this post was submitted on 08 Mar 2025
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The listed amount is actually an annuity that pays out over like 25 years. The base lump-sum amount is usually only around half of the listed amount. So a $2b win would only pay out about $1b in cash. And then that cash amount is heavily taxed.
You should almost always choose the cash option even if the annuity is a “larger” total, because the annuity’s rates very rarely beat inflation rates over the 25 year time period… So you’re better off just taking the cash as a lump sum and investing it in index funds and bonds, which will virtually always beat inflation rates over time.
But all of this is to say, it’s not quite an 80% tax rate. It’s more like 55%, once you consider the fact that the cash option is already only about half of the listed winnings.
It's about the annuity amount. You're right in a straight race to make as much money as possible. But once the annuity reaches something like 200k it's far safer for most people to take the annuity. You can buy nice things, quit your job, and invest. Crucially though, if you fuck everything up, you get topped up again next year. It's an exercise in how much money do you really need? For example how much boat could you buy and maintain for 8k/mo? I suspect the answer is, a lot.