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...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.
- Win 20 Million dollars in the lottery or
- Land your dream job (something you’re good at, that brings you respect and low stress) for $200K/year
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.