How Much is Half a Million Dollars?
I already when know what you’re thinking. “How much is half a million dollars? Well (…dumbass) half a million dollars is $500,000.” Great, article done. You can all go home. Except this overly simple question has a ton of meaning behind it. Let me explain…
You and your family are sitting around your kitchen table. Mom’s about 2 glasses too far into that wine and your sister is somehow showering the conversation with passive-aggressive undertones all while never taking her eyes off her iPhone. Your dad then bursts through the door, carrying an extra 20 pounds or so around his gut (which may give him his “terrible joke” super-power). He tells you all that he bought scratch-off lottery tickets. So you each take a ticket, and work your respective pocket change so hard you gave all the Founding Fathers a headache (‘cept you, Eisenhower). Then your heart simultaneously jumps up in your throat and falls out your ass. You just won $500,000.
Except saying, “$500,000” really doesn’t give you any idea of the value of that pile of money. I mean, let’s face it, when have you ever seen 500,000 of anything? And while that number does seem like it’s pretty large, today we’re going to dive into why half a million dollars really isn’t as much as you think it is. Sad, but true.
What “half a million dollars” ISN’T
Again, I know that at first glance, that seems like a big pile of cash, and in most respects it is. But I want to make sure you all have a very solid idea of what half a million really means (and what it doesn’t mean…)
Half a million dollars is not an end goal
There are many things that I wish for you, dear reader. I hope you attain financial freedom, that you have all the time in the world, and that one day you finally catch a legendary pokemon. But I really want you all to understand what financial freedom really entails, and frankly $500,000 is simply not going to get you there. If you’ve done your financial check ups and you’re on track to hit retirement age with half a million dollars, then you need to revisit your investment/savings plan. Because…
Half a million dollars is not a lot
I hate to break it to you, boo-boo. But half a million dollars is not a lot of money, at least not in the context of a lump sum. Now, if you were to tell me you earn half a million dollars a year, I’d be showering you with complements and love and throwing in subtle hints about how much I’ve always wanted a helicopter. But when you hit 65, and you’ve only got half a million dollars to fall back on, you’ll probably find yourself heading back to the workforce (a sad state of affairs).
Half a million dollars is not permanent
I know it’s easy to look at all those zero’s and think yourself invincible. When my IRA got over 5 figures, I felt like such a baller. Sadly, I realize now that that’s only the first step. And while you may think that there’s no way that you can burn half a million dollars, I guarantee that you can. After all, how many sports icons have spent away all their contract earnings? And let’s all take a moment of silence for the most notorious of fallen financial livelihoods… MC Hammer.
Awesome, let’s move on.
Financial power of half a million dollars
Now that we’ve had an overly depressing talk about what $500,000 will not do for you, it’s important for you to realize to what extent half a million dollars can really help you on your path to financial freedom. Combined with Social Security and maybe a pension, you might be able to make things work in retirement with half a million dollars.
If we’re assuming that you take your $500k and invest it in some bonds, let’s see what sort of recurring income you could expect:
10yr Treasury Bills– With yields hovering around 2% for the last few years, you could count on about $10,000 just from interest. Congrats! You can buy a semi-decent used car!
Municipal Bonds – The Vanguard High Yield Tax Exempt Bond Fund has yielded 5.33% in the last ten years. Now, I know this included a recession, but I’m not going to “math” you to death, so that’s the number we’re going to use. Assuming this yield, you could get $26,650 per year in interest alone. Congrats! You’re still beneath the poverty line.
Corporate Bonds – The Vanguard High Yield Corporate Fund has yielded 6.51% over the last 10 years. That seems pretty high to me, but again, I’m not going to go through the math of taking out a recession. If you got this yield, you would be making $32,550. Alright, now we’re getting somewhere!
What if I invest it all when I’m young?
Then you’re a lucky bastard. But seriously, if you find yourself in the situation of having half a million dollars in a lump sum, here’s what you can expect from it. We’re going to assume a 9% rate of return, though it would probably be different for each age group. We’ll also assume that you’re going to retire at 65. But let’s see where you’d land at…
25 years old – I really don’t know of any 25 year old that could hit the half a million dollar mark (short of patricide). But if you did, you would have roughly $15 million by the time you were 65. Not bad, young grasshopper. Not bad at all.
35 years old – Maybe you were able to cash out of your start-up. Maybe you came into some serious inheritance from your rich Nigerian uncle who just happened to be a prince (thank GOD you opened that email). If so, then you would have $6.5 million by the time you’re 65. Definitely not a pile of money at which one should scoff.
45 years old – Maybe you’ve been reading this blog for twenty years, followed my advice, and after some prudent investing were able to sock away some serious dough. If you did, then you’d be looking at just under $3 million. Hey, I’d take it.
So there are a couple of lessons to be learned here.
- The more you save early on, the more it will benefit you in the long run.
- The longer you wait to pull out your money, the more it will benefit you in the long run.
- Not all long-lost uncles who turn out to be Nigerian princes are bad.
I’m kidding, please don’t open those emails (are they even sent anymore?…)
What if I just live off of half a million dollars?
Another scenario that really isn’t practical with “only” half a million dollars. With that being said, let’s look into it.
The average income in the US right now is just under $52,000. With that in mind, you could literally not work at all, and live in the US for roughly 9 years (let’s include inflation). That’s pretty sweet! I’d love to take a 9 year hiatus from life and just chill.
Just kidding. I’d get squirrely af.
But what if we didn’t live in the US? Are there some other countries that offer a better return on investment (ROI) when it comes to locale?
Thailand – Very friendly to expats, and tons of info on how to travel there. Numerous blogs say different things, but all in all you should be able to find relative comfort for roughly $1,000 / month. So, at $12,000 a year, you could remain in Thailand for 41 years. Maybe 35, when including inflation. Damn, that’s definitely not San Francisco.
Hungary – All the charm of Europe with paying for Paris, London, or Rome, Hungary offers an awesome option. You could live very comfortably for less than $1,500/month. That means that you’ve got roughly 25 years to spend in Hungary.
Ecuador – In Quito, you can spend less than $23/day for food, lodging, transportation, and entertainment. Meaning that you’re looking at being able to stay there for just under 60 years. 60 years! You could literally have your half a million dollars at 25 years old, move to Ecuador, and never work again. Can you imagine?!
Ironic side note – turns out the best place to have half a million american dollars is, in fact, not America. Hmmmm…
Fuck it, I’m buying an island…
Of course, what would a “What if I had this much money…” blog post be if it didn’t have some goals and dreams that could be considered a stretch. I decided to see what exactly you could buy for half a million dollars. A couple of these may surprise you…
2 (round trip) tickets to space
That’s right. You and a friend can pull a Han Solo and “Millennium Falcon” the fuck off this planet and fight the Empire, all for the cheap price of half a million buckaroos.
Ok, so that’s not quite accurate. But in case you haven’t heard, there is a subsidiary of Virgin called “Virgin Galactic” which is developing commercial space flights. You’ll climb up to roughly 50-75 miles above earth’s surface, have a couple of minutes of weightlessness, and come back down to the “common people” where you’ll party up your experience for the rest of your life. The flights are not actually ready to run, but Virgin Galactic would be happy to take your money to reserve a seat!
For you “Wolf of Wall Street” fans, it would only seem fitting that you have a pleasure craft that can tackle the high seas. And frankly, there are some killer ships out there that would do the trick nicely. You’re looking at about 50 – 100 feet for a power boat depending on whether or not you want to go new or used. You’ll get slightly less boat if you’re looking at sail, not power. But hey, it might be worth giving up a couple of feet if it means you get to stay eco-friendly! #ohsogreen
At the $500,000 price point, you’re probably looking at either a newer prop plane, or an older (1980’s) jet. Cessna has lots of options here, and these actually look pretty cool!
If you’re willing to give up a flight into space, this is probably the next best thing!
6 nights at the most expensive hotel in world
I looked this up because I simply had to know. If you land on half a million dollars, and want to burn it in a week, take all your friends to the Hotel President Wilson in Geneva. When you get there, hand them the $500,000 check and say that you want the Royal Penthouse Suite. With 12 bedrooms, 15,000 square feet, and views for days, you and your friends will know what it’s like to be Bill Gates or Michael Douglas. At least for a few days…
Of course, no talk of a pile of cash would be complete without discussing how much real estate you could buy. I decided to compare the costs of living in two of the most polarized parts of the country:
San Francisco, where your half a million dollars will buy you a very quaint and chic closet…
And Harlingen, TX, where you’ll find the cheapest real estate in the country. You could buy something of a mansion, something that looks like this…
If you’re a big fan of tacos, palm trees, and oppressively hot weather, we both know where you should be.
How Much is Half a Million Dollars – The Wrap Up
Here’s what we know about $500,000:
- It’s really not as much as you think. Half a million dollars is not enough to retire on, and therefore should not be an end goal. Your final retirement number needs to be much larger. It’s also not permanent, as it’s very simple to burn through that cash (simpler than you’d think).
- There is some financial power behind $500,000. You’re not going to get a ton of interest income from it, but if you were to invest it when you’re really young (25 years old), you’ll see some serious gains by the time you’re ready to retire.
- There’s some super cool shit you can buy for $500,000.
Now I want to hear from you! What would you do with $500,000? Go live somewhere exotic, invest it, burn it all on your way up to space? Comment below!
And as always…
Keep trying to crack the code,