A) Take the lump sum and invest for 30 yrs
B) Get pay out over 30 yrs.....with investing.
I wonder what the difference would be.
I read this somewhere else, theres obviously no real answer though because you can’t predict the market.
So I just ran it vs actual S&P 500 total returns from 1/1/1927 to today. I ignored taxes - just used the actual gross annuity payments that increase by 5% each year from $14,600,000 to $60,000,000 by the last payment and the lump sum of $548,000,000.
I also assumed you'd withdraw $12,000,000 to spend in the first year and 3% more every year after that, but any remaining money would be saved and invested directly into the S&P 500 (ignoring fees and taxes). In either scenario you will withdraw ~$571MM over the 30 years.
In the 60 full 30-year rolling periods, the annuity payments would leave you with an average nest egg of $1.845B, a median nest egg of $1.811B, and a standard deviation of $689MM. Not too shabby whatsoever.
However, investing the lump sum and taking the same annual withdrawals would leave you with an average nest egg of $7.938B, a median nest egg of $8.179B, and a standard deviation of $4.060B.
In only 3 of the 60 annual rolling periods would the annuity have left you with a better nest egg. The lowest annuity nest egg finished at $907MM and the highest was $3.942B.
At one point your $548MM lump sum would have been down to $165MM, and the worst it ever ended was with a nest egg of $581MM. The best it ever ended was with a nest egg of
$20.456B.
