If I had a Million Dollars…

one-million-dollars

Last week, Sarah and Scott over at Couple of Sense wrote a post titled “What Would You Do With A Million Dollars?”  Their post went down the rabbit hole of how a million dollars isn’t really that much these days…  and then discussed what they would want as their cash number to be able to quit work and buy a house…  But you can go read that post and see what they discussed…

Anyway, it got the wheels turning in my head about what I would do with a million dollars and what a random million would do to my finances… So I decided to play a little game…

Let’s say that I was somehow given $1,000,000.  Straight up, no tax implications or whatever (it keeps my game simple).  What would I do with it and how would it help me retire?  I have once done a post where I basically discovered that at my current rate I will basically never retire… But maybe a $1,000,000 boost will help me?

Scenario 1: Straight in to Retirement Investments

If I put the $1,000,000 straight in to our retirement funds, but kept our monthly expenses the same (including our mortgage) and our monthly retirement contributions the same, then, based on the 4% withdrawal rule* and assuming a conservative 5% investment return, I could theoretically retire in 13 years.  Sweet!  So much better than the 42 years I think I would need without it… (I used this calculator to help me out with this estimate.)

Scenario 2: Straight on to the Mortgage, Remaining in to Retirement

Let’s say that I first pay off the $624,000 mortgage that I just talked about in my last post.  That would significantly decrease our monthly expenses, which would decrease the amount we need for the 4% rule, and would allow us to significantly increase our monthly contributions to our retirement funds.  Then, let’s say that we take the rest of the $1,000,000 and dump it in our retirement investments, so those go up by a cool $376,000 immediately.  Then, for the sake of this example, let’s say that we take the entire amount that we would normally put in to the mortgage in to retirement and keep the same conservative 5% investment return.  This would allow me to retire in a quick 8 years (because we need to much less to make the 4% work).

In working out this scenario I realized that there is a slight flaw in my scenario #1… I don’t take in to account that once the mortgage is paid off we won’t need the same amount of monthly expenses, so technically the 4% rule at that point could be a lot less… But that just gets too complicated… So let’s just try another scenario.

Scenario 3: Middle Ground-ish…

Okay, to make up for the flaw in my first scenario that makes the second scenario seem way better, let’s make another scenario that takes a more realistic approach to scenario #2.  (Ha! Realistic… Like magically getting $1,000,000 would ever be realistic! I make myself chuckle…)

So, let’s say that we still take the $1,000,000 and again pay off the mortgage, and we still put the remaining $376,000 in to our retirement funds.  But, let’s say that we let some lifestyle inflation take place, so we can’t put the full amount of our old mortgage payment straight in to our retirement funds, and only put about 2/3 of it in, and with that lifestyle inflation our 4% value would increase.  This would increase the retirement timeline to about 12 years.  Still pretty awesome!

Decision Time

I’m sure that my scenarios are all flawed in some form, and there might be a better way to determine what the outcome would be, but with my limited knowledge and goofy way of doing the analysis, what scenario would I pick?   Probably #3.  But mostly because if I can pay off the mortgage now and have the freedom and peace-of-mind knowing that monthly chunk of money is not required, I would be so happy!

And Back to Reality…

While all that dreaming is fun, the reality is that I am so far from retirement it isn’t even funny… With my current situation plugged in to the retirement calculator that I used before, I have improved from the 53 years I had estimated back then to 42 years now… Being that was a year ago, I have improved by 10 years.  Not bad, but that might be partially because I am now considering both my husband and I as a unit (I wasn’t married when I did the first post!) and that still makes me will in to my 70s before I can retire.  In any case, I would ideally like that number to be around 16 years… Which means I have some serious work to do…

What would you do if you were randomly gifted $1,000,000, no strings attached?

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11 thoughts on “If I had a Million Dollars…

  1. I used to say that I would pay off my mortgage (~$125,000) and then invest the rest. Seeing as the mortgage is no longer my responsibility after I make one last payment, I would thus take the million dollars and invest it. Adding that to my current investments would allow me to withdraw 4% per year at about $51,000, which is 140% of my current spending, so that million dollars would make me financially independent as I could even use a 3% withdrawal rate and have enough, though it is nice to have some buffer room. (Note that my husband and I keep our finances separate and a million dollars wouldn’t be enough to make both of us financially independent though it would get us pretty close.)

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    • A million dollars sounds like it would set you up pretty good! That’s awesome! I wish my expenses were as low as yours… Interesting that you keep your finances completely separate from your husband’s…

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      • We just got married in September and partially we’re still figuring things out with respect to married finances and partially I own about 75% of the condo that we live in with the remaining 25% being the mortgage… We’re not keeping things separate to hide things (we know what each other has) rather to figure out condo ownership and stuff…

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        • That makes sense. It takes time to sort things out and every couple is different. Technically we keep most money in separate accounts still (we only have joint savings accounts right now), but it is all considered “our” money, so when we do budgets or whatever, it is all together.

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        • We’re definitely moving more spending to joint spending vs personal spending, so I’m really curious to see how much we each spend personally in 2017 vs out of joint accounts.

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  2. Wow! What a fun question!
    First I’d tithe to my church- 10 %- $100,000. Leaves 900 thou. Right? (I did do that math right?? Math makes me paranoid!)
    Hmmm, get a newer vehicle than my present 2010 van. Buy a working scooter, hitch, and lift that fits said new vehicle. Pay off my $6,000. in debt.
    I don’t have a mortgage, since I own a $1,000. trailer. Doncha wish you were rich like me?? LOL
    Buy my daughter, and my grands a nice little house, with an in law apt so they can’t move away and leave me!!
    Give an equal amount to my youngest daughter.
    And that’s probably all she wrote!!
    Thanks for the fun game!
    Anne from MinimalistSometime sent me over to say hi, since it looks as if we’re all purging paper!

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  3. Interesting question. Psychologically, I think it would feel great to be completely debt free, and a part of me would want to just pay off all our debts (student loans, mortgage). As it stands, though, I think I would pay off all of my student loan debt and invest the remainder towards retirement. I wouldn’t pay off our mortgage as it’s locked in at a low rate. Also, deducting the interest payments is one of the main ways my wife and I save on taxes. Tough situation, but one that I wouldn’t mind being in. 🙂

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    • Yeah, I’m pretty sure that the current interest rates and the typical returns from investments make it so that the smart thing would be to invest it all… but, as you say, the feeling of being debt free would be amazing! My mortgage rate is locked in for 5 years, so probably the most prudent thing would be to invest it, but nearing the end of the 5 year term, see what the interest rates are doing and determine if paying it off then would make more sense… that would be a bit more complicated of a scenario to simulate…

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