Deal or no deal?

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: 

Security.

  • 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!

Complacency.

  • 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.

Predictability

  • 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! 

19 thoughts on “Deal or no deal?

  1. Great post, Ninja. I think you’ve just described how an annuity with a cost-of-living adjustment can make you feel– sort of like living on Social Security, or on the dole in Australia.

    The key is that people have to be responsible for their own entertainment, and satisfied with having “enough”. Once you get the hedonic treadmill on the right setting and start having fun, life is good!

    I enjoyed (most of) what I did during my 24 years of W-2 income, but the lack of financial independence also kept me from figuring out how I really wanted to live my life. I’ve finally found what I want to do with the rest of my years, and I don’t miss “living in fear” one bit. I also had enough excitement during those working years to enjoy having a little more predictability these days. Life will throw enough curveballs at us without having to give up our time for work.

  2. I immediately thought too of annuities and social security, which are both similar to the guaranteed income sources you describe. The biggest issue you don’t mention, however, is increasing unreimbursed expenses as one grows older, primarily health care. My current salary might well fall short of meeting those expenses, so an adjustment for inflation wouldn’t go far. Still, I would have the same problem whether I took the billionaire’s offer or not.

    But any answer to the question must be age-related, too. My little company has not been exactly generous with raises these past few years. There is an apparent unstated contract: “You can remain working with us since you’re good at what you do and we need you, but we’re paying you well now and you’ve reached your earnings limits, so you’d better be satisfied with that (since we could if we wanted always replace you with someone half your age and at half your salary).”

    So my answer today would be a probable yes since that’s where someone in retirement is heading anyway; 20-30 years ago I would not be so sure.

  3. This is the definition of Happy for many people I’ve spoken to. A way to make the money they are making and do anything else to “earn it”. Having this opportunity, yet forgoing all other income sources, may sound great for the first year. Then for me, I’d start to go a little mental because I wasn’t getting up and going to work every day. Though, I’d probably start volunteering like crazy. Also, perhaps you take this deal, still work, and give all of that income directly to charity. That wouldn’t be accepting an income at all.

    I am just a bit older than you Ninja, and I am female. This would allow me to start the family I’ve been wanting to, and solve the income issue outright.

    Effectively I could stay at home to raise my children, and make the salary I left in the process. I would be able to sign up for a benefit package to ensure coverage for medical items. I would be able to be involved in their school trips and after school activities. I wouldn’t need a babysitter.

    Having said all that, my salary comfort level would be about $65,000. That’s $8,000 above what I make now, and effectively the cap in my current position, at my current employer. While I love what I do (however work politics still make it difficult to be at work sometimes). I would also love to travel, have a family, learn a few more things, volunteer in a more meaningful capacity, curl competitively and help my mom and grandma out.

    Having a steady income would allow me to pursue my other life interests, meet and exceed other life goals, and be on hand for my family more often. It would effectively provide me with the dream life. yet, I know that I’d be restless and have to fill my days with all kinds of things. Not a bad option either. At 33, if I was told that for the rest of my life I’d make the income I was making on the day of the deal signing, I would take the deal and begin pursuing other facets of life that have always been dreams, and are struggles to maneuver financially, while still holding up your employee obligations.

    Effectively this will reduce expenses in other ways too. I would be able to ride my bicycle or walk to my various other activities, having alleviated the pressure of rushing around here and there on a schedule. I would enjoy testing and eating far more new recipes than I do now, meaning I would be eating in way more often than I do now. I would make better use of my public library for entertainment purposes, instead of relying on Rogers-on-Demand to buy my entertainment from. All of these are things I could be doing now, however, I feel rushed, I require a relaxation period after work to decompress the stress, I’m tired when I get home and many times “don’t feel like moving”. I look for convenience more often than frugality, or free options.

    An interesting and different life I would lead with this deal. I don’t know that I’d miss my work as much as I think I would. I don’t know that I wouldn’t still consult in some capacity in my field though. It would mean that the day I wanted to stay at home, cozy in bed and not go to work, I could do that very thing and have no guilt about having to [fill in something that you guilt yourself with here]. Effectively I’d have the very thing I’ve been wishing for. The big question is, would I be as happy as I think I would be once I’ve been handed that wish?

  4. Sounds like a sweet deal. But…I’m 22, and have only begun working. Honestly, all I want is the ability to come into work at 11 am and leave at 5 pm. Wouldn’t even take a lunch. Those are my most productive hours. 8 am – 11 am are a wash most of the time.

  5. I’d absolutely do it. And I disagree with you that you might not work as hard, in fact, I’d argue that if you were volunteering doing something you love and are passionate about, you’d work even harder. I could find a lot of things to occupy my mind without working.

  6. I could sit here and contemplate this for half an hour, and I still don’t think I’d have an answer. But since I turned 18, I’ve been given no financial help, and my husband’s similar. So making and saving our own money has been extremely satisfying because we’ve had to work so hard for it. I just don’t think it’d be very satisfying being given money for free. I’m gonna say no deal!

  7. At first I thought this was an easy answer of “No Deal” for me. I’m relatively young (30), enjoy my career (software development), and hope to have many more great opportunities in the future. I also am very competitive with myself, and I primarily use salary and responsibility as a way to gauge my movement through a company and as I switch jobs. I’m not sure how I would do without that type of driving factor being part of the equation anymore.

    But as I thought about it more, there is a certain freedom and comfort of just having a set amount of money show up. I have a decent salary for my age, so my wife and I could definitely live comfortably on this for a long time (given that inflation doesn’t go crazy at some point in our lives). And having the freedom to not be tied down in any given location for any given time would be a great feeling, and I would love to see more of the world.

    I definitely think the decision would be easier in, say, 20 years from now. For now, if there were some strange job request genie out there, I would ask it to let me work at some challenging and fun jobs that allow for flexibility in location and allow for 6 weeks vacation per year. But I would probably still have to say “No Deal.”

  8. NO DEAL for all of the cons you mentioned. I’m 26, not sure what the future holds in terms of salary (but I expect that it will go way higher than what I am making now), and I absolutely hate predictability. I like working hard for something and enjoying the fruits of my labor. That said, I would love to visit this question again when I’m in my 50s and see if I did make a good deal or not.

  9. I’d take it. I make great money now, and could spend more time enjoying life than working. (even though I like my job/employer/coworkers) If the rich guy doesn’t charge me taxes, insurance, etc… my salary would go even further than it does now. I would join IFAW or the ASPCA and spend my life clubbing the people who club baby seals, beating the people who beat animals, and so on. I may not wear a cape, but you get the idea, and that my friend, would be awesome.

  10. At less than $20,000 with a PhD looming in three-ish years?

    BLAH HA HA – no way. Even if, once I graduate, I find a job that doesn’t necessitate the PhD, my work background is marketable enough to make at least twice my income now (which is nice, because what I make is barely a living wage where I live).

    But I like security and stability, so if I were making more, I’d probably say yes.

  11. I’d take this deal in a heartbeat. It would allow me to stop working and stay at home with future kids. I never get bored and could volunteer and easily keep myself busy.

  12. No way. I’m 23 making about $40k. If I was making around $80k I’d feel more comfortable taking the deal but where’s the fun in that?

  13. I can’t say I would take the deal. Even with the security and considering it’s a fairly good salary. In my life I wake up everyday to do better, work harder, and achieve something greater. Taking an offer like this means I don’t have much to work for because the main motive (money) would already be there. Even if I took that money and used it to have fun it would get old quickly. We need motivation and a goal in life and for me this has always been money and achieving a position of power (preferably owning my own company). As I have always said, “I’m not meant for a mediocre life”.

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