This meme got me interested… Offered with the choice of free beer for life, or a million dollars, which one should I choose?
Well I know which one I would choose, because I don’t drink a lot of beer. Easy. “A million dollars please, thank you very much.” If I was offered free wine for life or a million dollars, well, then you’ve got me thinking. Would I? Should I?
And then I became a bit annoyed with myself for not knowing the answer, and I quickly descended into spreadsheet hell to work out what’s worth more: free beer for life or a million dollars.
Obviously, we need to make some assumptions. We’re going to assume there’s no beer inflation (beer-flation?), and we’re going to assume that even if we’re given the million dollars on day one, we’re not allowed to invest it because, obviously, a 4% withdrawal rate would give us US$40,000 a year, and we’d be drinking US$770 dollars a week until we keeled over… stamina would be more of an issue than money!
Instead, we’re going to assume we spend a regular amount of money every week on beer, and that if we stop spending it, and save it instead, we save it at a 7% return. Nothing too risky, just enough to double every ten years.
Then we can ask ourselves the question “How much do we need to spend on beer a week, and for how long, before we have cost ourselves a million dollars in savings?” That will tell us whether should we accept the million dollars right now, or whether the free beer will be worth more to us over time?
What do you think?
One day, when I work out how to insert calculations into wordpress, I’ll put in an interactive version of this… for now, here we go with a table:
| 51 | 61 | 71 | 81 | |
| 50 | 272,124 | 583,124 | 1,205,122 | 2,449,119 |
| 75 | 408,187 | 874,686 | 1,807,683 | 3,673,679 |
| 100 | 544,249 | 1,166,247 | 2,410,245 | 4,898,239 |
| 150 | 816,373 | 1,749,371 | 3,615,367 | 7,347,358 |
| 200 | 1,088,498 | 2,332,495 | 4,820,489 | 9,796,478 |
The numbers at the top are your age: assuming you start drinking beer at 21, the first column shows how much your beer consumption has cost you in lost savings (and investments) by 51, and then 61, 71 and 81 years of age.
The numbers down the left are your weekly beer spend: fifty dollars all the way up to two hundred dollars a week on beer.
Let’s start down there at the bottom left. If you spend two hundred dollars a week on beer, it will have cost you more than a million dollars by the time you are 51 years old. 30 years of saving that two hundred dollars a week, investing it at 7%, and you’d have more than the million dollars.
It’s not just the big spenders though. If you spend just fifty dollars a week on beer, it will have cost you more than a million dollars after 50 years. You’ll be 71 years old by then, but still, it would have been better to take the free beer for life!
But it’s not about the beer. Anything you spend 50 dollars on a week is costing you a million dollars by the time you’re 70. Anything that gets 200 pounds a week out of your wallet (yes, it works for pounds too!) will have cost you a million pounds by the time you’re 50.