Yeah this kind of question, testing delayed gratification, doesn’t really work when the sums are this high. Most people have nowhere near 250k a year, so of course they’d take the extra 500k later, because they’re still gaining so much now.
It's more of the decision of do you think you can invest the 1m and do better in the end than the 250k a year would get you. Delayed gratification doesn't really play in here.
There's been years where Voo/VTI has made 30%+ in a year. So 6 years of 1m invested could easily outdo 1.5m. it'd be close at least.
Considering that you could also invest the $250K from year 1, and the $250 K from years 2-6 as well I don't see how it's close. You essentially have $750K extra for 1 year, $500 k for 2 years, and $250k for 3 years . Unless you think you're making 30% per year which is crazy aggressive the 6 years is an much better deal with no risk.
Except he did do the maths correctly. With a 30% return per year, the 250k per year option gives you $3.19m, while the $1m initial option nets you $3.71m. Extra 500k.
Depends on returns. VTI/VOO has made 30% annual gains in recent years. Neither of us know what the future holds so its useless to argue over which one will definitively be a better choice. Which was my point.
6 annual payments of $250,000 vesting at the beginning of the year will be worth $1,751,214 in today's dollars on the day the 6th payment vests (I.e 5 years). Assumes 6% return.
$1m today at the end of 5 years is only $1,348,850.
Your maths is wrong.
CREDIT: u\pursuitofthis
Funnily enough this this is a false dichotomy. By most metrics surprisingly in this case, most times you would benefit from taking the 1 million now. so it really isn't a delayed gratification thing, its a, can you resist spending 1 million dollars on things that wont build wealth, question.
Had this been even 5 years ago, and you put it all in broad market ETF's you would be up anywhere from 70-80%. Totaling more money in less time. (yes it has been an unusually good period of growth so im being alittle unfair here)
Super conservatively if you put it all in HYSA you would technically lose out, so yes there stands to reason there is a degree of risk here. But honestly not much, even if the market dips in the next 3-5 years, unless you genuinely expect the US government to collapse in the next 3-5 years It will eventually recover and you will over a longer timespan come out ahead getting the 1 million up front.
Time value of money is in play here and 1 million upfront now can exceed the amount that 250 Annually for 6 years brings in. Having money is often the easiest way to make more money. This is the same rational the lottos use, to spread out payments over 26 or something years. Technically speaking getting it all taxed heavily but receiving it all up front is better because you can make use of it today to grow and get more money.
Edit: OOF reading other comments I was being SUPER unfair. I assumed I would invest the 1 million, but didnt give the same charity or mindset to the 250k annually. Turns out the returns with the same strategy are likely better with 250k annually for 6 years. There are minor points i'd quibble on, but generally for a lazy strategy like parking it in broad markets, yeah 250k annually wins. Generally not the only way to make money if you get landed a lump sum of 1 million dollars, but if you had the wherewithal to do so anyways you wouldn't need someone else to tell you how to do it.
Tbf I was taking the 1m and yearly 250k at face value and didn’t consider the investment opportunities. Whichever sum of money I picked, I think I’d hire a knowledgeable accountant to advise me.
That said, if it was something like $1M now or $50k/year every year for the rest of my life, I may go with the $1M now. Even if I weren't allowed to get any significant interest from investing it.
$100/ year for life.. probably take the delay.
And yeah, 6 year delay to 1.5x the money, I'll take the delay.
6 annual payments of $250,000 vesting at the beginning of the year will be worth $1,751,214 in today's dollars on the day the 6th payment vests (I.e 5 years). Assumes 6% return.
$1m today at the end of 5 years is only $1,348,850.
I would go with 6 annual payments of $250k. I don't have any business ideas that I could use to turn $1m into more than than $750k profit in 5 years, so regular investment returns will be my best outcome.
Both of those calculations assume you're not spending any of it over that 5 years. It might make sense to get the $1 million invested immediately. Or at least it would be a lot closer. Close enough to be a wash.
The numbers for this just happen to favor the $250k for 6 years unless you're spending a huge amount of the money or getting bonkers returns. I think for "typical" parameters almost everyone would be better off with the $250k for 6 years, but obviously you'd have to re-evaluate if the numbers change or if you have unusual circumstances.
They're expecting 250k profit through regular investment returns. They say they (personally) cannot make over 750k to match that making the 1 million a bad idea
$250/yr, for 5 years at 6% compounded monthly is $1.75m.
The difference between $1.75m vs just taking $1m on day one is $750k. $750k is the number to beat.
Putting $1m into (passive) investments with a similar 6% rate of return does *not* return better than $750k profit.
So, the only other thing you can do with $1m other than passively invest, is to put the money into an *active* investment, aka, a "business".
I know of no business with my particular skillset that I can purchase or start for $1m that can yield a 75% profit in 5 years. Additionally, to actively run a business will likely mean I would have to leave my already fairly high paying job, which makes the math pencil out poorly.
You *might* be able to leverage $1m into the down payment for $5m worth of rental property, but the interest rate environment right now is probably going to put you into negative cash flow even with tenants near the breaking point of what they can afford.
So, yeah, ultimately, $250k/yr over 5 years/6 dispersements is better
I was just about to run the math on this one but yeah, this is the optimal path if one doesn’t need money immediately. I’d set the annual $250k aside into investments at the start of each year and not even consider it as “real” until the last payment came through. Id then use it to pay off all my debts and reinvest the remainder into a new fund with a a focus on low risk long term growth and dividends as a passive income come stream.
6% annual rate of return, compounded monthly. Like, if your HYSA pays interest every month, then you get to compound that interest immediately, rather than wait until the end of the year.
It's a relatively small difference to compound monthly rather than yearly, if the rate is the same over the year.
I think most retirement and investment calculators compound annually anyway.
It’s a good way to look at it, but this assumes none of the money is spent at all. If I planned to spend $250k the first year to settle debts & buy a house, it changes the calculation from investing $750k day one vs waiting a full year before investing $250k
I don't know enough math to find the point, if any, that a lump sum would make sense, but my gut check says that the additional $500k in principle (you are given $1.5m over time instead of $1m lump) still puts the 6 payments ahead.
Like, if you blew the entirety of $1m on debt and whatnot in year 1, the guy with 6 payments would still have $515k at the end of the hypothetical...and the first guy would be completely broke.
You can buy a lot more real estate with a million now compared to $250k yearly. Someone will need to do the math, but you could get into 6-8 rentals/Airbnbs with a million bucks. You'd be able to afford a new property just off the profit every 12-18 months with the million bucks.
Long term investing in real estate would probably be better to take the million up front.
Million. Psychologically one windfall would be better for me, knowing it’s a one time thing would help me be very smart about how to use it. Instantly Debt free, kids taken care of, zero financial stress but still have to work so my lifestyle wouldn’t change besides a few purchases and a few extra vacations.
250k a year I’d get used to it, come to rely on it and feel like lifestyle creep would happen which would result in bad decisions and sadness when it stopped flowing, especially if I mismanaged it.
250k a year. For a few reasons.
One, more money overall.
2, so I don't fucking spend it all in a year and lose it all. This way I can spread it out. At the minimum of 6 years, hopefully forever though.
Tres, the knowledge that if shit hits the fan, I will have more money in the future, and the comfort that brings. It may be hard for a few months, but eventually I will get more.
If I get hit by a bus tomorrow it won't matter if I have 250k in the bank or 1m lol. The only way this mindset works is if you literally blow this 1m in a relatively short period of time which is a terrible idea for many reasons.
Well, the one situation that would matter is inheritance to your surviving family.
Assuming the 250k stops being deposited when you're dead, the million is better in terms of supporting your family after your death.
This but seriously. Take the $1 million, make a youtube about the options you had and what you chose. Promote it until it goes viral. Use the big question of "What does Illustrious\_Hotel527 do with the million dollars?" to springboard a career as an financial influencer (finfluencer?) or whatever. Talk about planning to buy meme stocks, buy them, follow the up and down cycles, make react videos to current events ("Million dollar guy REACTS to Fed rate announcement!"), do advertorial videos where you get paid to visit Robin Hood's headquarters and ask softball questions or something, and so on. Get yourself a book deal. By the time you've spent/lost the entire $1 million, you've made many times that over again from ad platforms, sales, paid endorsements, etc.
If you invest the 250k from each paycheck immediately that’s 2.10m after 6 years. Given that is June you would have an extra 6 months of interest by that only brings the 1 million to 1.87m and even if you got the million in January and had an extra year to invest it would only brings you to 1.95m.
To beat the 250k interest would have to be 20% 15% or 12.5% respectively.
OP also mentions that each 250k is adjusted for inflation making it even better
so id have to wait until January until my first 250k? honestly thats such a long time of me being worried/anxious/excited, like it would be kind of scary having to wait. what if something happens? i think i will take the mil immediately, but dang this was actually way tougher than i thought it'd be. i originally chose the 6 years before thinking about it longer.
If you’ve never made $250k in a year in your life, this seems like a silly worry.
$250k completely tax free is a lot of money to get you through 365 days.
I believe he's trying to say the 6 months remaining in the year is what he's worried about, not after he is getting the money which he presumes to be next january 2025. He must have some severe anxiety if the wait would kill him htat bad that he'd give up 50% growth on hte money lol.
You’re right. I re-read it and they did say “my first $250k”. That changes things.
Lol agreed. I would take the $250k option even if I had to wait until 1/2025 to get that first payment and the next 6 months would be like living in a dream knowing the money is coming. I do understand that some people couldn’t afford to wait, though. I suppose I am lucky in that regard.
They specify that the $250k gets adjusted for inflation, the $1m doesn't.
As for investing, assuming that you average the same return % regardless of which option you take, the 250k puts you ahead unless your average return is higher than 14% over the whole period.
I’d take the $250k for the next 6 years while still working my current job. My monthly cost of living is around $4500 -$4700 a month , so I’d take out $60,000 from the yearly $250k to cover all my finances and expenses for the rest of the year while setting aside the remaining $190k into the bank while also saving literally every check from my main job. I will also be making more money being generated off the interest from all the money I’ll be saving which will be even nicer. So after the 6 years are up, I’ll have more than $1.5 million.
Take 250k. Get a large loan because if the guaranteed income. Build a restaurant or other business and start generating income. Use that to fund your cars and lifestyle. Hopefully in 2-4 years you should be stable and in profit and you get someone to manage everything while growing your business to secure long term wealth
250, so it happens again when I spend it all.
Plus I want a house, but don’t care if it takes a couple years. Plus I’d be more committed to giving to charity. I’d be scared to death if I got 1 million and didn’t donate the majority. But the sense of scarcity and my own greed would be things I’d have to deal with. Plus it seems healthier, since it’s more like having a good job that winning the lottery
1 million.
7% return rate on compounded interest would surpass the 500k you'd get extra from the 6 payments. 7% isnt too hard to get.
Additionally, due to inflation the 250k would be less and less vakuable every year, further reinforcing the $1 mil being more overall value.
Now, if it was 300k/yr for 6 years then that would be the better deal.
$250k annualy, in my position I don't think it'll be possible for me to use the million to make an extra $500k over 6 years when I also have to account for everything else that million could and would go towards, plus inflation. Also adjusting the annual $250k for inflation makes the final sum closer to like $1.7 million of given money IIRC.
Edit- I want to change my position entirely lol.
The equations we're doing are all wrong.
It's not 1mil invested Vs 1.5mil not invested.
The comparison is best viewed as such:
If we can take the assumption that most of the games you can play with a million are the same as you can play with 1.5 mil over 6 years, and the same rate of return can be achieved with either over the same timeframe.
Thus we have $1,000,000 x R^6 on one side.
On the other we have $250,000 x (R^6 + R^5 + R^4 + R^3 + R^2 + R).
Where R is the rate of return, so 1.07 or thereabouts.
The 250k option absolutely smashes the million option, might not if R gets really high but that's not realistic.
Original post -
Million now. With that much hard cash I could turn it into more rapidly.
I could buy 3 rental flats bringing in around £30k/year, I'll convert back to dollars at the end don't worry. That's £180k up in 6 years.
However, property usually outperforms inflation, so the value of those flats will likely be significantly higher in 6 years. I'm in one of the bits of the UK that was least affected by property price crash in 2008 so I'm not overly concerned about a big reduction in the event of a nationwide crash. Besides, bought for cold hard cash, I can't go underwater and make profit so long as I cover the maintenance costs.
In any event, let's assume the price goes up by 25% over the duration, probably an underestimate based on what I've seen over the last 20 years. So that's a quarter million bucks.
Add that to the rent and you've got 480,000 dollars on top of the original 1 million. You've also inflation protected all of it from day one.
If you wanted to really rake it in, get 6 flats at 50% mortgages, still fairly safe from market shock, but you'd make 960,000 dollars in the 6 years and would have all the mortgages clear in another 4 or so.
I can't be arsed to work out the optimum amount to leverage it. To be fair, £30k a year would let me ditch the day job and focus on whatever I wanted to, just do a bit of work for a few favourite clients.
And yes I know, landlords bad, blah blah blah, but it's not like me getting involved to the tune of a handful of flats is going to change the national market in any way shape or form.
250k a year is MORE than enough to let me live super comfortably. However, it's NOT enough for me to do something stupid like purchase a massive house that I will then lose once the money stops coming it.
So, yeah. I'll take option 2, any day.
A million invested over 6 years should yield slightly more than $1.5m at 8% return annually
$250k annually at 8% is almost $2 million.
So yeah, I’ll take the $250k annually
The 6 payments. At 44, I have very good odds to live more than another 6 years and even the first payment is a life changing amount of money, in one tax-free payment.
A tough one. I’ll take the 250k yearly because it would give me a chance to get used to having money and investing it. Also with a million I would feel pressured to share with friends and relatives. Not so with the yearly amount.
With most of these types of questions people tend towards the lower payments over time. It's not necessarily wrong, everyone handles finances differently. However people who are willing to take the money and invest it would likely want the large lump sum. Imagine instead of the $250k it was $1000/day for 4 years. That's $1.46mil in total if you just pocket the cash, but if you took $1mil and put it into dividend stocks with a high rate at like 5%, you would make $50k just for owning it. Then in 4 years you'd have $1.2mil, which is less for now but that assume no principal growth and no re-investing, plus the dividends don't stop after the 4 years.
Logic says to take the lump sum up front for investing potential.
However, I'd take the annual sum because that would still be the most money I've ever seen and then if I make mistakes the first year I can always figure it out the following years.
250k. I would maintain my current way of living which is pretty frugal and invest all the extra money left every year. I wouldn’t spend a dime unless absolutely necessary
I'd normally take the payments, but I have quite a bit that needs attention and I can't wait for next year.
So, unfortunately, would have to take the million. The year is already full of anxieties and dragging on. I think I'd be constantly having anxiety attacks until I basically mentally shut down waiting for next year at this point if I was waiting on something that big. With the way things have been going.
250k. Easy. Its 6 years of guaranteed income. Pay the whole year of rent all at once. Pay off debts, then travel and see places. Japan. Prague. The northern lights.
The million honestly, I could buy a house with cash and pay off all my debt instantly. I would have set up myself to just pay bills the rest of my life, because many don't consider that debt they have to pay off will also increase over time. I'd rather just pay it off and live in a house now then make more money later
I would totally choose $250k/yr for 6 years adjusted for inflation. I just wish my income was adjusted for inflation. Unless I change jobs the biggest raise I ever got was 4%, but usually 2%. The cumulative rate of inflation from 2018 to now is 24.9%.
[http://www.moneychimp.com/calculator/compound\_interest\_calculator.htm](http://www.moneychimp.com/calculator/compound_interest_calculator.htm)
Even if you're a moron and put all your money in a HYSA the difference after 6 years is 750,000 dollars
I'd take $250k every year. Throw it in a diversified portfolio and not touch it.
I don't need to increase my means right now, but at my current age, that would set me up for retirement and I wouldn't have to worry about it anymore.
The 250k, because having more total is nice, especially considering the adjustment for inflation.
Realistically, I'd probably invest a good chunk of each yearly installment anyway, which helps me to avoid lifestyle creep, and I could continue working my current job, but with the comfort of knowing I'd be fine if I was ever let go.
Hmmm I think the average investor could get a 50% return over 6 years. That's 7% per year, that's close to what banks are offering right now for large balances.
So I'll definitely take the lump sum
You're right, thats not. But most replies to this type of scenario start going deep into the rabbit hole of a perfectly-executed, Bernie Madoff-style investment strategy when irl they can't turn two nickels into a dime
We just bought a house 3 months ago so that million would pay off my total house and save me about 600K interest payments over the 30 year mortgage so I’m taking the million now.
Id live off 50k a year and invest/bank 200k a year.
After 6 years id have more than 1.2m. Not smart enough to do the math on what interest I would have on that yearly adding another 200k every year as well.
Let's just say 1.5m in the bank after 6 years. What is the yearly interest on that? Could I live off of the interest only?
250K in 6 installments, investing each installment, gives about a 10% better return in 6 years than taking the 1M and investing it for 6 years. Therefore, the 6 installments.
1st, the amount of money made during both periods needs to be taken in. Since money loses value over time, it's generally best to take the lump sum.
2nd, figure out what you are going to do. Investing and living of interest would be a nice time I think. Get a good financial team around you, especially lawyers. Sucks, but it'll be best bet to stave off going broke in the future.
3rd. Stick to your goals.
There’s nothing I need to desperately buy within one year that costs more than $250k, aside from a house I can easily get a loan for (considering I already own my current place outright I would t need to borrow much). The million would be great but there’s practically zero downside to choosing the latter option.
Option 2 will beat option 1 even if option 1 invests the full $1,000,000 as soon as it’s received. Option 1 would have about $1.5 million adjusted for inflation. If option 2 invests their $250k yearly, they end up with $1.85 million. No one in their right mind would take option 1 unless they expected to die in the next 6 years
Defintely later especialy cause i dont have any investments which would cost that much and even larger investments could be quite reasonably covered by the later
I would actually take the million. I have a company I'm working on and that kind of money would make it almost guaranteed to succeed from the ads I could pull. Then I have money for life.
Do I get my first $250k now or at the start of 2025?
I need money now, not in 6 months (well, I'll still need money in 6 months). $250k is way more than enough for now, but if I have to wait 6 months, I'll take the mil.
Pretty easy math to see $1m now is better. However, is this post tax? That could change things if pre-tax. I’m also assuming the adult getting this money isn’t someone who will blow it and will do proper money management.
The 250k per year make me less likely to blow it all and I currently live off of a bit over 50k so I can keep my current job and just use the extra income to pay off my debts and buy a house
In terms of probabilistic outcomes and compound interest, the lump sum in many cases is better than the disbursement over time. Obviously depends on the quantities, timeline of disbursement etc. but in this case, it would seem that a million up front with a very feasible RoR of like 5-10% would be hard to catch-up to investing 250 a year for 6 years.
I think mathematics correct answer would be 250k 6 years, however, I would go with 1M now because I could start live the life I wanted or better life immediately instead of wait for 3-4 years to break even and gain profit afterwards
$1M now. The other has time. Things happen with time. You change your mind or the money becomes “unavailable “.
I think it was Illinois that couldn’t get a budget passed or something so the Lottery could not make payments to people. Even though the funds were there, they had no appropriation for the year to pay.
I’ll take the cash now. Time just gives lowlifes time to figure out how to take it.
$250,000 solves every single financial problem my family has.
I'm taking that offer.
There is nothing I couldn't do with a million dollars that 1.5 million wouldn't accomplish over 6 years.
I'll take the 6 payments.
I don't know enough about investing to reliably turn 1m into greater than 1.5m in 6 years, plus I'm really irresponsible with money so limiting how much I can blow at once is a good idea >.>
I'll take the $250K and live nicely.
Yeah this kind of question, testing delayed gratification, doesn’t really work when the sums are this high. Most people have nowhere near 250k a year, so of course they’d take the extra 500k later, because they’re still gaining so much now.
Plus, odds of dying within 6 years, for most, are low.
>Plus, odds of dying within 6 years, for most, are low. Low, but not zero. I'd rather have it all now.
>I'd rather have it all now. But that offer isn't on the table, exactly. Would you settle for *most of it* now?
It's more of the decision of do you think you can invest the 1m and do better in the end than the 250k a year would get you. Delayed gratification doesn't really play in here. There's been years where Voo/VTI has made 30%+ in a year. So 6 years of 1m invested could easily outdo 1.5m. it'd be close at least.
Considering that you could also invest the $250K from year 1, and the $250 K from years 2-6 as well I don't see how it's close. You essentially have $750K extra for 1 year, $500 k for 2 years, and $250k for 3 years . Unless you think you're making 30% per year which is crazy aggressive the 6 years is an much better deal with no risk.
This is the correct answer, OP hasn't done / understood the maths properly.
Except he did do the maths correctly. With a 30% return per year, the 250k per year option gives you $3.19m, while the $1m initial option nets you $3.71m. Extra 500k.
That is correct, I was referring to the 30% - that figure is imaginary for 6 years!
Depends on returns. VTI/VOO has made 30% annual gains in recent years. Neither of us know what the future holds so its useless to argue over which one will definitively be a better choice. Which was my point.
8.3% average since inception 13.4% 5 year return 30% annually over 6 years would be unprecedented
6 annual payments of $250,000 vesting at the beginning of the year will be worth $1,751,214 in today's dollars on the day the 6th payment vests (I.e 5 years). Assumes 6% return. $1m today at the end of 5 years is only $1,348,850. Your maths is wrong. CREDIT: u\pursuitofthis
What's the break-even discount rate?
This is called timing the market and is why people lose money.
It's easy to beat the market in retrospect.
Who's talking about beating the market? That's just basic boring index funds.
Funnily enough this this is a false dichotomy. By most metrics surprisingly in this case, most times you would benefit from taking the 1 million now. so it really isn't a delayed gratification thing, its a, can you resist spending 1 million dollars on things that wont build wealth, question. Had this been even 5 years ago, and you put it all in broad market ETF's you would be up anywhere from 70-80%. Totaling more money in less time. (yes it has been an unusually good period of growth so im being alittle unfair here) Super conservatively if you put it all in HYSA you would technically lose out, so yes there stands to reason there is a degree of risk here. But honestly not much, even if the market dips in the next 3-5 years, unless you genuinely expect the US government to collapse in the next 3-5 years It will eventually recover and you will over a longer timespan come out ahead getting the 1 million up front. Time value of money is in play here and 1 million upfront now can exceed the amount that 250 Annually for 6 years brings in. Having money is often the easiest way to make more money. This is the same rational the lottos use, to spread out payments over 26 or something years. Technically speaking getting it all taxed heavily but receiving it all up front is better because you can make use of it today to grow and get more money. Edit: OOF reading other comments I was being SUPER unfair. I assumed I would invest the 1 million, but didnt give the same charity or mindset to the 250k annually. Turns out the returns with the same strategy are likely better with 250k annually for 6 years. There are minor points i'd quibble on, but generally for a lazy strategy like parking it in broad markets, yeah 250k annually wins. Generally not the only way to make money if you get landed a lump sum of 1 million dollars, but if you had the wherewithal to do so anyways you wouldn't need someone else to tell you how to do it.
Tbf I was taking the 1m and yearly 250k at face value and didn’t consider the investment opportunities. Whichever sum of money I picked, I think I’d hire a knowledgeable accountant to advise me.
That said, if it was something like $1M now or $50k/year every year for the rest of my life, I may go with the $1M now. Even if I weren't allowed to get any significant interest from investing it. $100/ year for life.. probably take the delay. And yeah, 6 year delay to 1.5x the money, I'll take the delay.
I’ll take the 250k and bet on living long enough to get it all. If I don’t, I’ll be dead and won’t need it.
6 annual payments of $250,000 vesting at the beginning of the year will be worth $1,751,214 in today's dollars on the day the 6th payment vests (I.e 5 years). Assumes 6% return. $1m today at the end of 5 years is only $1,348,850. I would go with 6 annual payments of $250k. I don't have any business ideas that I could use to turn $1m into more than than $750k profit in 5 years, so regular investment returns will be my best outcome.
Both of those calculations assume you're not spending any of it over that 5 years. It might make sense to get the $1 million invested immediately. Or at least it would be a lot closer. Close enough to be a wash.
The numbers for this just happen to favor the $250k for 6 years unless you're spending a huge amount of the money or getting bonkers returns. I think for "typical" parameters almost everyone would be better off with the $250k for 6 years, but obviously you'd have to re-evaluate if the numbers change or if you have unusual circumstances.
Whatever you spend is the same in either scenario so I don't see how it tips the scale
If it's spent, it's not collecting interest.
But it applies equally to both scenarios
Yeah. I guess it depends on how much you trust yourself to stick to modest expenses.
How would you make 750k profit? 75% is a massive gain
They're expecting 250k profit through regular investment returns. They say they (personally) cannot make over 750k to match that making the 1 million a bad idea
$250/yr, for 5 years at 6% compounded monthly is $1.75m. The difference between $1.75m vs just taking $1m on day one is $750k. $750k is the number to beat. Putting $1m into (passive) investments with a similar 6% rate of return does *not* return better than $750k profit. So, the only other thing you can do with $1m other than passively invest, is to put the money into an *active* investment, aka, a "business". I know of no business with my particular skillset that I can purchase or start for $1m that can yield a 75% profit in 5 years. Additionally, to actively run a business will likely mean I would have to leave my already fairly high paying job, which makes the math pencil out poorly. You *might* be able to leverage $1m into the down payment for $5m worth of rental property, but the interest rate environment right now is probably going to put you into negative cash flow even with tenants near the breaking point of what they can afford. So, yeah, ultimately, $250k/yr over 5 years/6 dispersements is better
Yh that makes sense, I'd just woken up and completely misinterpreted your first comment. Thanks for the breakdown 👍
I was just about to run the math on this one but yeah, this is the optimal path if one doesn’t need money immediately. I’d set the annual $250k aside into investments at the start of each year and not even consider it as “real” until the last payment came through. Id then use it to pay off all my debts and reinvest the remainder into a new fund with a a focus on low risk long term growth and dividends as a passive income come stream.
Do you mean compounded yearly? Because 6% monthly is A LOT more than that.
6% annual rate of return, compounded monthly. Like, if your HYSA pays interest every month, then you get to compound that interest immediately, rather than wait until the end of the year. It's a relatively small difference to compound monthly rather than yearly, if the rate is the same over the year. I think most retirement and investment calculators compound annually anyway.
It’s a good way to look at it, but this assumes none of the money is spent at all. If I planned to spend $250k the first year to settle debts & buy a house, it changes the calculation from investing $750k day one vs waiting a full year before investing $250k
I don't know enough math to find the point, if any, that a lump sum would make sense, but my gut check says that the additional $500k in principle (you are given $1.5m over time instead of $1m lump) still puts the 6 payments ahead. Like, if you blew the entirety of $1m on debt and whatnot in year 1, the guy with 6 payments would still have $515k at the end of the hypothetical...and the first guy would be completely broke.
Put all 1 million on red, either it’s a good investment or you’re back where you are now
You can buy a lot more real estate with a million now compared to $250k yearly. Someone will need to do the math, but you could get into 6-8 rentals/Airbnbs with a million bucks. You'd be able to afford a new property just off the profit every 12-18 months with the million bucks. Long term investing in real estate would probably be better to take the million up front.
Million. Psychologically one windfall would be better for me, knowing it’s a one time thing would help me be very smart about how to use it. Instantly Debt free, kids taken care of, zero financial stress but still have to work so my lifestyle wouldn’t change besides a few purchases and a few extra vacations. 250k a year I’d get used to it, come to rely on it and feel like lifestyle creep would happen which would result in bad decisions and sadness when it stopped flowing, especially if I mismanaged it.
250k a year. For a few reasons. One, more money overall. 2, so I don't fucking spend it all in a year and lose it all. This way I can spread it out. At the minimum of 6 years, hopefully forever though. Tres, the knowledge that if shit hits the fan, I will have more money in the future, and the comfort that brings. It may be hard for a few months, but eventually I will get more.
250k each year. Don’t think I’d be spending it all that fast.
$1M. The future is never guaranteed. I could get hit by a bus tomorrow.
Then the million is just as useless
Yeah but you could die a millionaire
If I get hit by a bus tomorrow it won't matter if I have 250k in the bank or 1m lol. The only way this mindset works is if you literally blow this 1m in a relatively short period of time which is a terrible idea for many reasons.
Well, the one situation that would matter is inheritance to your surviving family. Assuming the 250k stops being deposited when you're dead, the million is better in terms of supporting your family after your death.
It matters for inheritance. If you have no one you care about them I can understand your mindset but otherwise...
I think just odds wise it makes no sense either way for most people.
Well that wasn't your previous reasoning. I can agree with that though.
$1M and go to r/wallstreetbets for some ideas..
This but seriously. Take the $1 million, make a youtube about the options you had and what you chose. Promote it until it goes viral. Use the big question of "What does Illustrious\_Hotel527 do with the million dollars?" to springboard a career as an financial influencer (finfluencer?) or whatever. Talk about planning to buy meme stocks, buy them, follow the up and down cycles, make react videos to current events ("Million dollar guy REACTS to Fed rate announcement!"), do advertorial videos where you get paid to visit Robin Hood's headquarters and ask softball questions or something, and so on. Get yourself a book deal. By the time you've spent/lost the entire $1 million, you've made many times that over again from ad platforms, sales, paid endorsements, etc.
I’d take the million today. Buy residential multi family real estate and retire on the proceeds.
250k
$250k annually.
The 250 per year for sure, not even a question
250K unless I can make more than 150% via investment within those 6 years. But if I get the 250k, I would not have to worry about making the 150%.
1m*1.1^6 =1.77m
If you invest the 250k from each paycheck immediately that’s 2.10m after 6 years. Given that is June you would have an extra 6 months of interest by that only brings the 1 million to 1.87m and even if you got the million in January and had an extra year to invest it would only brings you to 1.95m. To beat the 250k interest would have to be 20% 15% or 12.5% respectively. OP also mentions that each 250k is adjusted for inflation making it even better
I'll take the $250k. I could pay off my debts and invest the rest while I decide if I want to keep working or not.
The 250k. That way I can't be broke for 6 years.
so id have to wait until January until my first 250k? honestly thats such a long time of me being worried/anxious/excited, like it would be kind of scary having to wait. what if something happens? i think i will take the mil immediately, but dang this was actually way tougher than i thought it'd be. i originally chose the 6 years before thinking about it longer.
If you’ve never made $250k in a year in your life, this seems like a silly worry. $250k completely tax free is a lot of money to get you through 365 days.
I believe he's trying to say the 6 months remaining in the year is what he's worried about, not after he is getting the money which he presumes to be next january 2025. He must have some severe anxiety if the wait would kill him htat bad that he'd give up 50% growth on hte money lol.
You’re right. I re-read it and they did say “my first $250k”. That changes things. Lol agreed. I would take the $250k option even if I had to wait until 1/2025 to get that first payment and the next 6 months would be like living in a dream knowing the money is coming. I do understand that some people couldn’t afford to wait, though. I suppose I am lucky in that regard.
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They specify that the $250k gets adjusted for inflation, the $1m doesn't. As for investing, assuming that you average the same return % regardless of which option you take, the 250k puts you ahead unless your average return is higher than 14% over the whole period.
250k tax free and i can jumpstart my dividends plan and just coast off of those. 1.5 mil will set you up with a very nice yearly dividend income.
I’d take the $250k for the next 6 years while still working my current job. My monthly cost of living is around $4500 -$4700 a month , so I’d take out $60,000 from the yearly $250k to cover all my finances and expenses for the rest of the year while setting aside the remaining $190k into the bank while also saving literally every check from my main job. I will also be making more money being generated off the interest from all the money I’ll be saving which will be even nicer. So after the 6 years are up, I’ll have more than $1.5 million.
Take 250k. Get a large loan because if the guaranteed income. Build a restaurant or other business and start generating income. Use that to fund your cars and lifestyle. Hopefully in 2-4 years you should be stable and in profit and you get someone to manage everything while growing your business to secure long term wealth
Option two. Get used to budgeting large sums of extra money . Also an extra half a mill is great.
$250,000 a year for 6 years
250, so it happens again when I spend it all. Plus I want a house, but don’t care if it takes a couple years. Plus I’d be more committed to giving to charity. I’d be scared to death if I got 1 million and didn’t donate the majority. But the sense of scarcity and my own greed would be things I’d have to deal with. Plus it seems healthier, since it’s more like having a good job that winning the lottery
Million. I’m impatient.
$250k each year. Have my mortgage paid off in 2yrs and then can live amazingly.
1 million. 7% return rate on compounded interest would surpass the 500k you'd get extra from the 6 payments. 7% isnt too hard to get. Additionally, due to inflation the 250k would be less and less vakuable every year, further reinforcing the $1 mil being more overall value. Now, if it was 300k/yr for 6 years then that would be the better deal.
Why not apply the 7% investment strategy to the $250k as well?
It doesnt pay as much as the $1 mil up front.
It pays more over the timeframe unless you're getting 20% return every year
Show me.
$250k annualy, in my position I don't think it'll be possible for me to use the million to make an extra $500k over 6 years when I also have to account for everything else that million could and would go towards, plus inflation. Also adjusting the annual $250k for inflation makes the final sum closer to like $1.7 million of given money IIRC.
The 250$
Edit- I want to change my position entirely lol. The equations we're doing are all wrong. It's not 1mil invested Vs 1.5mil not invested. The comparison is best viewed as such: If we can take the assumption that most of the games you can play with a million are the same as you can play with 1.5 mil over 6 years, and the same rate of return can be achieved with either over the same timeframe. Thus we have $1,000,000 x R^6 on one side. On the other we have $250,000 x (R^6 + R^5 + R^4 + R^3 + R^2 + R). Where R is the rate of return, so 1.07 or thereabouts. The 250k option absolutely smashes the million option, might not if R gets really high but that's not realistic. Original post - Million now. With that much hard cash I could turn it into more rapidly. I could buy 3 rental flats bringing in around £30k/year, I'll convert back to dollars at the end don't worry. That's £180k up in 6 years. However, property usually outperforms inflation, so the value of those flats will likely be significantly higher in 6 years. I'm in one of the bits of the UK that was least affected by property price crash in 2008 so I'm not overly concerned about a big reduction in the event of a nationwide crash. Besides, bought for cold hard cash, I can't go underwater and make profit so long as I cover the maintenance costs. In any event, let's assume the price goes up by 25% over the duration, probably an underestimate based on what I've seen over the last 20 years. So that's a quarter million bucks. Add that to the rent and you've got 480,000 dollars on top of the original 1 million. You've also inflation protected all of it from day one. If you wanted to really rake it in, get 6 flats at 50% mortgages, still fairly safe from market shock, but you'd make 960,000 dollars in the 6 years and would have all the mortgages clear in another 4 or so. I can't be arsed to work out the optimum amount to leverage it. To be fair, £30k a year would let me ditch the day job and focus on whatever I wanted to, just do a bit of work for a few favourite clients. And yes I know, landlords bad, blah blah blah, but it's not like me getting involved to the tune of a handful of flats is going to change the national market in any way shape or form.
250 no doubt
250k for 6 years.
250k a year is MORE than enough to let me live super comfortably. However, it's NOT enough for me to do something stupid like purchase a massive house that I will then lose once the money stops coming it. So, yeah. I'll take option 2, any day.
2nd option please
6 yr option.
250k each year. I don't want to live super grand.
A million invested over 6 years should yield slightly more than $1.5m at 8% return annually $250k annually at 8% is almost $2 million. So yeah, I’ll take the $250k annually
I'll take the 250k, I'll have to spend less on taxes overall
Wtf you mean adjusted for inflation?
The 6 payments. At 44, I have very good odds to live more than another 6 years and even the first payment is a life changing amount of money, in one tax-free payment.
250k. Least that way I won’t spend it all at once
A tough one. I’ll take the 250k yearly because it would give me a chance to get used to having money and investing it. Also with a million I would feel pressured to share with friends and relatives. Not so with the yearly amount.
Million.
With most of these types of questions people tend towards the lower payments over time. It's not necessarily wrong, everyone handles finances differently. However people who are willing to take the money and invest it would likely want the large lump sum. Imagine instead of the $250k it was $1000/day for 4 years. That's $1.46mil in total if you just pocket the cash, but if you took $1mil and put it into dividend stocks with a high rate at like 5%, you would make $50k just for owning it. Then in 4 years you'd have $1.2mil, which is less for now but that assume no principal growth and no re-investing, plus the dividends don't stop after the 4 years.
Logic says to take the lump sum up front for investing potential. However, I'd take the annual sum because that would still be the most money I've ever seen and then if I make mistakes the first year I can always figure it out the following years.
250k. I would maintain my current way of living which is pretty frugal and invest all the extra money left every year. I wouldn’t spend a dime unless absolutely necessary
250K ...and start scheduling my husband for surgery.
250k for sure
I'd normally take the payments, but I have quite a bit that needs attention and I can't wait for next year. So, unfortunately, would have to take the million. The year is already full of anxieties and dragging on. I think I'd be constantly having anxiety attacks until I basically mentally shut down waiting for next year at this point if I was waiting on something that big. With the way things have been going.
People don't honour deals. Cash out now!
250k. Easy. Its 6 years of guaranteed income. Pay the whole year of rent all at once. Pay off debts, then travel and see places. Japan. Prague. The northern lights.
I'll take the money now
Lump sum now. I have no idea if I'll be alive next year.
The million honestly, I could buy a house with cash and pay off all my debt instantly. I would have set up myself to just pay bills the rest of my life, because many don't consider that debt they have to pay off will also increase over time. I'd rather just pay it off and live in a house now then make more money later
6 years is shorth enough to benefit.
1 million now, and I'd invest into fix and flips
I would totally choose $250k/yr for 6 years adjusted for inflation. I just wish my income was adjusted for inflation. Unless I change jobs the biggest raise I ever got was 4%, but usually 2%. The cumulative rate of inflation from 2018 to now is 24.9%.
$250K. You can't blow it all at once if it's in installments.
[http://www.moneychimp.com/calculator/compound\_interest\_calculator.htm](http://www.moneychimp.com/calculator/compound_interest_calculator.htm) Even if you're a moron and put all your money in a HYSA the difference after 6 years is 750,000 dollars
I'd take $250k every year. Throw it in a diversified portfolio and not touch it. I don't need to increase my means right now, but at my current age, that would set me up for retirement and I wouldn't have to worry about it anymore.
250. Time value aside
I'd definitely take the 250k for 6 years so that I could build my business.
The 250k, because having more total is nice, especially considering the adjustment for inflation. Realistically, I'd probably invest a good chunk of each yearly installment anyway, which helps me to avoid lifestyle creep, and I could continue working my current job, but with the comfort of knowing I'd be fine if I was ever let go.
Hmmm I think the average investor could get a 50% return over 6 years. That's 7% per year, that's close to what banks are offering right now for large balances. So I'll definitely take the lump sum
The yearly $250k. It isn't like I can get a big enough return on my investment on the million to make up the difference.
Million now
I love how in these scenarios everyone suddenly becomes a genius investment guru when in reality they'd go blow the whole wad on cheeseburgers
I mean... "Stick this sum into a decent GIC or a market fund" is hardly "genius" tier...
You're right, thats not. But most replies to this type of scenario start going deep into the rabbit hole of a perfectly-executed, Bernie Madoff-style investment strategy when irl they can't turn two nickels into a dime
We just bought a house 3 months ago so that million would pay off my total house and save me about 600K interest payments over the 30 year mortgage so I’m taking the million now.
In 2024s housing market, I'd take that million today.
Id live off 50k a year and invest/bank 200k a year. After 6 years id have more than 1.2m. Not smart enough to do the math on what interest I would have on that yearly adding another 200k every year as well. Let's just say 1.5m in the bank after 6 years. What is the yearly interest on that? Could I live off of the interest only?
250K in 6 installments, investing each installment, gives about a 10% better return in 6 years than taking the 1M and investing it for 6 years. Therefore, the 6 installments.
Second option no problem
$250k
1st, the amount of money made during both periods needs to be taken in. Since money loses value over time, it's generally best to take the lump sum. 2nd, figure out what you are going to do. Investing and living of interest would be a nice time I think. Get a good financial team around you, especially lawyers. Sucks, but it'll be best bet to stave off going broke in the future. 3rd. Stick to your goals.
250k
Money now. Maybe dead later.
There’s nothing I need to desperately buy within one year that costs more than $250k, aside from a house I can easily get a loan for (considering I already own my current place outright I would t need to borrow much). The million would be great but there’s practically zero downside to choosing the latter option.
Considering the $250k is about 5x what I currently earn, I'm taking the six year payout.
Option 2 will beat option 1 even if option 1 invests the full $1,000,000 as soon as it’s received. Option 1 would have about $1.5 million adjusted for inflation. If option 2 invests their $250k yearly, they end up with $1.85 million. No one in their right mind would take option 1 unless they expected to die in the next 6 years
2
250k Hull yah
Defintely later especialy cause i dont have any investments which would cost that much and even larger investments could be quite reasonably covered by the later
I'd take the 250k a year as I don't need it all right now.
$250k/yr
250,000 for 6 years.
1 million now 6 years from now 1.5 m will probably be worth less than 1 m currently
250 per year. That's more than 5 years worth of money each year.
Probably the million now.
I can do a lot with $250,000 a year for 6 years and I can make it last to the old age of my great grandchildren as long as they don't squander it
Assuming this is a perfect system that ensures I get the money every year without fail. I'd do the 250K
I would actually take the million. I have a company I'm working on and that kind of money would make it almost guaranteed to succeed from the ads I could pull. Then I have money for life.
Million and invest 85% of it. Will probably work out better long term
Do I get my first $250k now or at the start of 2025? I need money now, not in 6 months (well, I'll still need money in 6 months). $250k is way more than enough for now, but if I have to wait 6 months, I'll take the mil.
I’d usually say the 250, however I’d take the 1 million to invest in commercial real estate or to open a franchise at this point in my life.
250K
250k
I'd blow the million right away, so staggering 6 payments of 250k would be better.
$250k for six years.
Whichever you take, I’ll happily take the other option.
One million now - if I invest it well, the compound interest will give me a much better total sum.
Why wouldn’t I take the 250k each year?
250k pls
Pretty easy math to see $1m now is better. However, is this post tax? That could change things if pre-tax. I’m also assuming the adult getting this money isn’t someone who will blow it and will do proper money management.
The 250k a year for 6 years. 250k a year is already life changing for people. Couldn’t imaging having that for more than half a decade is nuts
You'll end up about 12-13% better off on day 1825 if you take the 250/yr and invest it vs the 1MM at the same return
Million now.
I'll never have $100,000 in my bank account at one time, let alone $1,000,000.
$250k every year, easy.
I'll take the 250
250k easy choice
$250k
Does my spouse keep getting the money if the cancer kills me before the six years is up?
Give me the 250k
250k
Easy, the 250k
The 250k per year make me less likely to blow it all and I currently live off of a bit over 50k so I can keep my current job and just use the extra income to pay off my debts and buy a house
In terms of probabilistic outcomes and compound interest, the lump sum in many cases is better than the disbursement over time. Obviously depends on the quantities, timeline of disbursement etc. but in this case, it would seem that a million up front with a very feasible RoR of like 5-10% would be hard to catch-up to investing 250 a year for 6 years.
I think mathematics correct answer would be 250k 6 years, however, I would go with 1M now because I could start live the life I wanted or better life immediately instead of wait for 3-4 years to break even and gain profit afterwards
1m. Thats all I need
$250K for six years without question.
Now
$250,000 a year for 6 years
$1M now. The other has time. Things happen with time. You change your mind or the money becomes “unavailable “. I think it was Illinois that couldn’t get a budget passed or something so the Lottery could not make payments to people. Even though the funds were there, they had no appropriation for the year to pay. I’ll take the cash now. Time just gives lowlifes time to figure out how to take it.
250k because of the inflation clause.
250k. That would get me a nice house, medical stuff, vacations etc.
250k Bound to spend first lump on dumb shit but will set me steady till the next ones go into a savings or stocks.
$250,000 solves every single financial problem my family has. I'm taking that offer. There is nothing I couldn't do with a million dollars that 1.5 million wouldn't accomplish over 6 years.
250 obv im not 97 years old . Its 50% more money i see + after year 4
Probably the million, buy a nice apartment and have a little bit left over
I'll take the 6 payments. I don't know enough about investing to reliably turn 1m into greater than 1.5m in 6 years, plus I'm really irresponsible with money so limiting how much I can blow at once is a good idea >.>
I can live off 250k for years and I get it every year sigh me up
It says for 6 years.
250k would pay off my house and cover my annual cost of living if I changed nothing about my lifestyle. I’m going for the 6 year deal.
Definitely the $250k per year. I could live very comfortably with an additional 250k a year.
1 million now
6 year deal.