One of the fun things to think about when it comes to investing is what happens when your assets reach critical mass – the point at which your money is self-sustaining. Generally that’s when your compounded returns are so large that they could support you if you were to suddenly stop working.
Most of the time the goal for retirement is to reach this point and have our finances start to take care of us. BUT … for fun, let’s consider what would happen if we didn’t.
Let’s suppose you had accumulated $1 million dollars by the time you had intended to retire. But being financially savvy, you decided to work just one extra year. Now let’s assume that during that “extra year”, your assets grossed another average 10% return, and now you’ve got $1.1 million – an extra $100,000 that you didn’t need!
(Isn’t the ability to simply generate $100,000 out of thin-air one of the best real-life cheat codes you could ever have?)
My question: What would you do with that $100,000?
An Extra $100,000 for Me!
At first glance I’m sure a lot of us would be considering putting a decent chunk of money like $100,000 towards buying beach-front property along the Florida Keys or Gulf Shores areas. Six figures could easily be turned into a nice semi-permanent vacation residence.
And then of course there’s all the smaller purchases you could make.
- A cool car.
- The boat you always wanted.
- Cabin up north.
Even if you want to be boring and don’t plan to spend the money outright, there’s always the positive residual affect this extra $100,000 could have on your income for life. 4% of an extra accumulation of $100,000 is an extra $4,000 per year to cover our living expenses – hypothetically for the rest of our lives!
Is There Something Bigger We Could Do with $100,000?
While it’s fun to think about things we might do for ourselves, what if we took a more noble perspective.
Suppose instead of buying something for ourselves, we choose to do something “bigger”. Suppose we choose to give all that “extra money” away to someone or something we believe is a just and gracious cause.
Since we’re so good at managing our money, let’s again play this same scenario out with one million dollars of assets and waiting one extra year to retire so that we can net $100,000 of money that we “don’t really need”.
Consider all the things that $100,000 could go towards:
- Pay off your children’s college. I have two kids, so that would be $50,000 each. How great would that have been if someone gave you $50,000 to pay off your college tuition?
- Donate to your favorite charity. Could you imagine what a donation of $100,000 could do for the Children’s Miracle Network or some other type of worthy cause?
- Sponsor a business. How many young entrepreneurs out there do you think would love the chance to receive $100,000 to get their business going? Suppose you split it up between 5 different candidates. That’s still $20,000 for each person!
- Setup a scholarship. You could actually do this in one of two ways. You could award someone (or group of people) the $100,000 all at once. OR you could get really creative and setup a trust. The trust would contain the $100,000 and each year the gains of the assets (say 10% of $100,000 = $10,000) could be used to sponsor a scholarship for some lucky student. The advantage there is that the award would automatically continue for the end of time until the money ran out.
- Along the same lines, you could setup some sort of trust for a special cause you believe in. That’s $10,000 per year to your favorite benefit. This would be a living trust sort of situation where your money is held by the trustee, rather than yourself. Then, every year, the trust would pay out some of this money to the beneficiary. This is an easy way to keep your assets organized and ensures that the money gets to its intended target, even after you pass away. Putting the money into trust can provide you with peace of mind because no matter what, the benefit of your choice will receive the money and it won’t be divided up with the rest of your assets.
- You could gift the money to your children for a wedding. Think of it for a down payment on a house. Again, thinking of my two kids, I would have loved it if someone gave me $50,000 for a down payment on a house when I was just getting started.
When you realize just how real your ability to generate $100,000 is AND all the potential things you could do with it, the situation becomes increasingly complex! Sure it would be great to retire at whatever age you planned on retiring. But a scholarship? A six-figure donation? These are all things that are much bigger and more significant than a nice beach house in Florida. These are things that could potentially touch and change lives forever.
Who knew that saving your money could actually be a super-power?
How about you? What would be a reason (either self-less or selfish) that would make you continue to work one more year? What would you do with $100,000?
Images courtesy of Truthout.org | Flickr and FreeDigitalPhotos.net
ARB says
That’s a fun question to ponder. I don’t really know.
I always figured I’d leave my money to St. Jude’s Children’s Hospital when I die, provided I have no kids. But that’s always something I figured I’d put in my will, not do while I was alive.
To be honest, if I don’t invest the whole thing, I’d put a down payment on a condo in Hawaii. Not a vacation home, but a retirement home. Because when I retire (at 35, which is my nigh unachievable plan), I’m leaving the East Coast behind. I’ll take a tropical paradise over a concrete jungle anyday.
Sincerely,
ARB–Angry Retail Banker
MMD says
That’s certainly something to look forward to. I’m pretty much convinced that when we watch those “house hunter” type shows on TV where they buy exotic homes next to the beach, this has got to be the primary way they are able to afford it.
Holly@ClubThrifty says
That is a fun question! I would probably use a little of the money during each year of retirement instead of plopping it down all at once. I would rather improve my life with a really nice annual trip or more spending money. Of course, that’s only after my kid’s college is paid for.
MMD says
Indeed! What a gift that would be from Mom and Dad – work an extra year or two and then pay off their entire 5 or 6 six figure college debt all at once.
EL @ Moneywatch101 says
I hope to do the Down payment option for the kids, and the tuition scholarship option after I retire. SO I need to work a little bit more to achieve both goals. IT goes to show that having the extra buffer to do great things will bring more joy in our lives than just buying a beach house.
MMD says
Those are two ones to pick. It is pretty amazing that something as simple as the snowball effect from your compounding returns could create enough momentum to allow you do something as awesome as this.
Retire29 says
Doesn’t this mentality lend itself to a ‘slippery slope’ mentality?
If I worked an extra year after I plan to retire at 34, then I could expect an additional $60-80k in assets. Most likely that would just get thrown on the pile and I’d have a step increase of ~$300/mo in my passive income forever. If I chose to do something more altruistic, I would probably buy a bunch bicycles for an African village, or made a group of underprivileged kids have the greatest Christmas ever.
However, I could take that to the n’th level. What if I kept going for two years? I could twice the good. Three years? 3-4x the good. It goes on forever. Maybe the true solution is to act a bit selfishly at first, then, as life permits and fluctuates, make more money to satisfy those pursuits.
Eric
MMD says
Welcome to the blog Eric!
A slippery slope, yes. But still a fun question to ponder …
I had thought about the same thing in terms of taking this concept to the Nth degree. What if you worked 5 more years and accumulated enough to setup a +$1 million charitable trust that sponsors whatever special cause you believe in. For some people even though they might have reached a personal level financial freedom, the idea of only working 5 more years to accomplish something so selfless would pale in comparison to the marvelous thing they are about to create. It really just depends on how you want to use your financial super powers and what kind of legacy you’d like to leave behind.
Jayson @ Monster Piggy Bank says
That is a mind-boggling question, MMD. I think I could pay send some kids to college and donate a charity. That would really be awesome! Or, I would donate books and school supplies for deserving students.
Fervent Finance says
I would only work an additional year if I enjoyed the job. I would probably invest it just as I did with the rest of my nest egg. Or maybe buy an income producing property. I would definitely not buy a car or a boat or mega vacation 🙂 I would use the passive income from the $100k to fund some travel or something that brought me or my friends / family enjoyment.
Dane Hinson says
Knowing myself, I’d probably end up continuing to save and build net worth 🙂
For some reason there is a higher “happiness” ROI for me to build long-term wealth than any material possession could ever provide.
MMD says
That’s all good too! No one said you have to give it away – at least not yet. Just by having it you could always decide to do something nice for someone else at a later time.
I feel the same way you do about just letting that money snowball into something bigger and bigger – it makes it hard to think of any big purchase like a car or boat or whatever in comparison.
Andrew@LivingRichCheaply says
Somewhat off topic, but it’s been something that has been on my mind. While I think I am on track for early retirement, I have a pension and if I work a few more years, I get a pretty big pay-off…it’s probably like a difference of $25,000 a year! So it’s a bit of a golden handcuff. But as for one more year and $100,000…knowing me I’d just bank it to make sure I don’t run out. Although I would really like to help pay for my kid’s college.
MMD says
That’s not off topic at all. In fact our early retirement plan is also “golden handcuffed” to my wife’s pension plan that she will qualify for in 10 years. Like you, we feel as though we’d be fools not to work long enough to qualify for it and get our full entitled amount.
Andrew@LivingRichCheaply says
To clarify, I think early retirement is possible in 10 years. The full pension benefit would be in 20 years. There’s a hefty penalty for leaving early. 20 years is a LONG time, but I’d be giving up a lot of money by leaving early. Not a bad problem to have I guess, but it is a tough decision. It’ll be interesting to see what you guys choose to do…though there is still awhile to go and it’s hard to tell what the future holds.
MMD says
20 more years to get the full pension? The guarantee of a steady money is great, but that’s a long time. I suppose if you could truthfully pull off a comfortable early retirement in 10 years, then there would be no need for the pension (no matter how handsome it might be).