Wednesday, January 31, 2007


If I had a million dollars...

In his ongoing series of “Would you Rather?” posts, blogger James “Dr Momentum” from Massachusetts posted this one Monday on Aces Full of Links:

Would you rather...
  1. Win 20 Million dollars in the lottery or
  2. Land your dream job (something you’re good at, that brings you respect and low stress) for $200K/year
If answering that question or commenting on the ensuing discussion interests you, go there and post a comment; I did. But what I want to talk about here is a related topic that it brought to mind.

A few years ago, a friend and I were talking about the old TV show The Millionaire. Made in the late 1950s, before state lotteries were common (Shirley Jackson notwithstanding), its theme was this: at the beginning of each half-hour episode, an anonymous and never-seen benefactor gave some average Joe a million dollars. The episode then depicted how this changed the recipient's life, usually for the worse (usually for the much worse).

It occurred to us to think about how that would be today, which brought up our question:

How much money would someone have to give you, hand you in one lump of cash, to fundamentally change your life?
Of course, we can debate the scope of “fundamentally”, and I think that's part of each individual's answer. I think of it as an overwhelming and permanent change to one's lifestyle. Perhaps it means that one never has to work again, perhaps that one can buy anything that one would ever really want, perhaps... perhaps any number of other things, whether or not that's what you would choose to do with it.

What we postulated, and the reason the question of updating the TV show came up, is that for the typical middle-class family, one million dollars would no longer be sufficient. Of course, the answer depends upon what “fundamentally” means to one, and what one's current means, age, and family situation are. Handing a million to a 60-year-old single woman, or to a homeless man, has a different effect from handing it to a family of six with a house in Silicon Valley and four college educations coming up within the next several years.

What's a million dollars, in a lump sum, to someone who earns, say, $50,000 a year? Let's bat this around a bit... very imprecisely, to be sure, but just something to get an idea of how far the money might go. A good bit of it — at least 45% here in New York State — would go to federal, state, and local taxes. Let's call it 50%, and so you'd get $500,000 for yourself. If you take out, say, $50,000 and put the rest in a bank account that increases 3%-ish each year, you'll get around $15,000 in interest the first year. You'll probably want to give yourself raises in subsequent years, to accomodate increases in the cost of living and changes in your lifestyle, so let's say you take out $55,000 the second year, and you increase your withdrawal by $5000 each year.

You'd use up the money in eight years.

Of course, you could be more aggressive with the investment and if that pays off the money would last longer. You might even strike it truly rich... perhaps that money would be just what you needed to get started in what turned out to be a lucrative business. But the point here is that you can't rely on a million dollars to set you in comfort and leisure for life, at least not if you're a middle-class person with a good bit of life left.

If you kept working at your $50,000/year job and just took out, say, $10,000/year from your winnings to finance a bump in your lifestyle, then your savings would build, and after 20 years you'd have over $625,000 to finance your retirement. Nice. That'd definitely be the way to handle the million bucks. Not fundamentally life-changing, but it'd set you up for a nice, comfortable retirement, along with whatever retirement plan you have with your company.

No, my friend and I decided that we'd need an order of magnitude more these days — ten million dollars — to effect that fundamental change, to allow us to quit the job and spend the days skiing, touring, and relaxing. Applying similar arithmetic to that figure, one could take oneself $100,000 a year to spend, give oneself suitable raises when needed, and have the money last one's lifetime and leave an inheritance for the kids.


Maggie said...

Yes, a million just doesn't go as far as it used to. :-P

The average little shack around here costs in the 300's, and half a mil is basically a "nice" house, but not super-nice. Not doctor nice. Just nice.

I have never seen that show, The Millionaire. How did people's lives changes for the worse?

Having seen families go through the process of inheritance, I can imagine that there would be ruined relationships. Even though I NEVER play the lottery, I've thought about what I would do with a large lump sum of money, and it's hard to decide how you would give it to friends in an equitable way. Send all their kids to college? What if they don't go, or if one has more children than another? Just give them the cash? I know of people who've given cash gifts and then been upset by the way they were spent. So I can see that aspect.

I can see people's children becoming little monsters, as a lot of rich kids I knew growing up were monsters.

But I'm interested in the details, if you remember any.

Barry Leiba said...

I can't remember any specific details — it was a long time ago. I vaguely remember strife with family and friends, gambling it away and then being stuck, that sort of thing. I see, now that I look, that Wikipedia has a good article about the show (but which doesn't give details of specific episodes).

On house prices, I have some friends who bought a house in the DC area a couple of years ago, and when they started looking they thought they might look in the $350k-ish price range. They quickly found that there wasn't anything they'd remotely want at that price, and gradually increased the range into the 600s and 700s. I'm not sure exactly what they eventually spent, but, yeah....

Dr. Momentum said...

Yes - I came to the same conclusion, Barry.

I picked 20 million, but now i wish I had chosen a lower number because so many people went for the money. I was hoping to find some sort of balance point.

I always learn something from these questions, and one thing I learned form this one is that there are some people who already enjoy their not-necessarily-high-paying jobs and say that they would take the money and keep their current jobs.

If I had lowered the figure, they still would take the money. And if I had raised the figure I assume they would also still take the money.

I wasn't surprised that there were people who would always take the money, but I was surprised at the reason they gave.

But maybe my assumption is incorrect - maybe for a much larger number they would turn down the money. I should ask them directly.

mc2 said...

I think that how much you need greatly depends on what the interest rate is. Here in New Zealand the interest rates are around 6-7%, and then if you are able to have say $2million in the bank after tax then you can get a before tax income of around $120k which should be enough to live off and have plenty left over to do with as you please, all without ever touching the the initial 2 million.

To compare that to Dr Momentum's inital question then in this cicrumstance you would need to win about 6 million for the incomes to be comparable. Obviously the ammount goes up as the interest rate goes down.

An Qi said...

When I read this question, my first reaction was: “I’d better take the lottery, because there isn’t a low stress job that pays 200K a year”. But then, to answer the question truthfully, I tried to imagine that it could happen. I tried to imagine what it would be like to work at an “I can’t believe I’m getting paid to have this much fun” job for 200K. What if there’s a profession that just “clicked” with me like the way square dancing did? I assume I would still have enough spare time since it is “low stress”. And what if it would take me much longer time to figure out on my own, if I chose to take the 20 million first?

I would like to start that job today. 200K is more than enough to live comfortably, so why wait any longer?

Then I read other people’s answers. Some say that they will take the money and continue to enjoy their current job. I have doubts. If they really love their current job that much, why isn’t 200K enough? If they want more money, then they probably have plans on how to use the extra amount. Spending (OK, investing) that much money is going to take a lot of time and effort, will they still be able to concentrate and enjoy their current job?

Some people want to quit their job and pursue a hobby full time. I have doubts too. Because I think it will be a somewhat lonely road. Even if I’m passionate about my hobby, it will be difficult to find people to share with, because very few people have the time and resource and/or interest to make the kind of commitment I do.

But I think people’s answers will be mostly on-sided no matter how Dr. Momentum tweaks the dollar amounts, because his questions actually give people options to do both: have more money AND be able to choose your job. So the choices are not really “would you rather” but “could you calculate which pays more”. I would change the choices to A: win 20 million but never work again; B: work at your current job for 200K a year; C: work at your dream job for 50K a year (inflation adjusted).