For the record, I believe having at least 10 million dollars is the ideal amount of money to retire early today. Given interest rates have come way down during the pandemic, the value of cash flow has gone way up. Inflation is also pick up.
Retirees and investors need a lot more capital to generate the same amount of risk-adjusted returns.
$10 million can currently generate about $150,000 a year in risk-free income and up to $300,000 in low-risk income. With $150,000 – $300,000 in income, you should be able to live a wonderful live.
The question becomes, if you had 10 million dollars, what would you do with it?
What Would You Do With 10 Million Dollars?
In “The Samurai Method To Maximizing Investment Returns,” I mentioned a long-term goal of accumulating 10 million dollars in stocks and bonds in order to generate at least $200,000 a year in dividend income. $10 million sounds like a lot, but dreaming is free, and I dream all the time because I’m frugal.
Using the slice and dice methodology, I’ve got specific value and income target goals for real estate, risk-free income, book sales, P2P income, and online income in addition to stocks and bonds. Everything is neatly partitioned so I can have a clearer focus on how to maximize effort and income.
But what if 10 million dollars after-taxes just fell into your lap? Would your life really change if you didn’t have a day job, or loved your day job, and had enough food, clothing, and shelter? I’m not so sure anything would change at all!
How To Spend 10 Million Dollars
Here’s how I think I’d spend $10 million dollars if it suddenly appeared in my bank account. I’d like you to go through the same exercise.
1) Do nothing. I’d first sit on the $10 million for three months to let the initial excitement wear off. Money is most easily blown when it first comes in. This is when we get in the most trouble, especially if we didn’t spend years earning our money. Besides, I think it would be fun to look at a savings account with eight digits. Spend: $0. What’s left: $10 million.
2) Bolster up weaknesses. I’d do a net worth analysis to see where I’m light on assets. Given I bought another property last year, I’m a little too heavy in real estate than I would like (~40% of net worth vs. 30% desired). Hence, I’d allocate money towards public equities, risk free assets, and private equity investments. By keeping 40% of the $10 million windfall, I know I’ll be safe no matter what I do with the other 60%. Spend/Invest: $4 million. What’s left: $6 million.
3) Pay down some debt. I’ve got two remaining rental property mortgages I’d like to pay off: my Lake Tahoe vacation property, and my single family home rental. Both are cash flow positive, but I like the idea of having a 1:1 debt to cash ratio for financial security. Spend: $1 million. What’s left: $5 million.
4) Help family and friends. I’d ask my parents, sister, in-laws, close friends, and other loved ones if they are in need of any financial assistance. I’d then take care of all their needs without telling them how much I actually have. It’s important to have the optionality to help others without others always expecting you to help them. Spend $1.5 million. What’s left: $3.5 million
5) Create a perpetual giving machine. I’d set up a $3 million trust to perpetually donate to a particular charity based off the returns generated from the principal. With a 2% – 5% rate of return, I could donate $60,000 – $150,000 a year forever. I have a new book with Penguin Random House coming out, entitled, Buy This, Not That: How To Spend Your Way To Wealth And Freedom. I will be donating 100% of the royalties to The Pomeroy Center, a place that helps disabled adults and children. Spend: $3 million. What’s left: $500,000
6) Live a little. With the remaining 5% left, I’d finally let loose by spending it on various things: 1) build new products onto the Financial Samurai platform such as a mobile app for $30,000, 2) perhaps buy a Range Rover Sport HSE in two years when my Honda Fit lease is up for $70,000, 4) buy a first class around the world luxury cruise for my parents for $60,000, 5) build a ~750 sqft extension on my house with a couple decks that will cost $200,000, 6) remodel my parents’ kitchen and bathrooms in Honolulu while they are on their world cruise for $130,000, 7) buy some new tennis racquets for $400, 8) buy some new clothes since I haven’t been shopping in five years for $2,000, 9) replace a couple sofas for $7,000, 10) try some new fancy restaurants with friends for $2,000, and that’s about it!
7) Build more passive income with real estate. Real estate is my favorite asset class to generate passive income and wealth. Unlike stocks, real estate tends to hold its value much more. Personally, I like investing with Fundrise and CrowdStreet, the two premier real estate investing platforms today.
Life Doesn’t Change Much With $10 Million
At first I thought maybe I’d buy a $5 million house in Pacific Heights if I inherited $10 million. But then I thought about the maintenance costs and $65,000 a year in property taxes each year. That is just an outrageous amount of waste!
I’ve been to several $5 million dollar houses before, and they aren’t nice enough for me to move from my cozy <2,000 sqft house overlooking the ocean. I’d feel a little silly living in a house so big (3,000 – 4,000 sqft) with just the two of us.
Then I thought about buying a sports car, like a Porsche 911 Turbo for $170,000 as any warm-blooded middle-aged man would do. But then I realized how stupid it would be to drive 40 mph at the most in the hilly, pot-holed roads of San Francisco.
I’m happy driving my 2015 Range Rover Sport until 2025. Then it will be time to get a new family car with newer safety features.
Helping my parents and in-laws live the most comfortable life possible is important. But given I know my parents are already financially secure due to a lack of debt and a healthy pension, I’m not worried. My in-laws don’t need that much to live a happy life either.
Ideally, I’d like to create multi-generational financial security with part of this $10M windfall.
Buy Freedom With Your $10 Million
Going through this fun exercise makes me re-appreciate the value of freedom. If you have all the money in the world, but don’t have the freedom to do what you want, is it really worth being so rich? I don’t think so. Do your best to optimize your life for freedom while discovering what is the minimum amount of money you need to be happy.
Because I already have the freedom to choose how to spend all my time, $10 million doesn’t do much to change my life. However, if I was stuck in a job I didn’t love, then I’m sure I’d negotiate a severance package tomorrow.
It’s kind of sad that 10 million dollars only earns you around $150,000 – $300,000 risk free every year in interest. But $200,000 – $250,000 a year so happens to be the ideal income for maximum happiness, so why not shoot for such a financial nut? Happy saving and investing everyone!
How would you spend $10 million? What is really the point of accumulating so much wealth beyond what you are comfortable spending? Would your way of spending $10 million differ if it took you ages to reach $10 million versus inheriting or winning $10 million? Do you think your life will change much with such a large windfall?
The IRS allows you to pass on $11.7 million when you die tax-free, and $23.7 million per couple as of 2021. If you’re able to accumulate such levels of wealth, you might as well figure out how to spend or give away every dollar above those thresholds.
Having 10 Million Dollars Today
I first wrote this post in 2015 when my net worth was below $10 million. Thanks to a massive bull market, my investable assets are worth north of $10 million. They also generate north of $300,000 a year in passive income.
The difference between now and 2015 is that my wife no longer works and we have two young children. Therefore, although it’s great to have more money, our costs have risen as well.
I still believe that once you cross the $10 million net worth threshold, there is a greater sense of financial relief. You still worry about a bear market losing you millions out of the blue. But that’s what a diversified net worth is for.
The wealthier you get, the less risk you want to take. Therefore, I’ve got 40% of our net worth in real estate for diversification and income.
Build Wealth Through Real Estate
Real estate is my favorite asset class to build wealth. As you get wealthier, the more you will appreciate the value of real estate. The combination of rising rents and rising capital values is a very powerful wealth-builder.
In 2016, I started diversifying into heartland real estate to take advantage of lower valuations and higher cap rates. I did so by investing $810,000 with real estate crowdfunding platforms.
With interest rates down, the value of cash flow is up. Further, the pandemic has made working from home more common. Therefore, heartland real estate should continue to attract domestic and international capital.
Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore.
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the easiest way to gain real estate exposure.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio.
Stay On Top Of Your Finances
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. If you are lucky enough to accumulate 10 million dollars, you’ll want to track your finances diligently.
In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms.
I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.
Updated for 2021 and beyond