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{{ Only weeks after their Powerball score, the Rosenaus were flown on a private plane with Priebe to Principal’s headquarters, where they met with senior management and “everybody but the janitor,” recalls Rosenau. The executives, he says, assured them that Principal had “the expertise” to keep the money safe and make it grow. (In legal filings, Principal subsidiaries have denied the details of the meeting.) }}
intercst
This is sadly amazing. Or just plain said.
{ In January 2020, Priebe died by suicide. I was unable to reach his widow for comment. }
Epstein suicided, too.
{ Although Rosenau wishes the foundation had never invested in the annuities that dragged down its returns, he’s proud that it has been able to foster an extensive program of research into Krabbe disease.
Still, even after prevailing in the arbitration hearing, he marvels at how fees and commissions can distort the behavior of people who sell investments.
“Why would you take money away from poor dang kids that don’t even have a year or two to live?” he says, his voice rising. “What the heck’s wrong with you? How much is enough?” }
Naivete!
The Rosenau’s shoulda went with Orman or Ramsey.
I’m not kidding.
ralph
Bogle and Buffett would be far better choices.
intercst
True, but only for “financially savvy” winners.
The Rosenau, according to the article, had NO financial experience.
Orman and, especially, Ramsey are relatable for naive folks like the Rosenau. I think Orman/Ramsey would have pointed the Rosenau toward Vanguard, Bogle, n Buffett.
ralph
“Bogle and Buffett would be far better choices.”
Boglehead 3 fund strategy, or just a 1 etf total stock market index would have been so incredibly simple to do. Set and Forget,too. Instead they swam with the sharks.
Article reports account executive Priebe invested the funds in high commission annuities and even sold some to buy more to earn even more commission. Article also reports Priebe committed suicide.
A sad story from multiple points of view. But how can the firm ignore this kind of behavior? Clearly they are far more interested in profits than in doing good work for their clients.
If I ended up with a huge sum of money at once e.g. if I won a Powerball lottery, I might go see a financial advisor. But the moment that advisor mentioned annuities, I would just stand up and say, “Thanks for you time. I feel a little ill and need to leave. Must be something I just heard”
You, me, and everyone else here. Most people haven’t even the most basic clue though.
They can’t. They were clearly complicit from the start. No way even the private plane gets approved without many levels of Compliance and Supervision getting involved.
There really needs to be criminal prosecution with this case as well as total bans from the industry.
If they wanted the money to be managed, they should have chosen the annuity option offered by the lottery, rather than taking the lump sum.
AJ
If I won the Powerball I would not take the lump sum, I’d take the 30 year monthly checks. Really, really hard to accidentally throw it all away if it takes you 30 years to receive it in the first place.
I don’t think it’s a no-brainer to take the lump sum or the annuity over the other. I think the first thing to do is the analysis of the return of the annuity vs expected return if you invested the lump sum. Then your own personal and family situation comes into play.
I think today’s Powerball is $75 million. That is, roughly, $2.5 million per year for 30 years. At that point trying to figure out if I can invest it for higher returns is folly. At some point $2.5 million a year for what amounts to close to the rest of my life is “enough”.
I disagree. There still needs to be a full analysis of the odds of various scenarios, regardless of the fact that you’ll be rich beyond your wildest dreams, probably. Plus there’s the fact that 30 years is a long time. You’ll have to look at the estate implications and income tax implications etc. Which you’ll have to do also with a lump sum.
Your idea of needs to and have to may not be the same as other people’s.
Whether you take the $75 million lump sum, or $2.5 million/yr, you’re still in the top tax bracket, so there’s not much difference there.
The annuity is going to come with at least 1% per annum in hidden costs and expenses, so that’s going to lose you maybe 15% to 20% of the total over 30 years. Is the “joy” of not having to manage it worth $10 or $15 million dollars to you? Only you can decide.
Personally, if I didn’t want to manage it, I put about 75% in BRK and the other 25% in Treasury securities. That’s at least as safe as the annuity, and you won’t be making an insurance company rich.
intercst
How so? The lottery commission buys the annuity to pay you $2.5MM a year for 30 years, which is the $75MM that you won. Sure, you lose purchasing power, but you aren’t the one paying the costs for the annuity - you were never going to get more or less than the $75MM, no matter how much insurance company charges for the annuity.
AJ
When you win a $75M jackpot, the lump sum is determined by discounting the 30 years of payout ($2.5M/year) by some interest rate. If the discounting rate includes the 30 years of annuity fees, then you would receive a lower lump sum. If the discounting rate does not include the 30 years of annuity fees, you would receive a higher lump sum. I think the latter is true.
Financially it is almost always worth more to take the lump sum and invest it properly. Because 30-year index returns outperform the rate they discount by almost always (there may be 2 or 3 30-year windows in which that wasn’t true, but the vast majority of the time it is true). This assumes a rational and reasonably financially informed winner, of course. A foolish and financially uninformed winner will blow the money too quickly and should always take the 30-year annuitized option.
@bjurasz - actually, you are starting with a bad assumption. The Powerball & Mega Millions lottery jackpot used to be paid out in equal sums each year. But that plan has since changed. The annuity payout option is on a graduated scale- Payout in year 30 > Payout in year 29 > … > Payout in year 1
That changes the dynamics somewhat, doesn’t it?