Lump Sum or Annuity: Did Bobby Bonilla Make Take the Wrong Option?

July 18, 2019

The Principle:

Back in 2000, Major League Baseball player Bobby Bonilla made a deal with the New York Mets to pay him $1.19 million every year from 2011 through 2035 rather than a $5.9 million lump sum to end his contract. The day he gets his annual payment is celebrated every year, but did he make the correct choice for maximizing his money?

(Want to jump ahead in the episode? Click the featured times below to skip to a specific section.)

 

Honest Takes:

The day has come to be known as Bobby Bonilla Day in the sports and business world. Every July 1, the former Major League Baseball player receives his annual $1.19 million payment from the New York Mets. It’s part of a deal he made back in 2000 when the team wanted to buy out his $5.9 million contract. Instead of the lump sum, Bonilla took the annual payout.

It’s a decision that gets discussed every year with the assumption that Bonilla made a great decision. But did he?

That’s the topic of conversation on this episode of the Retire with Integrity podcast. We dive into the numbers to find out how much Bonilla could have made over 25 years had he opted for the lump sum instead of the annuity, and discuss what other factors might go into making that decision should you ever face it.

Brian Bowen also shares a client example of an annuity running out of money and other stories about clients that are able to decide when and if they want to work.

To save you some time, we’ve listed the key topics from this podcast so you can skip ahead to the information you want to hear. Just click on the timestamp below and it will take you right to the audio clip.

[0:15] – Would you take $5.9 million today or a guaranteed $1.19 million/year for 25 years.

[1:32] – Using the ‘Rule of 72’ to find out how your lump sum would grow.

[2:37] – Bobby Bonilla Day with the New York Mets is a perfect example of this scenario. How Bernie Madoff burned the Mets.

[4:16] – Can guaranteed income actually happen?

[4:52] – Client example of an annuity running out of money.

[5:52] – Doing the math – What would you have to earn to make the lump sum worth it.

[7:51] – Here’s how much Bobby Bonilla would have received on the $5.9 million lump sum after 25 years with a 10% or 8% annual return.

[9:50] – Working with clients that are able to decide when and if they want to work. Sharing some client examples.  

 

Today’s Truth:

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The Host:

Brian Bowen – Contact