Posted on 12/20/2025 9:50:46 AM PST by where's_the_Outrage?
Would you rather be a millionaire or have safe, reliable passive income for life? That’s the difficult choice that many lucky lottery winners are frequently faced with. While the prospect of a seven-figure payout is tempting, 20-year-old Brenda Aubin-Vega from Quebec, Canada recently decided to take the recurring payment option instead.
After scratching off three piggy bank symbols on her Gagnant à Vie ticket, Aubin-Vega was stunned to discover she had just bagged the game’s top prize. “I couldn’t believe my eyes! I checked my ticket over and over again,” she told Yahoo News Canada (1).
After calling her dad and taking time off work, Aubin-Vega reached out to Loto-Québec to let them know she would be claiming her prize in the form of a $1,000 weekly annuity instead of the $1 million lump sum that was also available.
The decision prompted ridicule across social media, with Reddit commenters insisting the upfront payout was the rational move. The reaction underscores a broader debate about whether large windfalls are superior to guaranteed income.
Here are some of the pros and cons of Aubin-Vega’s annuity approach.
Pros
Taxes are, perhaps, the most important factor to consider if you’re ever faced with a choice between a sizable windfall or annuity. Income from gambling is fully taxable, according to the Internal Revenue Service (IRS) (2). Many American winners also face state and local taxes on lottery winnings.....
Cons
One of the downsides of picking a weekly payment instead of an upfront jackpot is the lack of flexibility. An annuity is permanent, but $1 million in cash can be freely invested in a wide range of asset classes, some of which could have delivered better growth opportunities.
(Excerpt) Read more at msn.com ...
$1,000 weekly in 30 years (when she’s 50) may not even pay the rent.
Either option is nice, but she’ll still need to keep working in the mean time.
I believe one major lottery goes up by 5% each year in the annuity option. So I read.
On a lark I did an analysis of the lump sum and annuity options using PV and NPV and RoR with certain portions taken for expense and in the case of the lump sum option, a one time large lump sum for mad money set-up type spending.
Surprisingly, based on a 7% alternative investment threshold, the two options come out close but not real close to each other in terms of NPV7 if the proceeds are invested at various assumed rates of return. At high levels of winning it is a reasonable certainty you will not be able to effectively spend the lump sum or reasonably spend the annuity either but can only invest most of it and that will be a task. There is also the PV cost of the lump sum taxation vs. spreading it out over the annuity and so there are factors to consider other than simply PV without taxes and investment.
Under one scenario of a $1 billion payout the NPV7 and liquidation of the amassed investment amounts are:
Annuity: $168,947,300.70 for the NPV7 and $2,033,298,942.36 for the after tax FV of the liquidated investment stream, $1,340,038,9.48.16 in inflation adjusted simple PV
Lump Sum: $212,015,378.08 for the NPV7 and $1,866,372,485.91 for the after tax FV of the liquidated investment stream being less owing largely to the time value of taxation on the lump sum amount, $1,573,972,267.67 in inflation adjusted simple PV
The tens or hundreds of millions of dollars in difference are not insignificant but in terms of the total number really won’t make a difference in the winner’s life. That should give some perspective about how meaningless to someone without the means to invest massive sums of money the wealth of someone like Musk really is to him. At some point it becomes a gam eto just get more and figure out ways to invest or just spend it. Smuckerberg’s $300,000,000 yacht is equivalent to going out and buying a new scooter for even the well off amongst us.
Assumptions were 3% inflation, 7% alternative investment, 5% increase in the annuity payout per year, 7% return on investment, 0.5% income harvest rate for the lump sum and 3% for the annuity, simplified 37% tax rate for federal tax and 7% for state taxes possibly overly heavy on taxation
For most people, the lump sum is better. In this case, she may be concerned about her spending habits. With $26k per year (minus taxes) she can supplement her income and put some aside for investment.
I believe it’s the better choice for a young person.
Less demands to give it away to friends, family and strangers.
Less opportunities for reckless spending.
Nice stable baseline, lifetime income.
Good opportunities for systemic long term investments.
If she is not married, this fairly modest amount will help her avoid gold diggers or layabouts.
Huge Mistake. Inflation will kill her idea over time. The only way to beat inflation is to invest in things that outrun inflation. Money earning NOTHING is a disaster.
When I was her age if I won the same value in dollars per week I’d be getting 10231.00 a year for life. 196.75 per week.
In the case of my wife her temptation to give one time (relatively) large sums to charity or family would have been very great.
With the annuity she can still give—but in small amounts—and can revisit her decision every single month.
The human factor is very important—number crunching is just one piece of the decision making.
Yep. Net Present Value always suggests that. Take the $1M and invest it at 5% and you get $50,000/yr, or $961/week and you still have the $1 million in the bank that you can use as collateral on loans or whatever. Also, if you die next week, your heirs still have the $1 million in the estate. She was not well-advised.
True, but how many stories have you heard of lotto winners who blow through the money in a year or two and end up broke, with nothing.
This way, she’s not tempted to do that, she can invest it, and she’s less likely to have everyone and their brother becoming her bestie looking for a cut of the cash.
Maybe she doesn’t trust herself with that much money all a once?.
Plus side moochers not hanging around.
FWIW, if she went to an insurance company and purchases a single premium annuity for life that pays her 1,000 per week for life the cost would be $944,000.
So, the difference in the present value of both choices is the income tax.
She will be better off if the lifetime tax on the $1,000 per week is less than the roughly 33% which she would pay on the lump sum.
Even a b-school dropout understands the value of money over time. She chose poorly.
If she invests the 50k every years she will be fine.
I should have such a problem even now, let alone when I was 50 years younger.
Just like SSI. TAKE THE MONEY AS SOON AS YOU CAN GET IT!
Buy a half million dollar duplex and charge rent next door.
No, even at her age she should take the whole amount and invest it wisely. She should get a good financial advisor.
The DOW
9/3/29 $381.17
7/8/32 $41.22
11/23/54 $381.17
The DOW did return dividends during this period.
Also the three year decline above between 1929 and 1932 erased 33 years of gains.
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