Watching the U.S. Open Golf Championship and its top prize of $1.26 million made me think about windfalls. Many of us dream of coming into a large sum of money whether it is by winning a sporting event, a lottery, or getting an inheritance. If only you could win a million dollars; you’d be set for life, right? Not so fast. A little analysis will show that with a million dollars, you’re nowhere near as rich as you might think. Let’s assume that our lottery winner, Leon, starts out with a lump sum of one million dollars. He gets his winnings immediately, and if he has to pay U.S. taxes on lottery winnings, the prize was large enough that he is left with a million dollars after taxes. If Leon wants to be set for life, he has to grow his windfall by at least enough each year to cover inflation. He can only spend the investment gains that exceed inflation. Otherwise he is dipping into his capital and will eventually run out of money. Let’s start by assuming that Leon invests the who...