Income for life… or not?
Picture this, and consider which you would prefer
£10,000 per month in income for ten years?
Or £2,500 per month in income for life?
What about this one?
£10,000 growing 5x in the next 6 months?
Or £10,000 compounding at 6% per annum for life?
While fun, I found these questions thought provoking
They highlight how much your situation and goals influence your decision making
For me, the answer is obvious
I would choose the £2,500 for life.
Why?
I fully intend to live for another 50+ years (intend being the key word!)
Which would mean a total income of £1,500,000
By comparison, the other option would give £1,200,000
That’s £300,000 more.
And if I live another 60 years? (pushing it) That’s £600,000 more.
Your answer could be the same or different, but it depends on your situation:
How long will you live?
What about the opportunity cost?
What are you trying to achieve?
Would you rather ‘front load’ and take the £10k now to invest elsewhere?
Do you prefer the security of having income for life?
Let’s look at the next question.
What would you choose…
£10,000 growing 5x in the next 6 months, or
£10,000 compounding at 6% per annum for life?
The first option gives you £50k in your pocket, which you could put to work immediately
On the other hand, the latter option provides you with a pot for the future
Let’s see what the compound growth looks like:
20 years – £32,000
30 years – £57,000
40 years – £103,000
50 years – £184,000
60 years – £330,000
Or, if you want to take it a step further, you could take the £50k from the 5x growth and allow that to
compound over time
This would give you £287k in 20 years
The point of this is to show that there’s never a one-size-fits-all approach
We always have options
Our situation and goals will determine the best course of action
Or whether to take any action at all
Which options would you take?
Think a friend would like this? Forward it their way.
Have a great weekend ahead,
Callum