For Most People, There Probably Isn’t Really A Magic Number

What’s your magic number? I’m talking the number of dollars that, if someone gave you today, would convince you to stop working and stop worrying about money.  It would be enough that you would feel comfortable living off of for the rest of your life.

Most people probably have some sort of number in their head.

Five million bucks.  Two million bucks.  Ten million bucks.

Whatever the case is, I’m sure most people have it. I’m sure that most people have a number that would somehow end up in million.

I’m also sure that most people would not abide by the ‘no worry’ part for very long.  Why?  It’s simple human nature that once we have the money for a certain period of time, it’s going to become routine for us, at which point we’re probably going to start worrying about it again in some fashion.

Here’s how I envision it would all go down:

  • Pretend that $5,000,000 is your magic number.  It’s a nice round number with lots of zeros after it.  You get your check for $5,000,000 and head over to the bank to deposit it.
  • Even if you’re completely responsible, you’re going to spend some of that right away.  Pay off your mortgage, buy a fun car, help out your siblings, parents, children, and maybe a close friend or two.  Go on some trips.  Splurge on a membership at the golf club, a new set of earrings for you or that someone special.  After all that, say you have $4,000,000.  That’s really your baseline number.

Live off the interest.  One of the first things that people do is say that you’ll stick that money aside and live off the interest and investment income.  Sounds awesome!  Say that you can somehow invest so that you can get a 4% return.  That would yield you an annual salary of $160,000.

I don’t know about you, but that would be a nice raise from where I’m at today.  And, that I get to not go to work would be even better.  Since I paid off the mortgage, that leaves even more spending power.  That first year would be nice and enjoyable.

Then the second year would come along, and you’d notice that stuff started to cost more.  Maybe that trip you took for $8,000 last year now costs $8,500.  The guy you started paying to cut your lawn wants $40 a cut instead of $35.  You will probably start to notice that everybody else is starting to take more and more of your money, but the check you get from your accountant stays the same.

:Let’s not forget unexpected or unbudgeted costs

There’s also the element that other costs will come into effect that you probably can’t even envision today.

How many people would factor in that they have to pay for their own health care if they stopped bringing in money?  Even if that theoretical $160,000 per year more than doubled your take home pay today, chances are the health care costs are going to hit you higher than you could had ever thought of before writing down your number.

But, back to our example.  After a couple of years, you start seeing prices rise and costs of things that you never figured you’d have to pay for come into effect.  For those first five years or so, you might even not care.  But, at a certain point, you will notice this effect.  By this point, you’d be several years in, and you’re not going to want to start ‘cutting back’, are you?  Of course not!  There’s nothing ‘magical’ about that, is there?

Maybe you go back and say that your magic number is higher, right?  Double it, and everything gets doubled, including the money you’d bring in every month.

That might work and it might get you through a bit longer, but the truth is that the more money you come into, you’ll probably adjust your lifestyle to spend more.  So, the increase in costs will come to get you at a certain point.

I guess if you set your magic number at some absurdly high number, like $100,000,000, you could probably get away with never feeling the effect, but that’s going beyond magic and going into crazy athlete money territory.  Besides, that’s no fun for the purposes of this article!

Magic turns into boredom

Give a young kid a magic kit with some card tricks and a bunny-out-of-the hat routine, and he’ll likely have fun with it.  For awhile, anyways.

After he’s exhausted everybody in the family with the card tricks, perfected the art of hiding the fake bunny (and maybe even tried a few times with the family cat much to the likely unhappiness of said family cat), he’ll get bored with it.  He’ll either tire of magic or he’ll want to take magic to the next level.

This is perfectly normal.  And, the reason I bring it up is because the same thing would happen to the magic money for most people.

After you do your spending, and you have a balance of $4,000,000, for most people (me included) that is going to look pretty dang cool.  I’m going to wake up in the morning, check my account balance, and it’s going to put a smile on my face.  I’ll probably think to myself multiple times throughout the day something along the lines of “Wow, four million bucks in the bank!”

But how long is that going to last?  At a certain point, you’re going to get so used to having that $4,000,000 in the bank, that it won’t bring that same level of satisfaction.  And, if something happens where you need to draw down a little bit of it, you’re probably going to quite unhappy if you see the balance fall even a dollar below that $4,000,000.

Even though it’s still a lot of money.

All told, I think most people have a magic number, but I don’t think that many would live for the rest of their lives as they would in those initial months after getting their ‘windfall’.  For people who wonder why the rich keep trying to get richer, and why some people never seem to think they have enough, I think this might shed a little bit of light.

I would be curious, readers.  Do you have a magic amount of money that if you received it you feel you would be totally happy with it?  Do you think that you would remain happy for years and years, or would the magic wear off, especially with inflation and other costs?

36 thoughts on “For Most People, There Probably Isn’t Really A Magic Number”

  1. I’ll do one better than giving you one magic number. I’ll give you three. These are all based on back of the envelope calculations, using today’s costs, and assume that I would invest the money using my current strategy of investing in companies with a consistent history of increasing dividends that match or exceed inflation.

    $1 million – This basically replaces all of my expenses. I break out the champagne and declare my financial independence achieved. At any point I can move to a relatively low cost of living area in the South and live a very modest but entirely unencumbered life. I’d still probably be working, but I’d be spending a lot more than I do now.

    $2 million – This provides me with a very nice middle class salary. I’d only be working if I liked my job. Otherwise, they get the finger and I wander off. This is enough money to afford a nice and slightly above modest lifestyle. I would get a maid.

    $3 million – I have no idea if I’d still be working at this point. This essentially replaces my entire salary and bonus. If I love the job I’d probably stay there, otherwise I might wander off somewhere else. I would spend considerably more on luxuries. I would pay for a personal trainer.

    $4 million plus (bonus number!) – There’s almost no point in working anymore now. Maybe I’d try something entrepreneurial. I don’t know. I think I would start being a lot more mobile and moving around to different areas of the country depending on the seasons. Up North in summer, down South in winter. Clearly, I need to think this one through more.

  2. I wouldn’t use the word “worry” but I would ALWAYS be conscious of money and how we spend it. One thing that I would like to point out is taxes! Uncle Sam has his hand in absolutely everything! While you may live off the interest of $4 million that $160k will be taxed in a very high bracket.

    Additionally one thing I didn’t realize as a kid was real estate taxes. I imagined that if you paid off your mortgage you no longer needed to worry about paying for your home. WRONG! Depending on where you live real estate taxes can be a substantial payment every month.

    Not to mention inflation. I feel a $4 million dollar bank account would be VERY nice for the next 5 – 10 years but depending on how fast inflation rises that substantial amount could easily dwindle.

    If I had to give an answer it would be the same response as Bretton James from the movie Wall Street: Money Never Sleeps…
    Jake: What’s your number?
    Bretton: (Sinister Grin) More!

  3. Good post. So, are we assuming that taxes are not part of the equation, or are those already taken out? If they’re not, then the $5M becomes much smaller. I really don’t have a number in mind personally, but I do think that the magic could wear off very easily. I would seek to fill my days with volunteering, further entrepreneurship and fun with our kids.

  4. I hadn’t really thought of a number in particular but have thought of the live off the interest piece. I wouldn’t quit trying to earn though I don’t think. I would spend more time on my blog and online presence and just shift my focus. I would feel more comfortable if I had a little something flowing in.

    • I think that would be the difference maker. On the plus side is that you would be able to focus on doing something that might otherwise not be possible when you have to have a real job. You’d get to do something interesting, fun, chancy, or where you could work hours at your leisure, not when your employer told you to be there.

  5. I haven’t got a magic number, but however big the windfall, I would put it in real estate with hopes to adjust the rent with inflation. As long as my expenses are cover I’d be happy.

  6. I have always thought of a number, but never really pinned one down. If I did receive $5 million then I would invest it, not all of it, but most of it, but I would find a part time job that pays for my health care, like at UPS or something like that. I don’t know if I would be able to not work if I was young because I would need to keep my mind running on the right path. This one makes you think!

  7. The reason people with that much money still worry about money is because, at the end of the day, no one wants to lose money. So if you invest in stocks or open a business, you will continue to have money concerns.

    • Very true. I guess the only way to truly control it is to put it in your mattress, but even that’s full of problems and risks!

  8. As Kathleen said, this is a problem I’d be HAPPY to have!!

    My number would be $2M after taxes–but I’d still work. It would just be something completely off in left field that puts my creativity to work.

  9. $10 million would be my number, but I would not change much. I would still go to work for the next 5 years. Easy to say, since I do not have it, but I cannot and would not travel all the time. Would it change my lifestyle? I might move to a single level home a lot sooner rather later. I doubt if I would splurge on a bunch of things. I would certainly spend a small portion (less than $100K).

  10. I’ve never thought about a magic number where I’d stop working. I cannot see a time when I won’t be doing the work I love. But as money becomes less of an object, or obstacle, I can refine and refocus what I’m doing to a greater degree.

  11. I don’t know if I’d have a magic number. I know my hubby would want to move and also buy a lot of cool cars, so I think it would have to be pretty high after-tax so we could do some initial outlays, but still live comfortably.

    Whenever the lotto gets extremely high and we decide to throw in a couple bucks just for fun, we (hubby & I) discuss things we’d like to do with the money. He’d quit his job most likely, since he does it to earn money, but not for enjoyment. Me, I would work at my job until they find/train someone to take my place, but I’d probably move on. I’ve always wanted to run my own business, whatever that is, so I’d set aside/invest in that, get it up and running and hopefully get it to a point where it could be run by someone competent and I’d just be the owner/investor. I’d also set up scholarships at my Alma Maters and a trust for our child and donate to some charities I love.

    I think that where a lot of people go wrong when they come in to money is not only forgetting about taxes from the initial amount and subsequent interest on investments (if they even invest it intelligently), but also if they buy expensive things like houses, cars, etc. they don’t think about additional monthly/annual expenses that come along with it. Insuring a million dollar home and expensive cars, paying for property taxes/utilities/repairs on those higher priced items, etc. aren’t in their minds when they get their windfall. And also if you have a lot of money, you’d probably want to put a lawyer and financial advisor on the payroll, which is an annual expense as well. There goes a lot of the money you thought you’d have!!!

  12. My magic number is based on projections and milestones. You’re right on: everyone freaks out after they quit working, whether they’ve planned or not. They don’t want to go backward.

    I was lucky to meet lots of these people, and the only way to assure them (in my mind) was to create a graph that they liked that projected their pile of money annually throughout their life (how much they’d have at any point in time). Then, when we met, we didn’t focus on the big endgame number, but only meeting that annual milestone. This didn’t get rid of the worry completely, but it made sure that if things went off course, we knew about it quickly.

  13. I am only 33 so it’s so hard to imagine what my “magic number will be.” Hopefully I will have a better idea as I get closer to being able to retire. At this point, I am planning on working until 55…but who knows?!?! That could change quickly depending on the circumstances.

    • I used to think 55 was reasonable, but now I’m thinking it’ll be at least 65 before I can retire, if for no other reason than I can’t imagine funding my own health care for 10 years (and I’m guessing that would be more, as I would expect the Medicare age will rise to somewhere between 67-70 by the time we get there).

  14. Am I reading above correctly that you are suggesting if you got $10MM you would still withdraw $400k/yr? I get this impression b/c you wrote “Maybe you go back and say that your magic number is higher, right? Double it, and everything gets doubled, including the money you’d bring in every month.” And I don’t think that HAS to be true. If I had $10MM and I only needed $50k, I would withdraw $50k. That would put my withdrawal rate at 0.5%, very safe IMO.

    Second, the “4% rule” was created to keep up with inflation. In other words, from the original Trinity Study, with a 30 year time frame, withdrawing 4% would keep your spending power somewhat constant and have “very little” probability of failure.

    So yes, I have a number. And when I reach it, I’m buying a sailboat.

    • I think as your base number of money to draw from goes up, the relative percentage would go down. If I had $10mm, I’d probably go more along the lines of 2-3% a year. I threw the 4% out there because that’s the most ‘common’ number of a draw I hear.

  15. I’m nto sure I really have a magic number, man. The chance of me suddenly winning the lottery seems so low that I never really even considered how much I’d need to win to make myself feel secure financially. This post is making me think about what that number might be! You know, on the chance that I might win one day.

  16. I do have a magic number in mind. But the number I have envisioned is for my financial independence. I will never stop working because I have a much much (really high) expensive goal before I kick the bucket. If I get that much money (may be I will win a lottery!) I can get busy working for my goal. The goal has a running target, so I guess I will never be happy with how much ever I get.

  17. I’d be quite happy with anything over $1 million. It would pay off my condos and leave me with a nice chunk of savings and two paid off pieces of real estate. Sure, inflation would eat into it eventually, but I hope I would be careful about inflating my lifestyle too quickly!

    • Yes, any amount that would pay off my mortgage and the one outstanding student loan would honestly be like winning the lottery. Anything after that would be gravy!

  18. 1 million and I would drop my work to 2 days a week to keep my brain sharp and the adrenalin flowing but only a lottery win would get me there.

    My dream retirement would see $400,000 in passive income producing assets (very boring/safe widows and orphans stuff) to supplement a small government pension and the extremely small (about $800 per year) employer pension I will receive.

    In reality it will be the two small pensions, about $100,000 in savings and I will have to sell my house when I am in my 70s to free up that money.

    Dreaming about retirement is more fun than all the work I will have to do get there.

  19. Just like I can’t predict the future I can’t predict what number would make me toss it all up in the air and say sod it all. I think If I had a few million I’d be more than happy and could live off the interest. I’m sure I’d enjoy it but I’d also budget the money well like we do now. A million today might not be a million tomorrow. Great post.

  20. I have a number. I also have a plan including goals and timeline to get me there. That number is adjusted annually depending on the inflation seen in the past year.

    I am on track to reach that number in less than 4 years.

    • That’s a good goal. I could definitely see myself doing something to generate passive income if given the chance.

  21. My number allows us to leave our job today and put energies toward starting our own business from the ground up!

  22. I have a number in mind. It would pay off my debt, have a nice savings, invest some, and hopefully be able to live a comfortable life, maybe take a few trips. Nothing too extravagant, just comfortable.

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