Daunting One Question Financial Intelligence Quiz
This quiz has only one question…
“Which is more valuable, $14,000 now, or $100 a month for the rest of your life, beginning when you are 65 (in my case 20 years away)?”
Let me answer the quiz question with aÂ real life story…
About 6 months ago I quit my well paid government job. This meant, since I’m far from retirement age, I was offered a buyout package for my pension.
Today I went down the the pension plan offices to sign the papers.
They take this stuff very seriously and even though I was clear, and had completely made up my mind, when they stuck the official form in front of me I began to experience a lot of anxiety and had second thoughts about my decision.
Here Are The Options
I had only been employed for 2 years so we’re not talking about a large amount of money, but enough to make a difference.
Basically it boiled down to a one time cash payment of about $14,000 or in about 20 years $100 a month for the rest of my life.
Which would you pick?
As I was about to sign the form requesting the cash, my mouth got dry and I started to realize that $100 a month, while not a lot, was the only pension that I currently had. All of a sudden it seemed substantial. Something like free gas for my entire retirement. It felt BIG to give it up.
Then I thought about it for a moment and got out of the emotions of the perceived loss.
I was going to use the $14,000 to purchase a $200,000 condo.
Let’s do some math. These are really rough numbers, but you’ll get the idea.
$14,000 used to take control (possession) of a $200,000 condo, let’s fast forward 20 years and see what we have.
Asset value ~$300,000 (a very conservative guesstimate)
Assuming the mortgage is paid… monthly positive cash flow from rent ~$1000
That $100 a month isn’t lookingÂ too great anymore.
I signed the paper,Â feltÂ sorry for the many people getting ripped offÂ by theseÂ sorts of pension plans allÂ over the country, andÂ bolted out of the office.
If I live for 25 years after retirement the difference would be:
Pension Plan Value = Â Â $30,000
Private Investment in one condo = $600,000 ($300k in equityÂ + 300 monthly $1000 payments)
What’s really funny is that a lot of people where I worked, in ultra secure government jobs, stay in that job just for the lure of the pensions.