When you have a million bucks to invest you get access to all sorts of nice investments, especially stuff like dividend stocks which are pretty stable and pay more than the crap you get from bonds. Not as safe, true, but not bad.
Uh, it’s not like you have to be rich to invest in stocks. Vanguard has lots of nice index funds with a $3000 minimum. That’s pretty much the best you can do over the long term.
Pay off house, invest some, invest half towards my MIL going into assisted living around the corner ($4K/month), go on a trip.
Well, I don’t spend the money I have, so I’d probably put money in a trust for college for any grandchild that wants to go, maybe buy my kids a new car, if they need it, or pay off their mortgages.
Well the situation is that the 1M is already after taxes, so that negates the second comment.
As for the first one, I think it really depends on your situation and how you quantify “life changing”. Having 1M right now would, quite literally, change my life. It would eliminate all of my compounding debt that I currently don’t make enough to pay off, I could do the same to my girlfriend, and it would make our lives infinitely less stressful. Can we retire to the barbados and have death matches for our expendible servents? Not even close. But “change your life” doesn’t have to be that extreme, a little freedom and peace of mind can do wonders
Quit my job, travel around for a bit. Maybe spit time between cities I like (my old college town, some other cities I think I’d like) and living with various family members (sibling, parents). Assuming family doesn’t charge me rent when I visit them (damn I’m cheap) I could stretch a million the rest of my life (assuming I have enough credits to get medicare at 65, which I should).
1 million after taxes = 27ish years of 50k gross income from working. So it is a pretty decent amount of money.
After a killer meandering worry free 49 state motorcycle trip I’d use about 200k as capital investment for new machinery for my shop.
Business/personal manager. Considering the track record of instant millionaires I’m betting I would need some professional help.
Pay off my two son’s mortgages.
Pay off my car,
Give the rest to my wife so that she can hire a remodeling of our two bathrooms…and I don’t have to do it myself.
1M would definitely change my life. Even if most of the change was actually in my MIL’s life. I probably wouldn’t end up in a different house or quitting my job or anything, but it would be pretty awesome.
The taxes I was referring to are the taxes on the income you make off the 1M. Which taxes you have to pay out of that income.
e.g. You take the $1M & buy bonds that pay 5%. So that gets you $50K of income. All of which is taxable. So you *must *pay ballpark $10K in taxes (20% tax rate) on that $50K. So now you’ve only got $40K left to spend. But, if inflation is 2% this year, and you *choose *to keep the principle intact, you need to put $20K of that $40K towards buying more bonds. That ensures that next year your income still has the same spending power.
After you buy those additional bonds, you have $20K left to spend.
To be sure, a person can elect to either spend principle, or to keep it at just $1M and permit inflation to slowly erode the value of the money. Spending at least some principle is probably a smart decision for a 70 year old. Probably not for a 20 year old.
Spending significant principle at a young age is how most lottery winners blow all their windfall.
Simply look at the answer to this thread and you’ll see why most instant millionaires end up broke in a fairly short time. Not trying to be mean, but most people don’t have any idea what to do with this kind of money, and far from solving all their problems it will probably make things worse in the long run. Your thought here is spot on…first thing to do is hire a trusted and competent money manager. And…
[QUOTE=LSLGuy]
To be sure, a person can elect to either spend principle, or to keep it at just $1M and permit inflation to slowly erode the value of the money. Spending at least some principle is probably a smart decision for a 70 year old. Probably not for a 20 year old.
[/QUOTE]
…follow this general advice. If you are 70ish then you can think about spending the principal. If not, then seek advice if you ever get a windfall like this, even wrt paying off debt or a house prior to spending a dime.
Considering we are able to pay all of our bills, put some money in savings each month and live enjoyable, happy, if middle class, lives without a million dollars, I am inclined to use the windfall to pay off my mortgage and my brothers (for each of us our only debt), pay off my sisters grad school loans and put money away for my son’s college. That would take about $500k. The rest would be put aside and invested for retirement and whatnot.
It would probably allow us to retire earlier than planned. We’re only 12 or so years from retirement, so this would at least cut that in half. We’d probably pay off our mortgage, replace my wife’s car, make some strategic contributions to our retirement plans, drop a big chunk in our travel account to take advantage of in the next few years, maybe hire a personal trainer.
And buy new skis. Always buy new skis.
Your money manager is going to charge you 1% each year to manage your money. If you hire a money manager, you’re saying that you think he can do $10,000 a year better than you can on your own. If you literally have no idea about finance, that might be true, but if you take even a little bit of time to research it, it’s probably not.
A baseline for the long term return on money prudently invested is about 9-10% before inflation (in the stock market). If you’re not in it for the long term, you can typically get 4-5% in the bond market. Most people should be in it for the long term, unless you’re likely to die in the next 10-20 years. That means that any debt that you’re paying less that you’re paying less than 9% on is a sucker’s bet to pay down early (OK, granted, paying debt early is a guaranteed return with no volatility, something that can’t be said of the stock market. But paying down your 4% fixed rate mortgage or 5% student loans early is not a smart investment)
Most financial planners suggest that you can withdraw about 4% annually (sometimes revised down slightly in recent years) to keep your principle mostly intact and account for inflation.
I guarantee it would change my life. I’d have a little financial security for the first time in my life. The simple fact that I could go to the store and buy groceries that I want instead of the cheapest I can find would be a dream come true. I don’t want much but we really have a lot we need. Dental, glasses, car repairs or maybe even a newer model, nothing too fancy. Maybe a newer model Corolla. The rest I’d save. The idea that I could save would be life changing.
You never hear the positive stories about lottery winners but they do exist. All “instant millionaires” don’t end up in worse shape than before, I’m sure. It’s all about choices. Some would spend it all on hookers and blow. Others would invest it. I’d like to get it all in pennies and wallow in it. What?
Put all but $50,000 in my investments. Use the rest to take my boyfriend on a nice trip and do some work on my house. I could use some new windows and siding. Maybe some plumbing and electrical. Then there would still be some left in my chequing account for just hanging out there. I live quite simply, a million doesn’t change that. It’s enough that having fun with $50,000 of it doesn’t make me lose sleep at night. I certainly do not pay off my mortgage. It makes more in my portfolio than I pay in interest.
I am too young for a million to really change my life today. But future minionkat? Well, that’s a nice little gift for her.
One big life change. I don’t stress about my job so much. If something happens, maybe I go sling coffee or wait tables like I did in high school. Retirement is covered by the million and I can pay my bills on minimum wage.
Right, because it’s just not interesting to hear, “They paid off their bills, and the bills of their family members, put their kids through college and lived happily ever after within their means.”
But as you approach the short term you might want to diversify into some other stuff. I’m approaching the short term.