David asks…
anyone know about OM financial network(www.omfn.com) or annuity payments?
about 9 months ago checks started coming in my name from this company to an old address in TX I moved to CA 2 yrs ago. they ended up being fowarded to my mother who then sent them to me. I called this company and asked them why I was getting checks for over $1000 for the last 9 months, they said there was a court favor in my name in 96′ ( I was 11 then) I asked them what court, about what, what about my older sister why just me. they stated they could not release court info to me I would have to request it from the court itself about the judgement, but they wont even tell me what court. they said ask my mother she should know, but she doesnt know anything about a court ruling anytime in my life. these people say these check will be send to me for life its an annunity payment. I have a feeling its a mistake or it just doesnt seem right. anybody come across this, how can i find old court records, and why i am getting this money, they wont tell me anything but that im getting it for life
answers:
OM Financial is a reputable company, so I would call back and talk to someone in management. Alot of times the first person you talk to is a cust service rep that isn’t always the most knowledgeable. I would continue to ask for someone in a higher position until they can point you in the right direction as far as where this annuity originated. It might get frustrating telling the story over and over, but I would confirm the checks are correct also before depositing sch a large sum.
Lisa asks…
How much money must be deposited now, at 6% interest compounded semiannually, to yield an annuity payment of?
$4,000 at the end of each 6 month period, for a total of 5 years? Round your answer to the nearest cent.
answers:
So I guess this is an “ordinary” Present value annuity:
(Payments are paid out starting at the end of the first compounding period)
$34,120.81 =4000*((1-(1+0.06/2)^(-5*2))/(0.06/2))
Without rounding:
$34,120.8113471
I’m a HOT BABE, give me a big fat Kiss!!!
Michael asks…
If you won $100,000,000, and had the option of a lump sum or annuity payments, which would be better for tax.?
purposes?
Since winnings are taxed as ordinary income, would it matter how you elected to receive it? Would it be better to go with the current tax rate for that much money, or take a gamble on the top rate being lowered some years down the road? Because the top marginal rate is going to be at least 39.6% starting in 2011 (not sure how many years it will be in effect). But the top rate now is 35% on income that is over $373,650, plus $108,421.25.
So I figured that amount would come to $34,869,222.50 + $108,421.25=$34,977,643.75.
And SS tax is 6.2% on the first $106,800 ($6,621.60) and Medicare tax is 1.45% (1,450,000).
That comes to about $36,434,265.35 not including state tax (if the its paid in that state).
That’s about 36% total. My numbers may be off, but just assuming you could walk away with a little over $60,000,000 right now, would it be better to take that or (let’s assume) $5,000,000 (pre-tax) for 20 years?
answers:
I would take the annuity certain over a lump sum. But not for tax reasons.
If you take a lump sum, they only pay you the present value of the annuity certain. At today’s interest rates, that’s around half of the gross amount. Since you are getting a discounted payout up front on the lump sum, inflation is largely a wash. In fact, if the 20-year rolling averages on inflation hold true, and there’s little reason to think that they won’t, you may even come out a bit ahead with the annuity certain.
From a tax perspective the savings will be minimal with the annuity certain. Taking the annuity does shift more of the income each year into lower brackets, but with a win that large you’ll be looking at the difference in net rates of between 34.2% and 34.5%. That does assume that rates stay static at their current levels of course, which is unlikely given the status of the deficits, but there’s no way to accurately predict future tax rates. Assuming that you took the lump sum and invested it wisely you’d still be hit with the increased taxes on the future income that it generated. Another wash on taxes.
None of that would influence my decision significantly though. What my decision is based upon is what happens to most people who have a win that large and who take the lump sum. Most of them wind up broke and bankrupt in a few years. With the annuity certain the odds of that are greatly reduced.
Many lump-sum winners give away a lot of their winnings to friends and family, blissfully unaware of the gift tax consequences of doing so. More than one has given away more than half of their winnings, only to be slammed by the IRS for every remaining penny. Gift taxes run as high as 55%. It does not take a mathematical genius to figure out that if you give away half, you won’t be able to pay the tax bill with the remaining funds. Some folks who took the annuity certain did run into financial trouble in the first year or two, but learned from their mistakes while they could still afford to get back on an even keel and did quite well in the out years.
The claim that you are depending upon the state to stay solvent in order to collect the annuity certain is pure FUD from someone with no financial savvy. The annuity is not paid directly by the state, but with proceeds from an actual annuity contract purchased from a highly-rated commercial insurance company. Many states now break the contracts up among several carriers as a hedge against one carrier going bust as AIG nearly did. For you to lose out would require that all of the insurance companies AND the state all became insolvent. If things ever get THAT bad, the guy who took the lump sum is probably going to be as broke as you are, even if he invested it wisely. And contrary to what that respondent claims, no state has gone bankrupt since the Civil War. A few cities have in the past 50 years, most notably New York and Miami, but no states have.
Note: Social Security taxes only apply to earned income. You would not pay any FICA taxes on a lottery win, regardless of how you took the payout.
Charles asks…
If you win the CA lotto and pick the annuity, can your children inherit the remaining winnings if you die?
Which is better, picking the annuity (26 annual payments) or the lump sum? If you pick the annuity, can you assign beneficiaries (husband, wife, children, etc) such that they can inherit the remaining lotto winnings payments that haven’t been issued yet should you die before the 26 years is over? I’m more curious about California lotto rules (Super Lotto or Mega). Thanks!
answers:
You probably have to will it to them. Annuity payments should be guaranteed money. Its not a “win for life” agreement. You won “X” amount of dollars and it is just for the state’s convienence for them to pay you out in installments. They money is yours, even if you are dead so the next person in line to accept your estate is the one who should get the money.
James asks…
Future value of random and periodic payments?
Hello, I would like to know the formula for the future value of an annuity, with additional payments of random amounts and periods.
Thanks!
answers:
You’ll have to calculate FV for each uneven cash flow separately, and sum them.
Spreadsheets make the job easy.
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