Would You Rather? ER Edition

[Henman004]

This popped up on my FB newsfeed, today. The majority of people responded with $5K per month. I thought it might be fun to see what people said on this forum. Here are some of the "best" answers from the shared image on FB:

"take $5mil and used 100000 per year"

"5k a month it's so easy to blow 5mil if you haven't had money like that"

"Monthly 5 Grand. I have Good willpower & Would Make it Last. Pay Bills, buy Stuff My Baby Girl Needs, Buy Food & w/e I Need 4 Myself, Send $$ 2 My Boys & Throw whats left in2 Bank Accounts"

"If you're answer isn't automatically $5M and you can't see all the reasons why that just makes more sense, then you probably are better off with just the 5K monthly."

"I would want a good paying job and peace ✨ that sounds better .. (With vacations and holidays off )"

So, which would you rather?

I'm taking the $5M, investing it in a 70/30, stock/bond portfolio, and living on a couple hundred thousand a year for the rest of my life.

[eta2020]

I can get 10k a month in dividends from 5 Million in equities. And that 10k will grow up faster then in inflation. And I will probably owe less Federal Taxes on 10k a month in dividends versus 5k in income.

Even 12k a month for a rest of my life would not be as attractive since it will get eroded by inflation. 5k is no brainer bad deal

[Big_Hitter]

5m is way more valuable than 5k a month - way more

[38Chevy454]

Sounds like a test for people that are bad at math and finance.

Even basic quick 4% of $5M calculation gives you $200K per year. Divide by 12 and you get $16,667 per month.

Invest the $5M with reasonable risk and you have way more money for life.

[Big_Hitter]

the present value of a perpetuity is the annuity divided by an interest rate - so if you can get .1% a month interest, take 5000/.001 to get the 5M - however, the payout stream is finite

[Totoro]

Forum doesn't disappoint me: take the rational approach

5k = 60k per year / 5.000k = 1.2%.

There is your answer.

Or: A typical annuity of 5k can be had for 1 - 2 mil.

So: I'd take the 5 mil, convert part of it to 5k / month, and use the rest to educate the people that answered 5k.

[DrRoy]

+1 on the $5 million. Properly managed it is just worth more.

[braumeister]

Quote:

Originally Posted by 38Chevy454 Sounds like a test for people that are bad at math and finance.

I believe that's the point. Most people are.

[Major Tom]

Gosh, is there even the remotest possibility that anyone on this forum would take the $5K/month?

[jim584672]

5 million can buy an annuity for 21k a month. (51 yo male)

[BrianB]

+1 to all the above, but at least those who would opt for the $5k/month know themselves well enough not to trust themselves with big money. For some people the $5k choice could be the smart choice!

[Richard4444]

I'm not greedy. Kindly let the person making this generous offer know that I'd take either, and I do appreciate his/her generosity.

Rich

[scrabbler1]

Isn't this kind of ironic when you consider that all the big lottery jackpot winners take the lump sum, and a discounted one, instead of the annual payout for 10(?) years without any discounting?

[gauss]

- Take the $5M today in cash
- Purchase a life annuity that pays $5k/month
- Invest the rest

[aida2003]

Yep, me too... $5M sounds better unless I visit Vegas with it.

[EastWest Gal]

Even visiting Vegas it's hard to spend that much after a lifetime of frugality. Now if you took it to Monaco...😱


Sent from my iPhone using Early Retirement Forum

[growing_older]

Interesting that when asked this way, many people picked the monthly payment, even though the value of the $5M is considerably more than the value of the payments. When companies attempt to buy out pension obligations, they often offer a lump sum that is LESS than the value of the payment, and then people often go for the lump sum. Perhaps there are issues about the likelihood of the payment stream continuing as well as whether the payment stream is more or less than people imagine their monthly expenses to be. I wonder if there is data about this?

[FUEGO]

Took me about 3 seconds to figure out I'd take the $5 million today. I'd probably stick $300,000 in a 10 year CD/bond ladder to cover core expenses and stick the other $4.7 million in equity index funds. Even a 2% yield will give me $100k per year.

I'd still take the $5M even if it were taxed at 40%. $3 million will still spit off $5000/mo at a 2% dividend yield and that would be entirely federal income tax free (assuming qual divs). $5000/mo from a mystery person would be ordinary income most likely (maybe an annuity, then it would be partially taxable as ordinary income).

Edit: inflation. That $5000 if not inflated annually becomes near-subsistence level income at some point in several decades.

[harley]

You'd have to live 83 additional years before you'd break even on the $5K/month deal. And that's assuming the $5M was put in the mattress without earning a penny of interest. Are these people idiots? Or immortals?

[Ready]

I remember in grade school how many students thought math was either too difficult, boring, or unnecessary. It was not a popular topic. Many adults continue to think that math is not necessary in every day life. This is a great example of how easy it is to make bad decisions if you don't have basic math skills.

And yes, many people simply don't.


Sent from my iPad using Early Retirement Forum