always found that boring, myself.