Did you account for investing the payments coming in each year the same way you invest the lump sum plus the fact it's not 30 equal payments?

I would take the cash for all of the reasons stated, but I am curious about which method would generate the most money over time. The lump sum on a 3% return or the payments with a 3% return. Also accounting for the fact the payments aren't 30 equal payments but start low in year 1 and huge in year 30. At $900M for Saturday's drawing I think it was something in the ballpark of $10M in the first year and $40 in the last.

I took a stab at it, but I may be wrong. I used a lottery calculator ( LINK) for $1.5B paid out in LA. The calculator gives you the lump sum after taxes and a rough idea of the annual payments. They only showed the annual payment amount for the 1st, 10th, 20th and final payment. I used the 1st payment for years 1 through 5. Then I used the second payment for 6-15; third payment for 16 through 25; final payment for 26-30. The total came up to almost the exact total payout of the sum of the annual checks. Close enough I'm not gonna sweat the impact of a few million dollars.

Then I just did a side by side comparison. I took the lump sum and added 3% to it each year. For the annual payments, I took each year and added 3% to the year before plus the annual payment.

At no point does the annual payment scenario ever catch up to the lump sum. After 30 years, the lump sum total is $1.514B and the annual payments is $1.489B. The actual total gap is about $25M and that's the closest they come together. With 3% growth after that the lump sum pulls further ahead with a gap of $50M after 54 total years (24 years from the final annual payout). $100M gap comes at 78 years.

None of this takes into account how you may invest differently with having the lump sum. If you just take $10M off of the lump sum payment to piss away, then the 30 year gap is down to $1M dollars. Or if you get a higher return on hundreds of millions to start versus a much smaller amount of just the first year payout at $15M, it can shift dramatically the other way.

There's a lot of variable that makes my head hurt trying to figure it out. One thing this exercise confirmed and made clear. If someone offers you $600M in cash you take it and don't worry if you can make it a little bigger!

This post was edited on 1/12/16 at 11:12 am