Let’s play the hypothetical game.
A rich billionaire approaches you and says “I will pay you your current salary for the rest of your life, on the condition you never generate any other income for as long as you live.”
This means if you currently make $50,000/year, this billionaire will pay you $50,000/year for the rest of your life (yes this will adjust for inflation). If you accept his generous offer, you forfeit your right to all future sources of income; investments, employment, inheritance, or otherwise.
Would you take the deal?
Holy crap this question is tough for me to answer. I have to make a list before I can answer this question because it’s so difficult for me to wrap my head around.
Pros of taking the lifetime pension:
- I mean this is why we save for retirement and make investments right? One day we will be too old to work, so we have to create assets that will produce income for us. How sweet would it be to know you had a paycheck coming every month, forever, no matter what your circumstance!
More freed up cash flow.
- Even though I’d be getting paid my exact salary, I’d have $10,000+ of additional disposable income. A guaranteed income stream means I no longer have to invest in a 401k or my Roth IRA. That’s a 15% raise effective immediately!
I could do whatever the heck I wanted.
- I make a pretty good salary, how awesome would it be to make this same salary, but do something uber-exciting with my days. Like lead Young Life. Or work as a substitute teacher. Or become a gypsy and travel the world. The billionaire’s offer didn’t state I’m not allowed to work, only that I can’t collect any money from any work I do. I can think of at least five jobs that I imagine I’d enjoy immensely, but will never do because the pay for these positions isn’t high enough.
Cons of taking the lifetime pension:
I’m only 27.
- If I’m doing alright for myself after only five years in the work force, who knows what the next five or ten years could bring. By locking in my current salary for life, I would be giving up the potential to make more down the road. Zuckerberg was probably super pumped when he found out Facebook was worth $100 million, imagine if he cashed out then!
- If I knew money was coming in, every month, no matter what, I’d probably get pretty lazy. I’d definitely work in some capacity, but since being fired wouldn’t scare me, I probably wouldn’t try too hard. Fear is motivating. Not to mention, there would be little motivation to be a top performer since I couldn’t collect on any bonuses, promotions, or raises.
- If someone could tell you the exact moment you were gonna die, would you want to know? Probably not. It would be weird knowing exactly how much time you did or didn’t have. I think the same would be true for my income. Knowing my salary would never change for the next 50+ years would take a lot of excitement out of life. Everything becomes significantly more safe, and I don’t really want to be remembered as the guy that lived a safe life.
Ultimately, I think I’d probably take the deal. We don’t feel like our current income limits our lifestyle, so if I could lock in the security we have now, forever, I’d probably do it. Who knows though, maybe I’m just saying that because this hypothetical situation is…. well, hypothetical?
What about you? Would you take the deal? If you said no to the initial deal, at what salary would you strongly consider accepting the deal?
I realize this scenario is highly dependent on one’s age, salary, goals, family situation, etc. That’s why I think the question is so good. Everyone will have a different reason for picking the answer they did!