Reply #27: That's The Correct Answr, Walt

[ProfessorGAC]

The discount rate is based upon the statutorily allowed investment distribution for the annuity the state(s) has to buy to fund the award.

Since that is bond heavy, the dicount rate is low. So, one ends up with about 30% of the total award after taxes. Given the time value of money over 20 years, the net prize at prime interest rates would only deliver a total equal to about 80% of what one would have at equal spending, at the end of 20 years, if one took it 20 increments.

This of course, assumes that the markets will be reasonably stable and the portfolio of the personal annuity is diversified enough. Also, in a period of market growth, one could multiply the returns significantly (think mid-90's), which wouldn't happen at all if one was on the 20 year plan.

So, you are right, this is the main reason why people take the lump sum payout, and are usually correct in doing so.
The Professor