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What to do with a Financial Windfall

The other day there was an interesting question on Twitter.  How much money would it take to be life-changing?    Unfortunately, I did not get a chance to formally answer this in the thread.  I did, however, get a real-world opportunity to test my answer a few days later.  In the process, I also answered the age-old question, what to do with a windfall lump sum.

Life-changing Windfall Amounts Depend On Stage of Life

As I read through the answers to the thread I noted the values for those just starting their party to Financial Independence (FI) were quite small.  Often it was enough to have an emergency fund.  Those that were later on the road or at FI, like ourselves, answered with much larger numbers.

A Windfall that Makes US Financially Independent Would Not Change Our Lives

Our own answer based on gut feel of that thread waffled somewhere between 1 and 2 million dollars.  Why?  Another million and we would be at our planned retirement number.  Significant in concept at least.  But honestly, I still intend to work until 55.  So would I actually change my lifestyle if I hit our retirement number early? Probably not.    So at least in general 1 million is significant but I guess it is not life-changing for us.

A Financial Windfall that Exceeds FI Would Change Our Lives

But still, there has to be a number that would cause something drastic to change in our life.  What about 2 Million?  Combined with our current assets and growth rate this number would exceed our retirement number today by 1 million.  What would that mean?  Well, here is where things get interesting.    

I still wouldn’t retire if I had 1 million past our retirement number.  But, a million dollars past our number would be a significant chunk of change. But even more so that million extrapolated out to 55 with our current growth and contribution rates would be well beyond any amount we could spend in retirement.   

The basic value of money to us would change, savings would be devalued in favor of further philanthropy and spending.  Now we wouldn’t go hog wild obviously, as I’ve observed what happens to professional athletes with easy money.  But a million dollars over our retirement number now would fundamentally change our relationship with money over the long term.  By definition, it would be life-changing.

Our Recent Financial Windfall: Found Paper Savings Bonds

Anyway, if you are still reading you are probably wondering about our real-world example.  No, I didn’t win the lottery or inherit a life-altering amount of money based on the above definition.   Instead, my wife discovered some old paper I savings bonds long since forgotten in a safety deposit box.   The value of these bonds approached half a year of savings for us, or 1 full year of expenses.

Managing Our Financial Windfall

The amount of these bonds exceeded the responses of many folks to that Twitter thread.  So how did I respond?  How do we handle a lump sum windfall?    

Determining Windfall Value

Well, the first thing I did was to determine the value of these bonds and their maturity date.  The bonds are mostly about 15 years old, so they still have another decade and a half to maturity.  This means their value is near twice their face value.  It also means they are earning a significantly higher interest rate than today’s bonds.    I determined that value and rate of return by using the treasury savings bond value calculator here.

Should You Keep the Assets In-kind or Convert It?

Given the higher rate of return of these I-bonds compared to today these specific funds will not be touched.  Any time you receive a windfall you should consider if that specific instrument makes sense to reallocate.  Something like an I-bond or an existing tax-advantaged account probably makes sense to keep intact even if you intend to spend the funds.  Rules for reallocation, your asset allocation, and future growth vary by financial instrument so be sure to research.  In general though, money is fungible so you can still just spend the funds via other instruments you have on hand if keeping the existing instrument is optimal.  So the real measure for me with such a windfall is how I manage a similar amount of funds out of our existing savings rate.   A windfall in a retained investment like these i-bonds potentially frees up some of our yearly savings money for equivalent usage.

What Did We Do with Our Recent Financial Windfall?

So what have we decided to do with a sudden windfall equal to half our savings rate?  Well, we decided to save all but a small amount of it.  I know boring, right? Honestly, We really don’t have anything we are itching to buy.  We are doing some home remodeling and have some upcoming travel but honestly, these are already budgeted.  We have no fundamental need or desire to increase those budgets as we are already getting what we want.  Which brings us to point 2.  Don’t just spend a windfall because it’s there.  Spending a windfall or lump sum is fine, (provided your financial house is in order) but only if you actually have something you want.

Gifting Some Funds to Our Sons

So what of the small amount of funds we indicated above will no longer save as a result of this windfall?  Honestly, it’s not much, we will reduce our savings rate for the year by about 2%.    That amount is not even statistically significant when compared to a daily movement in the stock markets impact on our net worth.  We won’t be spending that 2% either.  Instead, I intend to gift it to our sons.  

Lifechanging and Beneficial are Different Questions: Taking Advantage of a Nudge

Our kids both have savings accounts.  I have been meaning for a while to top these up enough to open custodial brokerage accounts for each of them and invest their funds in index funds.    This was something already in the plan for the next few years.  The windfall just gave me the nudge to do it already.    Which brings me to the final point.  A windfall doesn’t have to be life-changing to be beneficial.  A nudge to change your behavior can still be positive.  Take advantage of found money to motivate you to do things you have otherwise procrastinated.

Have you ever had a significant financial windfall?  How significant would a financial windfall need to be to change your life?  What would you do with those lump-sum funds?


  1. Joe
    Joe August 5, 2019

    Unfortunately, I’ve never had a significant windfall. To be life-changing, it’d have to be very big. Maybe $5 million or something like that. Otherwise, life will just be the same.
    I wouldn’t change anything if a million bucks drop in my lap. I’d put it in our investment account and life would continue like usual.
    $5 million is a different story. We’d spend a bit more and we could do good things with the extra investment income. I prefer to think in term of income, not lump sum.
    So $5 million would be worth around $150,000 per year.

    • FullTimeFinance
      FullTimeFinance August 6, 2019

      I can understand that. I honestly wasn’t thinking of 2 million today when I set my life changing number either. In 17 years when I turn 55 the investment would be worth more like 4 million. 4 million extra in retirement is a lot of income.

  2. Dan
    Dan August 5, 2019

    “Instead, my wife discovered some old paper I savings bonds long since forgotten in a safety deposit box. The value of these bonds approached half a year of savings for us, or 1 full year of expenses.” This is a topic I have become very familiar with. My late father left me savings bonds with a value equal to approximately 3.5X my annual gross salary.

    I assume (since they were paper), your wife found EE or I bonds in the safety deposit box. US Govt Savings Bonds have very unique features. First, the tax can be deferred until redemption. The interest is accruing up to the maturity date but you never actually see the interest in terms of deposits to an account. For example, if the face value denomination is $100, the bond was purchased for $50. It has a maturity date of 30 years (to the month) after purchase. It is likely that the accrued interest totals more than the face value. After 30 years, the $100 bond (with a cost basis of $50) has a redemption of $300 to $500 based on when the bond was purchased.

    Going back to deferring the taxes. For most bonds, you would get a 1099-Int for the interest that accrued for a given year. For EE bonds, you can defer the taxes on the interest until redemption. Technically, you owe the taxes in the year the bond matures. You can continue to hold the bond past maturity but it acrrues no further interest.

    Secondly, I don’t know if the bonds are in your wife’s name or the original holder died and she is the beneficiary. If it is the latter, she may be responsible for the accrued interest during the decedent’s life if the decedent deferred the taxes. There is not step-up basis for EE bonds.

    Anyway, the bottom line is that you may be in for a large tax bite if you redeem all those bonds this year. I’m referring to the taxes on accrued interest. However, a secondary impact may be that redeeming all those bonds this year may bump you into a new tax bracket. My recommendation is to save 100% of it until after you pay your 2019 income taxes. You may find that the post-tax amount is much smaller.

    As for life changing financial windfalls. It’s all relative. $5 Millions may be life changing to your but I doubt it would be a blip on Warren Buffett’s radar. At Warren Buffett’s net worth, the question is theoretical or even metaphysical. If your net worth is $80 Billion and you are already giving away huge sums to charity, what would change if your net worth instantly became $250 Billion? The Fed would start coordinating with you to control money supply? Your personal spending or lack thereof moves the GDP? You would start to act life a shadow nation-state within the US?

    For the rest of us, I think it is all a mental game. How much of windfall would be life changing for me? I don’t know the number. I think of it as levels. At my level of FI, I would feel comfortable not working but I watch my spending. I don’t necessarily deprive myself of much but I monitor my spending. The next level would be that monitoring my spending would be a waste of time. No matter how much I spend, my net worth doesn’t change or keeps going up. The final level I can imagine is that I am spending my time actively looking for new ways to spend my money in a manner that gave me happiness and contentment. It almost becomes a job to spend the money – be in on charity or myself.

    • FullTimeFinance
      FullTimeFinance August 6, 2019

      So the bonds are in my wife’s name. Apparently they were purchased in her name when she was a minor to pay for college, then promptly forgotten for two decades. Only a small portion of it has matured (about 50 dollars face value) so the rest remain invested at nearly 4 percent a year. We cashed the 50 dollar bond and reinvested since the approximately 80 dollars in return taxed is a rounding error. I appreciate the advice.

  3. Xrayvsn
    Xrayvsn August 6, 2019

    Congratulations. “Found money” is an amazing feeling.

    I just had a massive financial windfall (upcoming post (I believe Sept 3)) that accelerated me to the point where I think I am 3 or 4 years ahead of schedule on my previous planned timeline financially.

    I too didn’t do anything drastic. The vast majority went into buying more income producing assets and I would say probably 0.2% went into buying a new 55 inch TV for myself and a power massaging recliner for my mother.

  4. Felicia
    Felicia September 16, 2019

    I hope people do realize that “windfalls” do happen in the form of inheritance, especially some of us older ones (I’m 57). We have parents that have worked all their life and live by some of the old school ideas of working and saving and not having any debt, and some have acquired quite a bit. In my case, being an only child and my 85yo Dad passing, a lot has been left to me. Did it change my life, yes in the financial world yes, but in my dreams and lifestyle, not a whole lot. I believe in frugality and living within my means, no debt, being adventurous, living in FLorida, getting to the beach often, but still living within a budget . I definitely still need this budget, and I’m still pretty young to totally retire, although, presently not working outside the home. My idea is to live off the passive income (I inherited a working farm) and save all the inherited $$, coasting it in smart investments. I’m still in a position to take around $20K a year out of that (which is like 2% and low on the 4% withdrawal that I’ve read about over the last couple years)…..Living off the passive is working out pretty good for now,….I do have some.major expenses I find at this age with making as much as I have is healthcare premiums are MAJOR costs now, at around $1600/mo with major OOP expenses…..I’m not sure if people realize how much the medical costs if you are above the subsidy levels, it’s way more than rent or mortgage to me would be. Fortunately, don’t have a mortgage or rent, own my home already free and clear. Anyway, just wanted to say, being careful with a windfall will hopefully keep me FI and hopefully still leave plenty for my adult kids when I pass one day.

    • FullTimeFinance
      FullTimeFinance September 17, 2019

      Thanks for the great comment. I agree with everything you said and your plan sounds good. The medical costs as self employed or retired person above the subsidy cutoff are no joke. Our current plan actually considers mortgage costs versus health care a wash…. and i might be underestimating the health care.

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