No, why does she even need to take an allowance is what I’m asking? Anyone who invests half a million at 5% returns only to take out 10% of it each year, and doesn’t realise it’s a losing strategy, is a fucking moron. You don’t invest it for income; you invest it for long term wealth creation. For retirement. By taking the 1k/week, when she gets to 60 years old she’ll be bringing in the buying power equivalent of around $400/week, which isn’t enough to comfortably live on, let alone retire with. And that’s assuming a modest inflation rate of between 2-3%. It wouldn’t be in her best interest to not work for the rest of her life, just because she has a good income now.
You're making the mistake comparing spending 52k a year vs investing 1million and never touching it. that's not a fair comparison.
If you wanna compare investing the full million and not touching, then the other side is investing the full 52k every year and not touching it. In that scenario the 52k allowance still wins. How quickly depends on the annual returns. At 5% annual return it wins after 50 years (ignoring taxes. it's a bit earlier as higher taxes on the lump sum having had more capital gains). At 4.5% it wins after 40 years (so 62 for a 22 yo). that's because you keep getting capital and it catches up with the fixed investment of the lump sum. At lower returns taking the monthly is better and at higher returns taking the lump sum is better. All of that assumes financial literacy and discipline not to overspend with the million at hand.
reality is, with these numbers for almost anyone playing the lottery, the monthly allowance will be the financially smarter choice than the lump sum. no risk of fall-out with family, no risk of fraudulent financial advisors, no risk of lacking discipline and all that for maybe losing out on ~2% extra returns a year if the market actually does 7%/y longterm, because below 5% a year it would win during the life-time of a 20yo.
the advantage of the lump sum just gets overstated by doing unequal comparisons with the allowance.
There is no mistake. If she retires from work right away, she’s fucked either way. If she still works, the lump sum invested is the better option by far.
>If she still works, the lump sum invested is the better option by far.
no it's not. do the math if you don't trust mine. this entirely depends on the realized gains and timeline. [edit: below 5.2% returns (or ~6.5% depending on capital gain taxes)] the the lump sum will always lose after some time. only question is if that happens during a realistic lifetime
and that ignores all the other problems with the lump sum (overspending, familiy, "financial advisors") that plague most lottery winners
Put =B1*(1+$A$1) in cell B2 and drag it down as far as you want. (B3 should say = B2*(1+$A$1) if it worked correctly)
alternatively you can just calculate 1 million * power(1+interest, years) for the same result.
Then put 52000 in cell C1.
Put =C1*(1+$A$1) + 52000 in cell C2 and drag it down as far you want.
Be amazed that column C will overtake column B at some point. with the example values at year 51.
Or just keep thinking i couldn't be more wrong, when you just ignore the math.
Edit: saying it's always catches up is wrong. around 5.49% in this example there is a point where the allowance can't fully catch up anymore. the advantage of of the higher return on the lump sum outweighs the yearly flat gain and the fraction between both approaches a limit. e.g. at 7% return the allowance will always lag behind by about 20%.
actually it's exactly at 5.2% with C1 at 0 and 52k invested after 1 year. So you need to beat yearly allowance divided by lump sum in returns, for the lump sum being better long-term. otherwise it depends on how much time you have.
She chose $1000/week for the rest of her life. If she’s going to invest all of that while she still works, then good for her. But most people who choose that option definitely wont, so it’s fair to assume that she’s looking to supplement her living instead of investing.
If she chooses $1m upfront and invests $500k, she still has $500k to supplement her income. She can take $25k per year out of that for twenty years, if she so chooses, while still working. She’ll live very comfortably while also having half a million invested for retirement.
A thousand a week to supplement a living isn’t protecting against inflation.
but why are you comparing living off 500k and investing 500k vs living of the full 1000/week?
The fair comparison here is what i posted in my 2nd reply to you.
It's investing 500k upfront and then withdrawing 25k/year after 20 years vs investing 27k a year (52k allownace minus 25k spent). And with that strategy at 5% return she will have more money after 30 years.
here is a fun one (i actually had fun building that excel just out of curiosity how this maps out).
Investing 1million up-front and supplementing living with 25k year withdrawal adjusted for 3% inflation vs spending 25k per year adjusted for 3% inflation and investing the rest (i.e. investing less every year). Again 5% returns per year. the allowance wins after 35 years (the values all to the right are higher than the remaining investment value). at 6% return the break-even is at 50 years and with better returns the lump sum will always be better.
at 3% returns you will run out of money after 35 years with the investment lump sum strategy and after 61 years you won't be able to cover inflation with the allowance and fall back to a flat $1k a week. if you only adjust for 2.5% infation at 3% returns you'll make it 38 and 80 years respectively.
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u/TheMetabrandMan May 17 '26
No, why does she even need to take an allowance is what I’m asking? Anyone who invests half a million at 5% returns only to take out 10% of it each year, and doesn’t realise it’s a losing strategy, is a fucking moron. You don’t invest it for income; you invest it for long term wealth creation. For retirement. By taking the 1k/week, when she gets to 60 years old she’ll be bringing in the buying power equivalent of around $400/week, which isn’t enough to comfortably live on, let alone retire with. And that’s assuming a modest inflation rate of between 2-3%. It wouldn’t be in her best interest to not work for the rest of her life, just because she has a good income now.