HeartView posted:
Cao_Ren posted:
year 21: 529.57 vs 535.76
So, it would take 21 years for the annuity to beat the lump sum at 5%. However, in this scenario, the lump sum person got 79 million to play with up front. The annuity person didn't get anything. This would look a lot different if the annuity was reduced for play money.
The yearly payouts continue to 26 years.
It only matters if you plan to use more than what the yearly payouts would be, if you anticipate spending more in the first few years then the lump sum is the way to go, otherwise go with the payments. This is especially true if you are young enough to survive the 26 years of payments.
You're missing the point. Yes, I know there are 26 payments. I'm saying it would take 21 payments for the annuity to overtake the lump sum investment if you never took a dime out of it. But if you never take a dime out of it, what's the point? The lump some investor got 79 million to spend on top of his investment.
And if you bump up the percentage to 7%, the annuity investment could never overtake the lump sum investment.
Here, play with this javascript in your scratchpad:
function interest()
{
var years = 27;
var lumpAmount = 200;
var annuityAmount = 15;
var interest = 1.07;
for (var x = 0; x < years; x++)
{
lumpAmount = lumpAmount * interest;
annuityAmount = annuityAmount * interest + 15;
}
alert( "lump: " + lumpAmount + "; annuity: " + annuityAmount);
}
interest();
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