xx Annuity Cashflow Calculator

Page Description

The xx lottery offers jackpot winners the choice of either collecting their winnings as a single lump-sum payout, or as a multi-payment annuity. In xx, the annuity consists of xx payments paid one year apart. Each xx payment xxx.

The cash payout is approximately 50-60% of the advertised annuity jackpot, but this percentage varies depending on the level of interest rates. To be fair to the winner, the cash value should be the same as the total required to fund the time-delayed annuity payments.

Both payment values are publicized and paid by the State where the ticket was sold. Regardless of payout method (cash or annuity), the State will withhold 25% for Federal Taxes, which is typically 4% to 14% less than the actual taxation rate you will need to pay. However, State taxes are not withheld at the time of payment. This means that when filing taxes, a winner may have to pay a combined 4% to 28% more in taxes depending on the state and amount of winning payment.

The Three Tables - Cashflows, Input & Taxes

To help you decide whether you want to take the annuity or cash payouts, we have provided this xx Annuity Calculator which contains three tables below. The table on the top right is the lottery information input screen. There, you can change the annuity and cash payouts, yield and ratio, as well as the federal and state tax rates. Once you enter your data and either move the cursor or hit return, the corresponding payout structure and tax summary tables will be updated automatically. The table on the left illustrates each of the individual annuity cash payments. And, the table on the bottom right shows the tax implications based on both federal and state rates.

Header One

Table T1 above shows each of the individual cashflow payments that will be made by xx annuity. Each payment shows:

  • Gross Payment: The full amount of the yearly payment (from this, you will pay taxes)
  • Fed Tax: The amount of Federal tax due for that payment.
  • State Tax: The amount of state tax due
  • Net Payment: The amount of money you will keep after taxes.
  • Yield: The implied yield required to fund this payment
  • Discount Price: The amount of money that needs to be deposited to fund this payment
At the bottom of the table, all values are totaled (except yield because this does not apply).

The total sum of the payments will be equal to the annuity jackpot value.

And, the total sum of the discounted prices will be equal to the advertised cash value.

All items that are important to the lottery jackpot winner. However, particular attention should be paid to the Fed and State Tax totals, and the Net Payment total because this is the amount of money you will keep.

     T2: Input Area

This section allows you to enter the Annuity, Cash, Yield and Ratio values in the column labeled 'Value'. These are shown in green. In addition, you can select your Federal Tax filing status and State of residence.

? Detailed Help for Table T2

T3: Tax Summary

This Tax Summary table shows you how much money you will receive and pay, depending on whether you opt to take the Cash or Annuity payouts. These are shown in the Gross & Net rows.

? Table T3 Detailed Help

Links

Lottery Players and Winners: Estate Planning for the Optimistic and the Lucky

Advising a Client Who Has Won the Lottery

This section allows you to enter the Annuity, Cash, Yield and Ratio values in the column labeled 'Value'. These are shown in green. Typically, you would enter both the Annuity and Cash values (since these are given), and then the Yield and Ratio values are calculated accordingly.

However, to make it easier to use, you can select any parameter to hold as a constant ('Hold' column). For example, if you change the Annuity hold value to Ratio, then that value will remain constant whenever you change the Annuity value (and so on).

Taxes are calculated using the 2014 Federal and State Tax Tables, which means that the amounts of tax due will vary depending on the amount of payment you receive.

You may change your filing status from 'Joint' to 'Single' (row 4), which will determine both your Federal and State Tax amounts.

Lastly, you can change your State using the pulldown in row 5.

The Tax Summary table shows you how much money you will receive and pay, depending on whether you opt to take the Cash or Annuity payouts. The values displayed under the first 2 columns are:

The last three rows '%FedTax', '%StateTax', '%TotalTax', indicate your effective tax rates for each of these categories.

Note that whenever you change the Federal filing status or State (Table T2), all values (except Gross) will change accordingly.

Lastly, the 'Diff' column shows the difference (Annuity - Cash) values; and the 'Pct' column shows the Cash / Annuity ratio.