MONEY COMMENT
Why A Million Is Not Enough

By Jane Mack (TMFJane)
July 2, 2004

About a year ago, I read an article about a young woman who had won £1.2 million on the lottery and hadn't told anyone except her fiancé. I commented at the time to a friend that I wasn't surprised she was keeping it a secret - £1.2 million isn't very much in the scheme of things.

My friend was rather shocked because she thought it was a huge amount of money. It is, of course, but it's not if your friends and family have expectations and, human nature being what it is, many of them would.

The woman was only 23 years old, which means that she's got to make sure her £1.2 million lasts for at least 60 years. When you look at it like that, you can see that she can't afford to buy houses and cars for family members willy-nilly.

Let's say she uses £200,000 to buy a house, leaving her with a cool million to invest to give her an income. If she wants to be cautious with her money, she'd get an annual return of about 5% at the moment - £50,000 - which, after tax, would net her about £34,000 a year.

However, if she spends all her income instead of re-investing some of it, her £1 million would, in real terms, only be worth about £227,000 by the time she's 83. So, as a bare minimum, she's got to re-invest at the rate of inflation if she wants to keep the real value of her capital. Assume inflation is running at about 2.5% a year and she'd have to reinvest £25,000 a year to keep pace with it.

That would leave her with an income of just £9,000 a year.

I'm being simplistic, of course, because there are plenty of ways to invest, which, with the right advice, could yield better results, and she could also mitigate some of her tax liabilities. But you can understand why £1 million isn't as huge a sum as it sounds.

In case you're thinking that the lottery winner was being selfish and greedy by not telling family and friends, she had good reasons. She and her fiancé were desperately worried that it would change the way people saw them if they suddenly and publicly 'got rich'. People do get jealous, after all. Also, most of her family were apparently hopeless with money, and quite likely to blab about her win, so, instead of telling them, they found ways of filtering money, holidays and other gifts to them by claiming that her fiancé's plumbing business was doing exceptionally well.

So, would you tell your family if you won a million? Hmmm...

This is an updated version of an article that was originally published in June 2003.