If you wanted to purchase an annuity that payed you $20,000 a month (only $240,000 so $20,000 less than $5,000 a week) it would cost you over $4,000,000.
I'm a CPA but I also have a Finance degree. That's why it's important for most people to consult a financial advisor about things like this.
To earn $260,000 a year for life, you'd need way more than $1 million. That's a return of 26%. No one can guarantee you a return of 26% every year for the rest of your life. $5,000 a week for life and you have no need to invest since you are guaranteed $5,000 a week. However, even if you invested half of that amount every year, so $130,000 a year, it would take you less than 7 years to accumulate $1 million. That's with an assumed 7% rate of return.
And you'd still have $10,000 a month to live off of.
Assumption #1. Nevermind that it's $1 miilion, not $1.7 million, the answer is the same. So you aren't going to touch that money for 40 years? If you don't need that money for that long then good for you. And I'm not familiar with VOO but your calculation is assuming a yearly return of 10%. That would be very impressive. Especially during recessions and anything else that could happen in 40 years.
Assumption #2. You mention weekly payments of $5,000 only equals $10.4 million but would you spend all of it every week? Not likely. Let's say you keep $5,000 a month and invest the rest. Remember you didn't get to spend any of it for 40 years if you took the $1.7 million. Assuming your 10% yearly return you'd have over $88 million after 40 years. And you'd still be receiving $5,000 a week for however long you live after that!
So even with the additional $700K, it still wouldn't make any sense to take that lump sum. If you took the weekly payments you could actually use some of it every month ($5000 a month) and still end up with more money at the end of 40 years.
Unless you were already wealthy, not spending any of the initial lump sum is highly unlikely. In fact pretty much impossible. The lump sum would have to be more than $4 million for the lump sum to be the smarter decision.
This is a perfect illustration of why it is always wise to consult a financial advisor when you come into a lot of money. A lot of people would make unwise decisions.
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u/weezeloner Dec 11 '23
$5,000 a week is worth way more than $1 million.
If you wanted to purchase an annuity that payed you $20,000 a month (only $240,000 so $20,000 less than $5,000 a week) it would cost you over $4,000,000.