The Lemon Fool

A Canadian teenager has won the lottery and was given a choice between 1 million lump sum or 1000 a week for life

https://www.google.co.uk/amp/s/www.bbc. ... s-43566894

Which one would you choose?

At my age the lump sum

At her age, I'd have had the income, and looked very carefully every time I crossed the road

5.2% income and not indexed.

Better the £1 million, which invested should offer a similar income and likely long-term capital growth.

A key point is that under Quebec law the $1,000 per week is tax-free. If you were working in Quebec you would have to earn over $100,000 a year to end up with $1,000 per week after tax.

This is a pretty good reason for an 18 year old to take the income, especially since Canada isn't a country that's prone to inflation or wildly unpredictable governance (both of which would favour the lump sum). If she took the million and invested it then she would be taxed on the income.

http://www.ctvnews.ca/canada/quebec-tee ... -1.3860531

Taking the income also prevents her from spending the lump sum. History tells us that many lottery winners blow most of their lump sum on things like excessive consumption, bad investments, hangers-on and relatives' stupid business plans. This would be a difficult thing for the typical 18 year old to resist but taking the income removes this temptation.

If I won this choice, being much older I would take the lump sum. I reckon that I can beat 5.2% per annum after tax over the long term. Also my current income is more than adequate to live on.

Luckily she's Canadian, not American. In America lottery winnings, both lump sum and annuity, are fully taxable with almost 40% going to Uncle Sam.

https://www.cnbc.com/2016/01/11/tallyin ... l-win.html

Wmnr wrote:A Canadian teenager has won the lottery and was given a choice between 1 million lump sum or 1000 a week for life

https://www.google.co.uk/amp/s/www.bbc. ... s-43566894

Which one would you choose?

£1 million now into City of London IT. I'm very glad to see that article discussing inflation / time value of money.

Interesting question. 1000 a week with no taxes seems like a better option for me

Well if we treated the win as similar to a Canadian long bond then the value would be around 1,800,000 , given its tax free its probably worth around 50% more....

Clearly inflation will take a toll, reinvest some of the income in equities to provide some protection.

Obviously the younger you are, the more weeks you are likely to be alive and receiving a thousand a week. The tax free bit is kinda cool..

If I was a teenager again a million as a lump sum would have been fun but probably not a good idea and good advice with using such a sum and the life implications would be hard to come by...

Oddly if I had such an offer now, I’d take the lump sum merely because not enough years left !

A 5.2% after tax return , guaranteed is pretty valuable.

lets hope he avoids any high risk activity!

Another important factor is how financially strong is the entity paying the $1,000 per week? Not much good if the lottery company goes bust in a few years time.

scrumpyjack wrote:Another important factor is how financially strong is the entity paying the $1,000 per week? Not much good if the lottery company goes bust in a few years time.

I'd assume that the company providing the prize would purchase some sort of annuity product from an insurance company which would provide for the $1000 per week income. If this was the UK then as an insurance based product it would then be 100% covered by the FSCS guarantee if the insurance company were to go bust - I believe there is a Canadian Investor Protection Fund which provides similar protections in Canada.

As to whether to take the income of $1000 per week tax free or the $1 million it is worth remembering that it will take over 19 years to accumulate $1 million if you spent none of the income in the meantime and even at a modest rate of inflation(of say 2% which is the Bank of Canada inflation target) that £1 million will be worth about half its current value by then. On the otherhand if you took the $1 million you would have that money reasonably safe and get a taxable income from dividends/interest albeit less than $1000 a week. So as a teenage winner she made the right decision but if the winner had been much older nearer to pension age then it would have been better to take the $1 million.

Well ... once a contrarian, always a contrarian

Well ... hell[o]

Just a thought to get the party started ... she will not be able to buy a home "outright". Therefore, when she does buy a home she's going to have a "negative" impact on her wealth because of that interest.

I'd suggest this would change the balance and she would be better off taking the million and being "mortgage free"

She could also buy a car. The balance could be dropped into a fantastic stock (BH )

AiYn'U (All complaints in writing purlease )

A person's requirement for a safe abode, coupled with Western govts predisposition for protecting the existing home owning population surely makes the lump an obvious choice if dumped largely into property. It is effectively an inflation linked bond paying the rental value. Comparing that against an inflation reducing income starts to be a bit trickier but is nearer to the decision that is really being taken - and you are keeping the lump. The decision for the lucky individual starts to come down to how much property do I want to extract value from (which isn't taxed) and how much income do I want from property that I don't live in (which is taxed). Some version of this is being played out by pretty much everybody.

1000 per month is 12000 per year.
1000 000 / 12000 = 83.3 years.
Average life time - 75.

Most of money you need when you are young - travel, car, cloth, house.

So, I think 1million at once is better.

And if you don't want to spend money on this things, you can decide to give yourself 1000 a month on your own

baltica77 wrote:1000 per month is 12000 per year.
1000 000 / 12000 = 83.3 years.
Average life time - 75.

Most of money you need when you are young - travel, car, cloth, house.

So, I think 1million at once is better.

And if you don't want to spend money on this things, you can decide to give yourself 1000 a month on your own

Er, its not a million when you are born, but when you win, so presumably, on average half way through that "75". Similarly it's £1,000 per week not per month, so £52,000 per year, not £12,000 and again that's for on average half way through "75" and beyond.

A £1m up front is probably better for many, but for some, it's probably "safer" to get £1,000 a week!

baltica77 wrote:1000 per month is 12000 per year.
1000 000 / 12000 = 83.3 years.
Average life time - 75.

Most of money you need when you are young - travel, car, cloth, house.

So, I think 1million at once is better.

And if you don't want to spend money on this things, you can decide to give yourself 1000 a month on your own

Erm, it's $1,000 per week = $52,000 per year, so that's 19 years from age 18 which is 37.

And it's tax-free, with payments backed by the province of Quebec. Tax-free improves the benefits by quite a bit.

Also the usual motley crew of relatives and "friends" who have a habit of turning up when there's a publicised windfall, with bad business ideas and begging letters, won't be able to get their hands on any of the capital.

AsleepInYorkshire wrote:She could also buy a car. The balance could be dropped into a fantastic stock (BH )

AiYn'U (All complaints in writing purlease )

She's a Canuck. Be patriotic and go for Brookfield Asset Management instead

(better than Berkshire for many years, I'm a long-term holder of both)