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These were interesting but some were surprisingly low amounts of money. I was hoping for some stories of people with 8 or 9 figure windfalls! My thinking is th

These were interesting but some were surprisingly low amounts of money. I was hoping for some stories of people with 8 or 9 figure windfalls! My thinking is that it's probably a good idea not to change your lifestyle unless the windfall is, let's say, at least 2 if not 3 orders of magnitude more money than you'd normally earn in a year.

gizmo686 8y ago
2 orders of magnitude seems high. Assume a safe withdrawal rate of 4% [0]. With a windfall of 100x your anuall salary, this is sufficient to quit working and still quadruple your annual income. [0] Historically, this is enough to maintain your inflation adjusted principle.
petercooper 8y ago
My thinking is that it's probably a good idea not to change your lifestyle... Probably not in terms of spending the money on stuff like cars or houses, but a common theme amongst people who have "smaller" windfalls (say $50K-500K) is a radical change in opportunity that no longer having to scratch out a day to day existence offers. In my own case, I sold some technology for around $100K when I was otherwise close to broke and it radically changed what opportunities I had by giving me a runway and ultimately hugely allowed me to change my lifestyle for the better.
bradleyjg 8y ago
Two orders of magnitude seems high. Though I suppose it depends on where in your career you are. But if you are anywhere close to the peak of your earnings than two orders of magnitude (i.e. 100x) represents easily more than you can expect to earn in the entire rest of your career. One order of magnitude (10x) is likely to represent at least 1/4. Why wouldn't that kind of optionality change your decisions?
- dgacmu 8y ago
  Some of this depends how you measure it. 10x before tax could come with pretty hefty tax penalties compared to ordinary income - it's going to come out at your top marginal rate, and for many of us who already max out 401K options, you can't really shield very much of it. So it comes out to about 7x an ordinary year. By the 4% safe withdrawal rate, you've earned enough to replace about 28% of your normal income for the rest of your life. That's pretty awesome, but it is not necessarily FU money.
  - bradleyjg 8y ago
    The tax point is a good one, but I don't understand the relevance of the safe withdrawal rate. I'd think you'd want something like an annuity that shrinks to zero by end of life instead of being equal or larger than what you started with. But in the end that's neither here nor there. I'm happy to use your 28% of normal income for the rest of your life. Why wouldn't that change your lifestyle--whether that means working fewer hours, buying more things, planning to retire earlier, being more charitable, whatever it is I don't see why it wouldn't have any impact.
    - dgacmu 8y ago
      The safe withdrawal rate is a statistically likely (inflation adjusted) percent of your at-retirement savings that you can withdraw every year and be at >= 0 when you die. It's a very convenient heuristic for thinking about the effect for the large chunk of money has upon your life -- it has effectively the same behavior as the annuity you describe. It definitely has an impact, but if you use it to retire earlier, it would shave about 10 years off of your projected retirement time. so the impact it has will be some years down the road. In my case, I had a fairly similar thing happen---about ten years of income earned over two years---because my non-day-job income is highly variable. I was able to endow the next 20 years of my charitable giving, support several elections that I wanted to contribute to, and plan to retire about 10 years earlier. Lovely impact, but it didn't substantially change my day-to-day life. The only thing I did that I probably would not have otherwise done was to buy a new car instead of trying to have my old one repaired one more time.)

gizmo686 8y ago

2 orders of magnitude seems high. Assume a safe withdrawal rate of 4% [0]. With a windfall of 100x your anuall salary, this is sufficient to quit working and still quadruple your annual income. [0] Historically, this is enough to maintain your inflation adjusted principle.

petercooper 8y ago

My thinking is that it's probably a good idea not to change your lifestyle... Probably not in terms of spending the money on stuff like cars or houses, but a common theme amongst people who have "smaller" windfalls (say $50K-500K) is a radical change in opportunity that no longer having to scratch out a day to day existence offers. In my own case, I sold some technology for around $100K when I was otherwise close to broke and it radically changed what opportunities I had by giving me a runway and ultimately hugely allowed me to change my lifestyle for the better.

bradleyjg 8y ago

Two orders of magnitude seems high. Though I suppose it depends on where in your career you are. But if you are anywhere close to the peak of your earnings than two orders of magnitude (i.e. 100x) represents easily more than you can expect to earn in the entire rest of your career. One order of magnitude (10x) is likely to represent at least 1/4. Why wouldn't that kind of optionality change your decisions?

dgacmu 8y ago
Some of this depends how you measure it. 10x before tax could come with pretty hefty tax penalties compared to ordinary income - it's going to come out at your top marginal rate, and for many of us who already max out 401K options, you can't really shield very much of it. So it comes out to about 7x an ordinary year. By the 4% safe withdrawal rate, you've earned enough to replace about 28% of your normal income for the rest of your life. That's pretty awesome, but it is not necessarily FU money.
- bradleyjg 8y ago
  The tax point is a good one, but I don't understand the relevance of the safe withdrawal rate. I'd think you'd want something like an annuity that shrinks to zero by end of life instead of being equal or larger than what you started with. But in the end that's neither here nor there. I'm happy to use your 28% of normal income for the rest of your life. Why wouldn't that change your lifestyle--whether that means working fewer hours, buying more things, planning to retire earlier, being more charitable, whatever it is I don't see why it wouldn't have any impact.
  - dgacmu 8y ago
    The safe withdrawal rate is a statistically likely (inflation adjusted) percent of your at-retirement savings that you can withdraw every year and be at >= 0 when you die. It's a very convenient heuristic for thinking about the effect for the large chunk of money has upon your life -- it has effectively the same behavior as the annuity you describe. It definitely has an impact, but if you use it to retire earlier, it would shave about 10 years off of your projected retirement time. so the impact it has will be some years down the road. In my case, I had a fairly similar thing happen---about ten years of income earned over two years---because my non-day-job income is highly variable. I was able to endow the next 20 years of my charitable giving, support several elections that I wanted to contribute to, and plan to retire about 10 years earlier. Lovely impact, but it didn't substantially change my day-to-day life. The only thing I did that I probably would not have otherwise done was to buy a new car instead of trying to have my old one repaired one more time.)