This may well be the stupidest question ever posed here, but here goes: Say you’ve just won, oh, $50 million (after taxes) and you’ve decided to take the one time lump sum cash payment of said amount. What happens next? You’re bound and determined that neither your wife nor yourself should ever have to work another day in your lives (whether you will work, of course, is another matter). I’ve heard tell that in order to do so, you’ll have to “live off the interest” of your winnings. But how does one do that, exactly? Will you have set up a special checking account wherein the interest is automatically periodically deposited, and you just use that? If so, how often is the money deposited? Weekly? Bi-weekly? Monthly? Yearly? And if not, then what? How does one maintain a flow of cash to pay bills, buy groceries, take trips, make various and sundry purchases, etc., etc.?
And who, exactly, sets all this up for you, especially when you are, like me, irretrievably ignorant about these things? Again, I’ve always heard celebrities say that you need to get an accountant, and then hire another accountant to watch the first one. Also, I highly suspect that you’ll need to put a GOOD lawyer on retainer, correct?
I guess the bottom line question is, would winning such an amount (and investing it properly, and not spending like a drunken sailor, etc.) make it possible for two married adults to leave comfortably (i.e., eat out when you want to, take vacations to various locations around the globe and not stay at the local Best Western, live in a house such as this one, etc.) and never have to worry about money again while theoretically never having to work again?
Considering that the current interest rate on money market funds is about 15 bps, you would earn about $73,000 a year in interest on your $48.7 million ($50MM less the $1.3MM to buy your house). You’ll have to pay taxes on that interest as well, say 20%, which will leave you about $58,000 a year net to pay for your property taxes, and living expenses.
When interest rates rise, your earnings should go up also. But if that’s not enough earnings for you and you are willing to take a bit more risk, then you might consider hiring an investment manager to manage your money in an investment portfolio of various types of securities that would fit your risk budget. You would probably also want to hire a good tax accountant to make sure that your minimize your tax bill.
How do you figure? Money market rates are under a percent but we’re talking 0.75-0.9% for “large” (tens of thousands of dollars) deposits. For the sake of argument let’s say it’d be 1% on $48.7M, that’s $487,000 per year interest. Even after taxes that’s still going to be over $300,000 per year - that isn’t living like Bill Gates but it’s pretty darned good for doing nothing.
As far as investing goes, I have a money market account with a major investment firm and it grows monthly so I imagine that’d be representative of how those things accumulate; you set up the account (I did mine online, very simple) and let it grow. You can transfer money out when needed, although you might have a set number of transfers per month before they charge you extra, so you’d probably have it set up to automatically move your “salary” to your bank account every month, something like that.
You’d probably want to consult some kind of good financial planner (one who doesn’t get paid a percentage of your money!), then set up a good set of low-cost investments that maximize preservation of capital while providing a good income (again, many big investment firms have online guides to doing all this stuff) and then stick to your plan (so don’t go developing a Lear Jet habit or whatever).
Note that investments aren’t guaranteed against loss and bank accounts are only covered to a certain amount (used to be $100K via the FDIC, I think it went up a bit so more like $250K, could be wrong) so you wouldn’t want to do something like put it all into one big savings account, a good financial advisor would help you diversify and minimize your risk (that’s the “preservation of capitol” part).
But look at it this way - if you stuck it all under your mattress and lived off the capital you could still play with $750K/year for the next 65 years. No investment advice needed that way
True, but in 65 years, $750k/year will be minimum wage or about two days in a nice assisted living facility.
You really have to invest it to keep pace with inflation. Otherwise, every year you’re losing 3-5% of your money (whatever is the rate of inflation for that year).
