Back in July I let my mind wander through the fantasy of "what would I do if I won the lottery?"
Since I mentioned that I would come back and elaborate on this, I figured a year-end flight of fancy might be in order.
When I entertained this pipe dream before, I touched on whether I could retire immediately with any of a one-, two-, or four million dollar after-tax payout. I concluded that I could do it for sure at four million, but might be strapped at two million. This was based on the idea that my take-home pay is less than $2000 every two weeks, and I'd have to pay for health insurance, a roughly $12,000 per year expense that I don't currently have.
Truth be told, $3 million is really the right number, given that (hypothetically) I have no assets and no debts.
Today's insanity is this: "how would I distribute charity and gifts from a large lottery jackpot?" Since I mention $3M as a "starting point", let's begin.
With a $3M cash sum, I could plan on $75K per year for 40 years. That takes me to the age of 95, and allows for inflation via the growth of the invested portion of the sum. What could I give away?
My instinct is to start with a 10% charitable gift right off the top, but let's see if that's wise. We can always give charitably year-by-year based on net cash flow within a given year, thus preventing a gross miscalculation at the outset of our 40 year retirement. I said that around $66K per year was roughly equivalent to a replacement income, so that is a $9,000 surplus per year, or $360,000 over the 40 year retirement. Very close to 10% after all! What I would probably do is work out a split between truly charitable giving and gifts to family members that would keep the siblings happy. Since I'm married, I'd also have to split the "gift portion" in two, one part for my wife's family, one part for mine. Therefore, if we do a 70-30 split, charity to family gifts, then $252K goes to charity, and $108K goes to family, or $54K to my family alone. It's not much, but it beats a sharp stick in the eye. As I mentioned previously, I can always give away more during any given year in which cash flow allows.
What's the next increment to consider? Well, this is purely fantasy, so let's say $30 million dollars! Now, this amount would make ANY sane person happy, so I can see splitting this three ways, self-charity-family, so that each bucket is $10M. That allows my wife and I $250K per year, and my siblings a $5M pot! Now, depending on how many family members and how much you can give away before you're taxed for estate purposes, you might give them a large lump sum (a third of it?) and the remainder over ten or twenty years to reduce the additional tax burden on you.
Finally, what would you do with ten times THAT - or $300 million dollars? This is not impossible - last summer's MegaMillions payout was around $308M - but a single winner of that much money is extremely extremely improbable. It's my fantasy, though, so play along.
With a lump sum of $300M, the distribution - in my mind, at least - gets skewed heavily in favor of charity. After all, how much money do I personally need? So... My new split is 50-25-25 charity-gifts-self. That's still $75 million dollars for my wife and I, $37.5M for my side of the family, and $150M to charity. $75M for personal use is probably still too much, but I don't have to act responsibly when I'm dreaming.
If I had $75 million, I'd probably tier the money so that year one would be a 5 or 10 million dollar blow-out, and the next 39 years would be split evenly. Imagine having a $1.5M - $1.75M dollar yearly after-tax income even after spending 5 or 10 million that first year! For the family members, the wealth will be scaled down, but still beyond any reasonable need. Imagine that I had 4 family members to give to. That would be over 9 million bucks a piece before taxes. I would probably structure their gifts so that they're front-loaded, say $1M a year for three years, then a diminishing annuity over the rest of their lives. That would still be over $100K a year after the original big payout.
What a fantasy!