If I had a 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 well 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?