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Die With Zero - Track 006

Die With Zero

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  • Autopilot Costs You Precious Life Energy
    • Staying on autopilot wastes life energy because it prioritizes easy routines over deliberate choices.
    • Autopilot affects earning, giving, and spending, so you must actively steer these areas to avoid needless waste. Transcript: Unknown Speaker Aim to die with zero. Staying on autopilot is easy. That’s why we use it. But if you’re trying to live a full and optimal life, rather than just taking the path of least resistance, autopilot won’t give you what you want. To fully enjoy life instead of just surviving it, you need to stop driving mindlessly and actively steer your life the way you want it to go. That won’t be the last time I say that. Helping you live more deliberately is one of my biggest goals for this audiobook. We need to keep revisiting that theme because autopilot operates in several areas of your life, from how you earn money to how you give money to other people. Each type of autopilot can create its own form of wasted life energy, and each requires a different strategy for eliminating waste. This chapter focuses on the type of excess that comes from earning and saving more money than you’ll ever get to enjoy. It suggests a deliberate solution for removing that kind of waste. (Time 0:00:05)
  • John Arnold Kept Chasing Bigger Targets
    • John Arnold kept raising his goalposts from $15M to billions and kept working despite having the wealth to stop.
    • He retired at 38 with $4B but lost years he could never get back and faced difficulty spending that fortune meaningfully. Transcript: Unknown Speaker To show you what I mean, let me tell you about John Arnold, someone I became friends with years before he became a billionaire. After he and I met, he started a hedge fund called Centaurus with the goal of converting his energy trading expertise into riches so he can enjoy the good life. But as I worked side by side with him at Centaurus, I could see that somehow the good was constantly getting pushed aside in exchange for making more millions. During one soul-crushing day on the job, John turned to me and said, once I make 15 million, if I’m still trading, punch me in the face. Well, I didn’t punch him when he hit that target, and John continued to work as a trader. John is a brilliant guy. People call him the king of natural gas for his unbeatable returns. John understood perfectly well that at a certain point, it makes a lot more sense to spend money doing the things you love than to simply earn more money. But his numerical target kept shifting. He didn’t quit when he had amassed 15 million. He was trading so well that the 15 million became 25 million, which eventually became $100 million, and so on. When you’re on a winning streak that big, it’s hard to stop, even when your rational mind tells you that you should. John’s life wasn’t all work. There were occasional trips to great events, but hardly anything spectacular like you would imagine for a multimillionaire. In fact, as his wealth grew, his leisure time seemed to diminish. He seemed to think that if he made more money, he could then do more. But in truth, he wasn’t doing more. Still, he kept running Centaurus, and he didn’t quit even when he had reached a net worth of $150 million. In fact, by 2010, the charitable foundation he and his wife had set up had assets of $711 million. He had so much wealth that he was giving millions away, yet he kept working, even though he didn’t exactly love his job. When he did finally quit in 2012 at age 38, he had built a personal fortune of more than $4 billion. (Time 0:01:03)
  • Habits Make Wealth Feel Endless
    • The narrator uses John (who quit at 38 with $4B) to show people keep working past the point where more money adds little utility.
    • John didn’t stop because of a calculated tradeoff but because working became an addictive habit, similar to a smoker who never quit after getting what they wanted.
    • Once earning becomes habitual and socially rewarded, the thrill of making money can exceed the thrill of actually living.
    • As net worth rises, goalposts shift and people feel they can never get enough, causing them to hoard experiences and time they can’t reclaim.
    • This pattern applies beyond the ultra-rich: habits and shifting aspirations commonly prevent people from spending their wealth when it would matter most. Transcript: Unknown Speaker Did he pass that point at $2 billion? $1.5 billion? Who knows? But we definitely know that it was before he reached $4 billion. You might also be thinking that John must have been having a wonderful time making all that money if he continued doing it for so long. Maybe he stayed at his trading desk because the thrill of trading was more exciting than anything he could have experienced at home. But no, John wasn’t making a calculated choice between work and family, or between working for money and the millions of other things he could have been doing with his wealth, time, And talent. No, he was continuing to work because he had formed the habit of working, much like a smoker who had picked up cigarettes as a teenage boy because he wanted to look cool to the girls. But now that the boy got the girl, why is he still smoking? Only because he’s formed an addictive habit, and habits are hard to break. For some people, it can be the same with working for money. It is just easier to keep doing what you’ve been doing, especially when what you’ve been doing continues to reward you with society’s universal form of recognition for a job well done, Aka money. Once you’re in the habit of working for money to live, the thrill of making money exceeds the thrill of actually living. John, of course, is an extreme case, and his situation is the epitome of a high-class problem. But the situation he finds himself in is not unique to him, or even just to the ultra rich. (Time 0:04:21)
  • Unspent Money Equals Wasted Hours Of Life
    • Money left unspent equals hours of life wasted because you worked to earn it and didn’t enjoy the experiences it could buy.
    • Aim to die with as little unused money as possible to maximize lifetime utility, echoing Modigliani’s Life Cycle Hypothesis. Transcript: Unknown Speaker If you spend hours and hours of your life acquiring money and then die without spending all of that money, then you’ve needlessly wasted too many precious hours of your life. There is just no way to get those hours back. If you die with $1 million left, that’s $1 million of experiences you didn’t have. And if you die with $50,000 left, well, that’s $50,000 of experiences you didn’t have. No way is that optimal. A waste of life energy. Why you might be working for free. Or look at it another way. Consider all of the hours of your life you waste earning money you never spend. Take Elizabeth, a fictitious 45-year single woman who earns $60,000 a year at her office job in Austin, Texas. This salary puts her in the top half of all 45-year income earners in the United States. All of the dollar amounts in this example are in real inflation-adjusted dollars. So like most of us, she has to pay income tax, including Social Security and Medicare tax. So her net income is approximately $48,911 per year. She’s a hard worker, averaging 50 hours a week. So her net income comes up to about $19.56 per hour. That’s how much she takes home for every hour she spends at the office. Thanks to her frugal lifestyle, she was able to pay off her student loans a few years after graduating from college and bought her house when she was in her early 30s, when housing prices In Austin were relatively low. By now, she’s paid off the mortgage, so she owns her house outright. If she sold it today, she would get $450,000 for it. Last year, which was typical, she spent only $32,911, thus saving exactly $16,000. Elizabeth hopes to retire in 20 years, so she’s been putting a good chunk of her paycheck away in a 401k and in the bank. She knows a 401k plan is an especially good deal because it uses her pre-tax dollars, which makes her taxes lower than if she had put all her money in regular savings accounts. Some employers match employee contributions to the 401k plan, but let’s say that Elizabeth’s does not. Elizabeth is a reliable worker at a large company, so her job feels secure, and she expects to earn small but steady raises every year until she retires. To keep this example simple, though, let’s assume she maintains the same inflation-adjusted salary until she retires. Let’s also assume that, besides paying off her house, she didn’t start saving for retirement until she was 45. So when she does retire at 65, as planned, she will have saved $320,000, $16,000 per year for the 20 years between 45 and 65. Therefore, her net worth at 65 will be $770,000, $320,000 in various retirement accounts, and $450,000 in home equity, assuming her house doesn’t grow in value. How long does that $770,000 last her? Well, it depends on how much she spends each year. Research on people’s actual retirement spending shows that spending isn’t constant and often declines in later years, as I’ll explain shortly. But again, keeping our example simple, let’s assume Elizabeth spends exactly $32,000 each year of retirement, or just shy of $1,000 less than she did when she was working. Again, for the sake of simplicity, let’s assume that the return on her retirement investments exactly matches the annual rise in the cost of living. With that assumption, her savings will last a little more than 24 years, $770,000 divided by $32,000 per year. But Elizabeth doesn’t live another 24 years. She dies at 85, or 20 years after she left the workforce. As a result, she leaves behind $130,000. I’m telling you this because I want you to really think about the true costs, the terrible waste of leaving behind $130,000. I’ve already said that you can think of this money as foregone experiences, whatever the $130,000 could have bought for Elizabeth. That’s sad in itself. But it’s not only that. By looking at what it took to save that money at Elizabeth’s hourly rate, you can see how many hours she spent in her office job that she did not need to spend. How many hours was that? Well, divide the $130,000 by $19.56 an hour, and you get a little more than 6,646. That’s 6,646 hours that Elizabeth worked for money that she never got to spend. That’s more than two and a half years of 50-hour work weeks. Two and a half years of working for free. What a waste of life energy. The numbers would be even higher if we assumed that her savings earned interest above inflation and that she would also have income from Social Security. But even under our very conservative assumptions, she would have been better off either retiring earlier or spending more of her money throughout her life. You might be saying that Elizabeth is not typical. You might be right, for example, to point out that some people net a much higher hourly rate during their careers. So for those higher earners, $30,000 does not represent as many hours or years of unnecessary labor. That is true. But here’s the thing. Those people end up dying with much more than $130,000. People who are earning a high hourly rate or a high annual salary are sometimes even more tempted to keep on working and earning. Either way, they are squandering their life energy. Your own income might be higher or lower than the ones in any of these examples. It doesn’t matter because the conclusion is still the same. If you don’t want to squander your life energy, you should aim to spend all of your money before you die. To me, this logic is incontrovertible. Maybe it’s because of my training as an engineer, or maybe it’s why I chose to study engineering in the first place. But I love efficiency, and I hate waste. And I can’t think of any worse form of waste than squandering your life energy. So to me, it makes perfect sense to want to die with zero. Not to reach zero before you die, which would leave you high and dry, but to have as little as possible left, unused for all the time and energy you spent working to earn that money. (Time 0:06:01)
  • Elizabeth Worked Two and a Half Years For Nothing
    • Fictional Elizabeth earns $60K, nets $19.56/hour, saves $16K/year and retires with $770K but dies leaving $130K unused.
    • That leftover represented 6,646 work-hours or two and a half years of 50-hour weeks wasted. Transcript: Unknown Speaker Consider all of the hours of your life you waste earning money you never spend. Take Elizabeth, a fictitious 45-year single woman who earns $60,000 a year at her office job in Austin, Texas. This salary puts her in the top half of all 45-year income earners in the United States. All of the dollar amounts in this example are in real inflation-adjusted dollars. So like most of us, she has to pay income tax, including Social Security and Medicare tax. So her net income is approximately $48,911 per year. She’s a hard worker, averaging 50 hours a week. So her net income comes up to about $19.56 per hour. That’s how much she takes home for every hour she spends at the office. Thanks to her frugal lifestyle, she was able to pay off her student loans a few years after graduating from college and bought her house when she was in her early 30s, when housing prices In Austin were relatively low. By now, she’s paid off the mortgage, so she owns her house outright. If she sold it today, she would get $450,000 for it. Last year, which was typical, she spent only $32,911, thus saving exactly $16,000. Elizabeth hopes to retire in 20 years, so she’s been putting a good chunk of her paycheck away in a 401k and in the bank. She knows a 401k plan is an especially good deal because it uses her pre-tax dollars, which makes her taxes lower than if she had put all her money in regular savings accounts. Some employers match employee contributions to the 401k plan, but let’s say that Elizabeth’s does not. Elizabeth is a reliable worker at a large company, so her job feels secure, and she expects to earn small but steady raises every year until she retires. To keep this example simple, though, let’s assume she maintains the same inflation-adjusted salary until she retires. Let’s also assume that, besides paying off her house, she didn’t start saving for retirement until she was 45. So when she does retire at 65, as planned, she will have saved $320,000, $16,000 per year for the 20 years between 45 and 65. Therefore, her net worth at 65 will be $770,000, $320,000 in various retirement accounts, and $450,000 in home equity, assuming her house doesn’t grow in value. How long does that $770,000 last her? Well, it depends on how much she spends each year. Research on people’s actual retirement spending shows that spending isn’t constant and often declines in later years, as I’ll explain shortly. But again, keeping our example simple, let’s assume Elizabeth spends exactly $32,000 each year of retirement, or just shy of $1,000 less than she did when she was working. Again, for the sake of simplicity, let’s assume that the return on her retirement investments exactly matches the annual rise in the cost of living. With that assumption, her savings will last a little more than 24 years, $770,000 divided by $32,000 per year. But Elizabeth doesn’t live another 24 years. She dies at 85, or 20 years after she left the workforce. As a result, she leaves behind $130,000. I’m telling you this because I want you to really think about the true costs, the terrible waste of leaving behind $130,000. I’ve already said that you can think of this money as foregone experiences, whatever the $130,000 could have bought for Elizabeth. That’s sad in itself. But it’s not only that. By looking at what it took to save that money at Elizabeth’s hourly rate, you can see how many hours she spent in her office job that she did not need to spend. How many hours was that? Well, divide the $130,000 by $19.56 an hour, and you get a little more than 6,646. That’s 6,646 hours that Elizabeth worked for money that she never got to spend. That’s more than two and a half years of 50-hour work weeks. Two and a half years of working for free. (Time 0:06:34)
  • Dying With Money Means Wasting Life Energy
    • Elizabeth dies leaving $130,000 because her $770,000 savings outlasted her by four years under conservative assumptions.
    • That $130,000 equals about 6,646 hours of work at $19.56/hour — over two and a half years of 50-hour workweeks.
    • Those are hours of life energy spent earning money she never got to use, which the speaker frames as a profound waste.
    • Higher earners may leave more money, but they often prolong work and therefore squander even more life energy.
    • The takeaway: aim to spend your money before you die so you don’t hoard wealth at the cost of lived experiences. Transcript: Unknown Speaker That’s 6,646 hours that Elizabeth worked for money that she never got to spend. That’s more than two and a half years of 50-hour work weeks. Two and a half years of working for free. What a waste of life energy. The numbers would be even higher if we assumed that her savings earned interest above inflation and that she would also have income from Social Security. But even under our very conservative assumptions, she would have been better off either retiring earlier or spending more of her money throughout her life. You might be saying that Elizabeth is not typical. You might be right, for example, to point out that some people net a much higher hourly rate during their careers. So for those higher earners, $30,000 does not represent as many hours or years of unnecessary labor. That is true. But here’s the thing. Those people end up dying with much more than $130,000. People who are earning a high hourly rate or a high annual salary are sometimes even more tempted to keep on working and earning. Either way, they are squandering their life energy. Your own income might be higher or lower than the ones in any of these examples. It doesn’t matter because the conclusion is still the same. If you don’t want to squander your life energy, you should aim to spend all of your money before you die. To me, this logic is incontrovertible. Maybe it’s because of my training as an engineer, (Time 0:10:36)
  • Spend Or Transfer Wealth So It Creates Value Now
    • Spend money you earn on what you value rather than hoarding it simply because you enjoy the work that earned it.
    • Give money to heirs or charity earlier rather than waiting until death so recipients can use it when it matters most. Transcript: Unknown Speaker But I’ve discussed these ideas with enough people to know that I can’t jump straight to the how. The same small set of questions and objections come up again and again, and I know I can’t ignore them. So I will first respond to these common whatabouts. And if you’re still with me about the value and feasibility of dying with zero, we’ll move on to some tools that can help you make that happen. But I love my job. When I say that leaving money behind amounts to a waste of life, energy, or to working for free, I sometimes hear from people who say that my analysis doesn’t apply to them because they Love their job. Some people go so far as to say that they would pay to pursue the work they love. Something I doubted until I began dating a professional dancer. Not the stripper kind. Dance is an extremely competitive field, with many more people auditioning than there are paying gigs to go around. And unlike in acting or some other competitive fields, you can never get wealthy dancing, no matter how successful you become. Nonetheless, just to stay in the game, you have to constantly take dance lessons to stay proficient. And you have to live near one of the centers of the dance world, expensive cities like New York and Los Angeles. So most dancers have to take on other jobs that, in effect, subsidize their passion for dance. So yes, I get that some people love their work and see it as a fulfilling life experience in its own right. And I think that’s wonderful. We should all be so lucky. But all that being said, I still think they would be better off dying with zero, and here’s why. First, let’s look at their side of the argument, which goes something like this. If your job itself is a fun, fulfilling experience, then any money you earn from doing the work is just a byproduct, like the pile of ash left after a wood fire. When you lit the fire, creating ash wasn’t your goal. You enjoyed the fire’s warmth and flickering light, and you just happened to get some ash from the process too. No harm there, and certainly no harm in making money from pursuing the work you love. But here’s the thing. Even people who see work as a form of play would be better off if they spent at least some percentage of their time on experiences that don’t involve working for money. Even if dance is your life, chances are you won’t enjoy doing it 24-7. Also, when you’re in your 40s, 50s, or 60s, you might want to spend a lower percentage of your week dancing than when you were in your 20s or 30s. Of course, it’s possible that you won’t want to cut back on your hours as you get older. You might really want to keep dancing, or practicing law, or psychotherapy, or whatever profession you enjoy, full-time as long as you able and earning money doing it. Be my guest. Just be sure to spend the money you earn on whatever you value. Take more first class trips, throw better parties, go see your favorite dancer perform live. Because even if you enjoyed every minute of the work that brought you that money, failing to spend that money is still a waste. To use a metaphor from video games, it’s as if you earned an extra life and then decided to throw that extra life away. You just let Mario jump off a bridge instead of taking the little guy further through the mushroom kingdom. Would you do that only because you weren’t counting on the extra life? Why take the easy come, easy go attitude? It’s the same with any money you receive. Maximizing your life doesn’t care where the money came from. Whether you earn it from a job you love or you inherit it from your great granddad, whether the money is a byproduct of following your passion or being a member of the Lucky Sperm Club, Once it’s given to you, it becomes yours. And once it’s yours, it now represents hours of your life, which you can exchange for whatever will help you live the best life you can. If dance is your life and you happen to also earn money from dancing, go ahead and spend it on dance related experiences. Splurge on private lessons with the best dance teachers if that’s what you value. Or hire someone to clean your place so you have more time to pursue dance. Just don’t let that money sit and go to waste because of where it came from. The source of your money doesn’t change the calculus on maximizing your life. But, but… When I say the words die with zero, most people’s immediate reaction is fear, quickly followed by the thought that dying with money left isn’t a total waste, because that money will Go to your heirs or maybe charity. The most common expression of this belief is, what about the kids? The kids question comes up so often and there is so much to say about it that it deserves its own chapter. And indeed, it gets one, along with my thoughts on charitable giving. But for now, let me just touch on my answer to the kids question. First of all, yes, you can certainly leave money to the people and causes you care about. But the truth is that those people and causes would be better off getting your wealth sooner rather than later. Why wait until after you die? Second, whatever amount you give to others immediately becomes their money, not yours. But when I talk about dying with zero, I am talking about your money. Whatever you’ve given to your kids will remain theirs, so there’s no need to plan to have money left over for them. You’ll learn much more about how to deliberately plan what to leave, to whom, and when, in a later chapter, what about the kids. (Time 0:14:46)
  • Even Passionate Work Should Be Spent On Life
    • Even if your job feels like play, you should still spend some of the money it produces on nonwork experiences.
    • Passionate careers (e.g., dance) won’t be enjoyable 24/7 and preferences often change as you age.
    • If you keep working full-time because you love it, consciously use earnings for things you value (better travel, events, etc.) instead of hoarding them.
    • Money is fungible: once it’s yours it represents hours of your life regardless of how you earned it.
    • Letting earned money sit unused is equivalent to wasting an extra life you could have spent on meaningful experiences. Transcript: Unknown Speaker But here’s the thing. Even people who see work as a form of play would be better off if they spent at least some percentage of their time on experiences that don’t involve working for money. Even if dance is your life, chances are you won’t enjoy doing it 24-7. Also, when you’re in your 40s, 50s, or 60s, you might want to spend a lower percentage of your week dancing than when you were in your 20s or 30s. Of course, it’s possible that you won’t want to cut back on your hours as you get older. You might really want to keep dancing, or practicing law, or psychotherapy, or whatever profession you enjoy, full-time as long as you able and earning money doing it. Be my guest. Just be sure to spend the money you earn on whatever you value. Take more first class trips, throw better parties, go see your favorite dancer perform live. Because even if you enjoyed every minute of the work that brought you that money, failing to spend that money is still a waste. To use a metaphor from video games, it’s as if you earned an extra life and then decided to throw that extra life away. You just let Mario jump off a bridge instead of taking the little guy further through the mushroom kingdom. Would you do that only because you weren’t counting on the extra life? Why take the easy come, easy go attitude? It’s the same with any money you receive. (Time 0:16:52)
  • Give Wealth So Others Benefit Sooner
    • The common objection “what about the kids?” is addressed: you can and should leave money to heirs, but they’re better off receiving it sooner rather than after you die.
    • Once you give money to someone, it becomes their money — it no longer counts toward your goal of dying with zero.
    • Die With Zero focuses on your money and maximizing your life now, not withholding resources until death for others.
    • Many people save out of fear of running out, but the author argues saving is often excessive and skewed too late in life.
    • Data on net worth by age shows people keep accumulating for decades and frequently never convert that wealth back into life-enhancing experiences. Transcript: Unknown Speaker The most common expression of this belief is, what about the kids? The kids question comes up so often and there is so much to say about it that it deserves its own chapter. And indeed, it gets one, along with my thoughts on charitable giving. But for now, let me just touch on my answer to the kids question. First of all, yes, you can certainly leave money to the people and causes you care about. But the truth is that those people and causes would be better off getting your wealth sooner rather than later. Why wait until after you die? Second, whatever amount you give to others immediately becomes their money, not yours. But when I talk about dying with zero, I am talking about your money. Whatever you’ve given to your kids will remain theirs, so there’s no need to plan to have money left over for them. You’ll learn much more about how to deliberately plan what to leave, to whom, and when, in a later chapter, what about the kids. Now let me address fear. Many people have told me they’re scared, even terrified, that they’ll run out of money before they die. And I get it. Nobody wants to spend their last years in poverty, it’s understandable that people save for the future. And I’m not saying you shouldn’t save for the future. What I’m saying is that people who save tend to save too much for too late in their lives. They are depriving themselves now just to care for a much, much older future self, a future self that may never live long enough to enjoy that money. (Time 0:19:18)
  • People Tend To Save Past The Point Of Usefulness
    • Data show people keep accumulating net worth into advanced age instead of spending, so many will die with substantial unspent assets.
    • Median net worth rises across age groups and retirees often spend little of their savings decades after retiring. Transcript: Unknown Speaker I’ve seen the statistics. If you look at data on net worth by age, you find that most people keep accumulating wealth for decades, and most don’t start spending it down until very late in life. The Federal Reserve Board tracks how much Americans have built up at various stages of their lives. For example, we know from its most recent survey of consumer finances that the median net worth for U.S. Households headed by someone age 45 to 54 is $124,000. That just means that half of households in this group have saved up at least $124,000, while half have saved up less than that. Some of them have saved much more and others have saved much less. What’s much more interesting than the median for this one age range is the overall trend. By looking at the net worth numbers for other ages, you can see a clear pattern. The median net worth continues to rise as people get older. It’s easy to guess why. People’s annual incomes tend to rise with age, and people continue to save what they don’t spend, so their nest egg keeps growing. And that’s great to a point, because there is a sweet spot in everyone’s lifetime during which they can most enjoy the fruits of their wealth. The problem is that people continue to save well past that optimal point. So American heads of household between the ages of 65 and 74 have a median net worth of $224,000, up from the $187,000 saved up by households between 55 and 64. That’s crazy. People in their 70s are still saving for the future. In fact, even in their mid-70s, people in this upper half of the population don’t start dipping into their savings. The median net worth for the American households age 75 or older is the highest of all age groups, 264,000. So even with rising life expectancies, millions of Americans are on track to have their hard-earned money outlive them. Yes, older people often save in anticipation of health care costs. But as you’ll see shortly, people’s overall expenses decline with age, even counting the cost of health care. Other data points in the same direction. A 2018 study from the Employee Benefit Research Institute used data on older Americans’ wealth, income, and assets and their spending to see how much people’s assets changed during Their first 20 years of retirement or until death. The study’s authors added, as if to remind readers that not everyone gets to enjoy a full 20 years of retirement. In other words, were people spending down their assets, or were they largely preserving them? Here are some of their key findings. On the whole, people are very slow to spend down, decumulate their assets. Across ages, whether looking at retirees in their 60s or those in their 90s, the median ratio of household spending to household income hovers around one-to This means that people’s Spending continues to closely track their income. So as people’s incomes decline, their spending does too. This is another way of seeing that retirees aren’t really drawing down all the money they’ve saved up. At the high end, retirees who had $500,000 or more right before retirement had spent down a median of only 11.8% of that money 20 years later or by the time they died. That’s more than 88% left over, which means that a person retiring at 65 with half a million dollars still has more than $440,000 left at age 85. At the lower end, retirees with less than $200,000 saved up for retirement spent a higher percentage, as you might expect, since they had less to spend overall. But even this group’s median members had spent down only one quarter of their assets 18 years after retirement. One third of all retirees actually increased their assets after retirement. Instead of slowly or quickly accumulating, they continued to accumulate wealth. Retirees on a pension, meaning that they had a guaranteed source of ongoing income after retirement, spent down much less of their assets, only 4%, during the first 18 years after retirement Than did non-pensioners, who had spent down 34%. So, clearly, people who, back in their working years, would have said that they were saving up for retirement are not actually spending those retirement savings once they reach retirement. They are definitely not on track to die with zero. (Time 0:20:55)
  • Retirees Largely Don’t Spend Their Savings
    • A 2018 EBRI study found retirees are slow to decumulate: spending tracks income, so as income falls, spending falls rather than assets being drawn down.
    • High-net-worth retirees (>$500k) had spent only a median 11.8% of assets after 20 years, leaving >$440k from a $500k nest egg.
    • Even lower-wealth retirees had spent just ~25% of assets 18 years after retirement.
    • One third of retirees actually increased their assets after retiring.
    • Pension recipients spent almost nothing (4%) of assets over 18 years versus 34% for non-pensioners, showing guaranteed income strongly reduces drawdown. Transcript: Unknown Speaker Here are some of their key findings. On the whole, people are very slow to spend down, decumulate their assets. Across ages, whether looking at retirees in their 60s or those in their 90s, the median ratio of household spending to household income hovers around one-to This means that people’s Spending continues to closely track their income. So as people’s incomes decline, their spending does too. This is another way of seeing that retirees aren’t really drawing down all the money they’ve saved up. At the high end, retirees who had $500,000 or more right before retirement had spent down a median of only 11.8% of that money 20 years later or by the time they died. That’s more than 88% left over, which means that a person retiring at 65 with half a million dollars still has more than $440,000 left at age 85. At the lower end, retirees with less than $200,000 saved up for retirement spent a higher percentage, as you might expect, since they had less to spend overall. But even this group’s median members had spent down only one quarter of their assets 18 years after retirement. One third of all retirees actually increased their assets after retirement. Instead of slowly or quickly accumulating, they continued to accumulate wealth. (Time 0:23:36)
  • Why Retirees Don’t Spend as Much as They Plan
    • Many retirees intend to spend their savings but their wants and needs change with age, reducing desire to consume.
    • Retirement planners call this pattern go-go years, slow-go years, and no-go years: high activity early, then gradual slowdown, then very low activity in the 80s.
    • Health and energy limits mean experiences planned for retirement often become less appealing later, so money accumulates instead of being spent.
    • Pensioners especially spend down less, likely because they started retirement with more wealth and guaranteed income reduces the pressure to draw down assets.
    • The result: people often enter retirement intending to spend but end up preserving wealth they could have enjoyed earlier. Transcript: Unknown Speaker The first is that people did have good intentions to spend the money, but once they reached a certain age, they found that their wants and needs changed, or perhaps diminished. Experts in retirement planning even have some lingo for this consumption pattern. Go-go years, slow-go years, and the no-go years. The idea is that when you first retired, you’re raring to have all those experiences you’ve been putting off until retirement. And you still, for the most part, have the health and energy to pursue those experiences. Those are your go-go years. Later on, typically in your 70s, you begin to slow down as you cross items off your bucket list and your health declines. And later still, in your 80s or beyond, you don’t have a whole lot of gold left at all, no matter how much money you still have. As one retirement planning advisor put it, my dad is 86 and he doesn’t want to go anywhere, just stay close to home. (Time 0:26:08)
  • Grandma Kept Money But Never Enjoyed It
    • The narrator gave his grandma $10,000 but she never spent it and only later gave him a cheap sweater.
    • Grandma’s thriftiness and plastic-covered furniture showed how deferred gratification can prevent enjoyment of wealth. Transcript: Unknown Speaker And my grandma was one of those people. So I gave her a $10,000 check. It feels like a dumb gift now. And if I knew then what I know now, I would have given her an actual memorable experience instead, such as a trip to visit relatives in another state. But back then, I was of the mind that people know best what to give themselves. I would have wanted someone to give me the money, so that’s exactly what I did for my grandma. My grandma was living with my mom in those days, so once in a while I asked my mom what grandma had spent the money on, and it turned out that grandma wasn’t spending it at all. It’s not that she was poor and needed it to pay bills. She just didn’t have a lot of go left. When Christmas rolled around that year, grandma presented me with a gift of a sweater. To this day, as far as I know, that sweater, which I would guess cost about 50 bucks, was the only thing that ever came of my $10,000 gift. There was no incremental joy she got from that transfer of $10,000, aside from whatever joy she got from getting me that sweater, or from knowing that her grandson wanted to give her Money. But for whatever reason, she just could not spend the money. She was just too thrifty for her own good. Someone who actually kept every couch, love seat, and easy chair covered in plastic to protect the upholstery from wear and tear. Unfortunately, of course, the plastic also made the furniture uncomfortable and unattractive. One day, I came into my grandmother’s house for somebody’s funeral and sat on a colorful, comfy couch. She had taken the plastic off for this special occasion, but the next time I visited, all the plastic was back on, and it stayed on for the rest of my grandmother’s life. (Time 0:27:13)
  • Your Ability To Enjoy Experiences Declines With Age
    • Spending typically declines with age despite rising healthcare costs, so saving for very late life often results in unused funds.
    • Go-go, slow-go, and no-go years mean the period you’re most able to enjoy experiences is limited. Transcript: Unknown Speaker But the opposite tends to happen. In general, spending among American households declines as people age. For example, the Consumer Expenditure Survey conducted by the Bureau of Labor Statistics found that in 2017, average annual spending for households headed by 55 to 64-year was $65,000. Average spending fell to $55,000 for those between 65 and 74, and spending fell again to $42,000 for those 75 and older. This overall decline occurred despite a rise in health care expenses, because most other expenses, such as clothing and entertainment, were much lower. The decline in spending over time was even more acute for retirees with more than $1 million in assets, according to separate research conducted by J.P. Morgan Asset Management, which analyzed data from more than half a million of its customers. Many financial planners are familiar with this pattern. On sites that provide retirement advice, references to the slow-go and no-go years abound. But the message of declining go doesn’t seem to have reached the general public. And if you’re not aware of this fairly predictable pattern, you’re likely to, incorrectly, expect steady expenditures on experiences from the day you retire until the day you die. That’s one reason you might greatly over-save and under-spend. (Time 0:29:12)
  • Insure And Prevent Rather Than Oversave For Medical Risk
    • Don’t over-save for uncertain catastrophic medical costs; insurance and prevention are better strategies.
    • Consider long-term care insurance early and invest in preventive health to get more quality life per dollar. Transcript: Unknown Speaker Some people never actually plan to spend all that money on life experiences, but instead we’re saving for the unforeseen expenses of old age, especially medical expenses. It’s not just that everyone’s health declines as they get older, creating higher medical expenses toward the end of their lives, it’s also that the actual expenses are hard to predict. Will you need triple bypass surgery or years worth of treatment for cancer? Will you have to spend years in a nursing home? In theory, that is what insurance is for, to protect against whatever calamity might strike. But even people with insurance sometimes find themselves with high medical bills. This can happen because of high deductibles or costly prescription co-pays, or just because the insurer, for some reason, denies coverage. Since most people want to stay alive after falling ill, it’s natural and reasonable to save up for medical care. And when the costs of care are uncertain, people tend to save even more. Yet, even after taking the uncertainty of costs into account, many people still save too much. To me, that’s like going out and buying something silly, like alien robot invasion insurance. That is, assuming there’s some very, very tiny possibility that alien robots could invade our planet and wreak havoc on our lives, does that mean you should build a special shelter To protect yourself? I’d rather take my chances and use the money for something more useful and more enjoyable. Planning for your medical care by saving money is a lot like that, even though it is true that you’re much more likely to need costly medical care than to see heavily armed and ultra-intelligent Extraterrestrials. To put it bluntly, no amount of savings available to most people will cover the costliest health care you might possibly need. For example, cancer treatments can easily cost half a million dollars a year. Or, if you’re out-of medical expenses amount to $50,000 per night, as they did for my father’s hospital stay at the end of his life. Does it really matter whether you’ve saved $10,000 or $50,000 or even $250,000? No, it doesn’t, because the extra $50,000 will buy you one extra night, a night that might well have taken a year’s worth of work to earn. Similarly, $250,000 saved over however many years will get wiped out in five days. I’m not suggesting that you should rack up large hospital costs with a plan to then stiff the hospital on those bills. What I’m saying is that you can’t pay your way out of high-priced end-of medical care. Since uninsured medical care is so expensive, it won’t make any real difference for the vast majority of us whether we save for it or not. Either the government will pay for it or you will die. But let’s say you’re not part of this vast majority. Let’s say you’re worth millions or tens of millions. What then? Even if I earn enough that I could save up for a few extra months of life in the hospital, I can’t see the logic in doing that. There’s a big difference between living a life and just being kept alive, and I’d much rather spend on the former. So I will not work for years to save up for a few more months on a ventilator with a quality of life that’s close to zero. Or, depending on the level of suffering, maybe even negative. So instead of engaging in precautionary saving, as economists call the practice, I’ll let the cards fall where they may. We all die sooner or later, and I’d rather die when the time is right than sacrifice my better years just to squeeze out a few more days at the tail end. Or as I like to say, see you at the grave. Besides, it’s much more to spend your healthcare money on the front end To maintain your health and try to prevent disease Than to spend it at the end When you get a lot less bang for every Buck you spend In fact, many insurance companies not only cover preventative care such as mammograms But believe enough in the long-term cost savings of disease prevention That they Actually pay you In the form of gift cards, for example, to get regular screenings and other preventative care. You won’t be able to avert every possible illness, no matter what you do, but you can make some health problems a lot less likely, and you’ll enjoy better quality of life along the way. It might sound like I’m urging you to focus all your efforts on your youth and not to give a second thought to what happens when you’re old and frail. But that would be a misleading distortion of what I’m saying. Even though it’s a huge mistake to greatly sacrifice your quality of life now for a better quality of life in old age, I do understand the desire to be taken care of when you’re old and vulnerable. So how do you make sure you’re covered if you need long-term care without having to save up massive amounts of money you won’t spend if you don’t need nursing care? The answer, long-term care insurance. Look into it and you might discover that it costs less than you think, especially if you start paying premiums before you’re 65. There’s a more general point I want to get across. For every single thing you might be worried about in your future, there is an insurance product to protect you. That doesn’t mean I recommend buying insurance for every single thing. Obviously, insurance costs money. But the fact that insurance companies are willing to sell insurance for various risks shows that these risks can be quantified and removed for those who don’t want to take those risks. (Time 0:30:49)
  • Identify Resistance And Align Spending With Work Joy
    • If you resist dying with zero, examine where your resistance comes from and how it relates to your love of work.
    • If work brings joy, find ways to spend money on activities that fit your work schedule instead of just accumulating wealth. Transcript: Unknown Speaker But what about the how? If you’re like most people, you’re still doubtful about the feasibility of actually hitting this goal, especially given the uncertainty about how long you will live. The how is the subject of the next chapter. Recommendations If you’re still concerned and resisting the idea of dying with zero, try to figure out where this psychological resistance comes from. (Time 0:36:11)