So you win the lottery.

[Luke]

So you win One Million in the lottery. Catch: You get paid $50,000 a year for twenty years or settle for a lump sum of $700,000. Which would you choose?

[AppleQueso]

$50k a year, for sure. That's like more than double what I make right now.

[jinx]

How'd I miss this thread?

Pay off debt.
Buy modest house/fuel efficient car.
Put away money for daughter's college.
Buy my dad and grandfather something really nice.
Put some money aside for my hobbies.
Live comfortably for as long as possible.

Pretty sure I can stretch out that much cash until I die. I want a small house, and I don't like expensive cars. I'm pretty simple when it comes to food, so I wouldn't be going to any fancy restaurants. The local sushi place is as fancy as it gets for me. I've had the same wardrobe since I was 15 years old with only a few additions a year. Honestly, other than video games and a nice setup for my mantises, I can't see myself blowing that much money...

[Luke]

$50k a year, for sure. That's like more than double what I make right now.

But have you thought about how much money $700,000 would make in interest alone each year?

[AppleQueso]

$50k a year, for sure. That's like more than double what I make right now.

But have you thought about how much money $700,000 would make in interest alone each year?

if I was financially minded enough to think about something like that I would be making more than under 25k a year.

[Luke]

if I was financially minded enough to think about something like that I would be making more than under 25k a year.

Oh you.

[Ivo]

$50k a year, for sure. That's like more than double what I make right now.

But have you thought about how much money $700,000 would make in interest alone each year?

Even at 2% a year (which you can sometimes get with a 0-risk deposit account), 700000 gets you 14k a year. 20 times that is 280k which is slightly under the 20*50k.
But the trick is that a proper comparison would be with collecting 2% 714k for the 2nd year, and so on (compound interest), which actually gives a bit over 1040000. After all, the guys from the lottery can give you more total money by spreading it out precisely because they are investing the remaining, so to compare with that you need to also invest the lump sum yourself.

EDIT: to be fair, I should compare the 1040k to having also the 50k collect compound interest since the first year, then the next 50k compound interest since the second. That I think does give higher than 1040k so...

I think a fairly good investment one can make in such a situation is buying a house instead of paying rent. Investing in real estate has some risk due to the tenants you can get or having the place vacant for some time between tenants (there are other issues beyond that), but if you own a house you are your own tenant so you eliminate that particular risk.
Compare how much you pay in rent each year with the amount the place you live in would cost to buy. To make the calculation more precise you should include the annual cost of insuring your own property and property tax of course. I think in most locations I reckon that is going to be higher than 2%.

Anyway, some 5% a year on average can be obtained fairly easily with some diversification and smart investing, without incurring too much risk.

So I would say you should always get the cash now, even if you just invest in no risk stuff. I think with that kind of money you can negotiate with banks for a higher interest than common folk get even for simple deposit accounts.

EDIT: revised, for 2% it is actually better to get the 50k installments. On the 16th year you are already ahead of the lump sum. When you reach the last installment you are well above the lump sum earnings. For 4% is is getting close, and for 5% per year it is already better to get the lump sum.

The point is, if the lottery people can afford to give you more in installments, you can probably serve yourself better by investing it yourself. They are surely taking a cut to pay their own salaries for investing it for you. And usually with financial people, the cut they take is not worth their "expertise".

[Luke]

2% annual return? You need to move your money elsewhere.

You also have to take in fact the assumption that you will live an extra twenty years.

Lots of "ifs and coulds" involved with this decision, I'm just interested in which option one would take.

[Sano]

Pay off condo and any remaining debt

Move to northern California, into a modest house (4 bed, so my family can live with me and have their own rooms)

Build a couple of super computers for my nephew and I. Build a decent home server.

Get my mom a new car

That is all I can think of off the top of my head.

[Ivo]

2% annual return? You need to move your money elsewhere.

You also have to take in fact the assumption that you will live an extra twenty years.

Lots of "ifs and coulds" involved with this decision, I'm just interested in which option one would take.

Where can you get more than 2% that is *really* without risk? With risk you can get more of course. I don't believe you can beat inflation without having risk, so probably you should really wonder if the higher offers aren't hiding something.

If I don't live more than 20 years, who cares anyway. I'm not going to need the money after. I don't think this should be a factor unless you actually expect to die soon. I assume even if you take the installments, the remaining payments can get inherited by whoever is left behind.