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Die With Zero - Track 007

Die With Zero

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  • Use Life Expectancy Tools To Inform Planning
    • Use a life expectancy calculator to get an informed estimate of how long you might live.
    • Try tools like the Actuaries Longevity Illustrator or insurer calculators to turn health, age, and habits into a probability-based lifespan estimate. Transcript: Unknown Host Rule number 4. Use all available tools to help you die with zero. If you’re still with me, I assume you agree that trying to die with zero is a good idea, at least in principle. But you are probably skeptical about the feasibility of hitting this goal. And you are right to be skeptical. In fact, dying with exactly zero an impossible goal. To attain it would require knowing exactly when you’re going to die. But none of us is God, so we can’t know the day we’re going to die. Still, just because we can’t predict the exact date doesn’t mean we can’t get close. Let me explain. Have you ever used a life expectancy calculator? Many insurance companies offer them for free on their websites, and I think they’re kind of fun to try out. These calculators are admittedly imprecise tools, but in order to forecast how long you live, they’ll ask a series of questions about your current age, your gender, height, and weight, How good is your BMI, smoking and drinking patterns, and other major predictors of overall health. Some also ask about your family history and whether you use a seatbelt. After you answered all of the questions, the calculator typically gives you a number. You’ll live to be 94 or 55 if you don’t lose 90 pounds and quit drinking like a sailor and smoking a pack a day. Trying to figure out how long you’ll live might not be your idea of fun. It might feel like a morbid exercise, right up there with planning your funeral and listing your beneficiaries on the life insurance form. Fine. You don’t have to love it for it to be worth doing. If you don’t want to use a life expectancy calculator, that’s your choice. Just don’t tell me you have no idea how long you’ll live and then use that as an excuse to save money like you’re going to live to be 150. Whatever number the calculator comes up with is just an estimate derived by actuaries, the experts hired by insurers to forecast risk based on relevant statistics. If the calculator gives you one number, you can think of it as just an educated guess based on the past lifespans of people who are roughly like you. Many people who are like you died younger than this average, and many people died older. So there’s an average and there’s also a range. To reflect this reality, some life expectancy calculators report their results in probabilities. They might tell you, for example, that you have a 50% chance of living to 92, a 10% chance of living to 100, and so on. These probabilities just go to show that predicting life expectancy for one individual is an inexact science. But knowing only the probabilities of survival to a given age is still better than not knowing at all. (Time 0:00:08)
  • Two Opposing Risks Shape Retirement Decisions
    • Longevity risk and mortality risk pull your planning in opposite directions and both must be managed.
    • Recognize you need tools to handle uncertainty on both sides rather than guessing your exact death date. Transcript: Unknown Host Given that we want to die with zero, and given that hitting exactly zero is impossible, how do you get close to zero? How do you deal with the variance of human life? The first item to confront is uncertainty. The possibility that you live longer than you expect is called longevity risk. Nobody wants to die early. The possibility of that is called mortality risk. But nobody wants to die after their money runs out either. With no money, your quality of life will take a dramatic dip, to put it mildly. So there’s uncertainty on both sides of our expected lifespan, and we want to figure out how to deal with the negative financial consequences of that uncertainty. For that, as noted, there are financial products. (Time 0:05:05)
  • Use Insurance And Annuities To Shift Risk
    • Use life insurance to protect survivors from mortality risk and annuities to protect yourself from longevity risk.
    • Understand insurers pool risk across millions, enabling guarantees you can’t replicate alone. Transcript: Unknown Host You are not a good insurance agent. You probably already know about the financial product used to deal with mortality risk, the risk of dying early. That’s life insurance, of course. Life insurance companies don’t know exactly when you’ll die, just as you don’t. But they can nonetheless pay your beneficiaries when you die, whenever that happens to be. The insurers can do that with great certainty because they are simultaneously insuring millions of other people. Some of these insured will die earlier than average, but others will die later. So the errors on both sides will cancel each other out. That means an insurance company doesn’t need to know when you yourself will die. They just need to know enough life expectancy data about their total insurance pool to make sure that they can pay out and still make a profit overall. This ability to pool risk across a large number of people is what gives insurance companies their edge over you as an individual. It’s why people are willing to pay money to buy insurance of all kinds, instead of trying to protect themselves from risk on their own. You are not a good insurance agent. So that’s life insurance. It helps you deal with mortality risk. (Time 0:06:11)
  • Annuities Are Insurance Not Investment Returns
    • Annuities are insurance against outliving your money, not investments, and they trade principal for guaranteed lifelong payouts.
    • You surrender principal so insurers can pay higher, guaranteed annual rates than typical self-withdrawal rules like the 4% rule. Transcript: Unknown Host These products are called income annuities, or simply annuities. Annuities are essentially the opposite of life insurance. When you buy life insurance, you’re spending money to protect your survivors against the risk that you’ll die too young, whereas buying annuities protects you against the risk of Dying too old, outliving your savings. If you don’t want to hear it from me, listen to Ron Lieber, the New York Times’ Your Money columnist. The insurance companies that create annuities often make them seem like investments, he wrote in a recent explainer about annuities. But really, they’re more like insurance, Lieber went on. Like insurance to stave off financial disaster, an annuity is something you purchase to guarantee that you won’t run out of money if you live a long time. In fact, thinking of annuities as insurance makes them a lot more sensible than thinking of them as investments, because as investments, they are not good at all. But that’s not their goal. Their goal is to insure you against the risk of outliving your money. How do they achieve that goal? Well, buying an annuity means you have to give the insurance company a lump sum, say $500,000 at age 60. And in return, you get a guaranteed monthly payout. For example, $2,400 each month for the rest of your life, however long that happens to be. Like all insurance, annuities aren’t free. Insurance companies have to make money to stay in business. But if your goal is to maximize the life experiences you can buy with the money you’ve earned, they’re a very sensible solution. That’s partly because even after the insurance company fees, your monthly payouts amount to more than you would probably be willing to pay yourself if you wanted to make sure you didn’t Outlive your money. For example, one popular rule of thumb for retirement spending is the 4% rule, whereby you withdraw 4% of your savings each year of your retirement. Well, with annuities, your annual payouts will probably amount to more than 4% of what you put into the annuity. And unlike the 4% withdrawals, those payouts are guaranteed to continue for the rest of your life. The reason the insurance company can give you a rate of return that is both steady and reasonably high is that you are not leaving any money on the table. You relinquish your principal forever. (Time 0:07:37)
  • Annuities vs Self‑Insuring For Longevity Risk
    • Annuities transfer longevity risk to an insurer: you give a lump sum and receive guaranteed lifetime payouts, which function like insurance rather than an investment.
    • Because you relinquish principal, insurers can pool risk and offer steady payouts that often exceed the typical 4% withdrawal rule.
    • Without an annuity you must self‑insure, which forces you to keep a large cushion and likely die with considerable money unused.
    • The tradeoff is risk tolerance: very risk‑averse people should buy an annuity or maintain a large cushion to avoid any chance of running out.
    • The key goal is to eliminate wasted money that could have been spent living, not to maximize financial returns alone. Transcript: Unknown Host Without an annuity, on the other hand, you are forced to self-insure, to become your own insurance agent. That’s not a great idea, because unlike the insurance agents who work for big insurance companies, you don’t have the ability to pull risk and cancel out errors on both sides. So, to feel financially secure until the end of your days, you will have to leave a large cushion to cover the worst-case scenario. You will have to over-save, which means that more likely than not, you will end up dying with considerable money left over. You’ll have worked for years earning money that you never got to enjoy. So by trying to play insurance agent, you’re not even close to maximizing your life. Again, this is why you are not a good insurance agent. Economists generally think that annuities are such a rational way to deal with longevity risk that many experts have long wondered why more people don’t buy annuities. A question economists call the annuity puzzle. So am I telling you to go plunk down all your savings in an annuity? No, of course not. But what I am saying is that there exist solutions to the problem of how to die with zero without running out of money. And you’d be doing yourself a disservice if you didn’t at least look into them. Again, remember that the goal is to eliminate as much waste as possible. How close you get to that goal depends on your own risk tolerance. (Time 0:10:02)
  • Choose Cushion Size Based On Your Risk Tolerance
    • Match how much cushion you keep to your personal tolerance for longevity risk.
    • If risk-averse, buy annuities or save enough to age 123; if comfortable with risk, save less and spend more earlier. Transcript: Unknown Host Economists generally think that annuities are such a rational way to deal with longevity risk that many experts have long wondered why more people don’t buy annuities. A question economists call the annuity puzzle. So am I telling you to go plunk down all your savings in an annuity? No, of course not. But what I am saying is that there exist solutions to the problem of how to die with zero without running out of money. And you’d be doing yourself a disservice if you didn’t at least look into them. Again, remember that the goal is to eliminate as much waste as possible. How close you get to that goal depends on your own risk tolerance. If you have a very low tolerance for risk, meaning you will not accept even a tiny chance of outliving your money, you will either buy an annuity or you will self-insure by leaving a large Cushion. The odds that you will live to be 123 are currently very low. The oldest person on record died when she was 122 years and 164 days. But if you’re extremely risk-averse, then you will leave a cushion big enough to last you through your 123rd year. On the flip side, if you’re comfortable living on the edge, you don’t need this book because you’re probably already on track to die with zero. Well, not really. You still need this book because when you live perilously close to the edge, you risk outliving your money. In general, though, the higher your tolerance for longevity risks, the less of a cushion you will need. So the more risk that you’re willing to take, the less of your life energy you’re likely to waste working from money you won’t ever get to spend. For example, suppose your life expectancy is 85, but you want to allow for an error of 5 to 6%. If so, you might decide to save for a few extra years. (Time 0:10:46)
  • Let Risk Tolerance Decide Your Cushion
    • Higher tolerance for longevity risk means you need a smaller savings cushion and waste less life energy working for money you won’t spend.
    • If extremely risk-averse, you’d buy an annuity or self-insure by leaving a large cushion to avoid even tiny chances of outliving your money.
    • Example: targeting life expectancy 85 but allowing 5–6% error might lead you to save until 90; choosing less saving accepts the risk but reduces wasted years.
    • Distinguish honest risk assessment from fear-driven avoidance — fear leads to over-saving or frittering money away.
    • Use life expectancy and math to set a cushion that matches your personal preference rather than defaulting to extreme safety. Transcript: Unknown Host In general, though, the higher your tolerance for longevity risks, the less of a cushion you will need. So the more risk that you’re willing to take, the less of your life energy you’re likely to waste working from money you won’t ever get to spend. For example, suppose your life expectancy is 85, but you want to allow for an error of 5 to 6%. If so, you might decide to save for a few extra years. In this case, enough to last you until you’re 90. But if you don’t want to have wasted five years worth of savings in case you die as expected at 85, you can eliminate that waste and live a little better between now and then by saving a little Less, as long as you’re okay with the risk. I am not telling you which way is right. Risk tolerance is a singular and personal preference. But I do want you to know that there is a big difference between thinking about your risk tolerance and acting out of blind fear. So it’s fine to look at your life expectancy, to consider your risk tolerance, and to do the math to figure out how many years you need to save for. But that’s not the same as being so frightened of outliving your money or the thought of death that you avoid even looking at the numbers. If you live your life with fear and avoidance, my bet is you will either fritter your money away or play it so safe that you will leave many, years of your hard-earned money behind. So you’ll be working many years as a slave to your own fears. (Time 0:12:07)
  • How To Talk To Advisors About Annuities
    • Annuities are complex, with many types and trade-offs depending on age, health, savings, and risk tolerance.
    • You might be better off bypassing annuities or using them alongside other investments; there is no one-size-fits-all answer.
    • Financial advisors can help, but know their incentives: advisors paid on assets under management may avoid recommending annuities because annuities reduce assets under management.
    • A fee-only advisor has fewer conflicts: they don’t earn commissions on annuities and aren’t incentivized to grow AUM, so they can evaluate annuities more objectively.
    • Before asking an advisor to model annuities, be informed enough to tell them clearly what you want analyzed. Transcript: Unknown Host What problem are you solving? A caution. Annuities can be very complicated. Entire books have been written about them. For starters, there are several different types. Also, depending on a whole host of factors such as your age and health, your total savings, and your tolerance for risk, you might be better off bypassing annuities completely or using A mix of investments, of which annuities are just one. Financial advisors can help you sort these things out. I don’t blame you for not wanting to read a book about annuities. But you can’t be totally ignorant, and you have to be clear about what you want the advisor to do. First, you need to understand that some financial advisors don’t particularly want to bring up annuities. If your advisor gets paid a percentage of what financial professionals call your assets under management, their incentive is to accumulate assets under management. The last thing they want is for you to take all your money out of the portfolio they are managing for you. After all, for them, annuities are the competition. But let’s assume you’re working with a fee-only advisor, someone you pay a flat fee for giving you financial advice. (Time 0:13:36)
  • Tell Advisors Your Goal Is Maximize Life Enjoyment
    • Tell your financial advisor your goal is to maximize life enjoyment, not just assets under management.
    • Prefer fee-only advisors and explicitly ask them to plan spending to avoid both running out and underspending. Transcript: Unknown Host Annuities can be very complicated. Entire books have been written about them. For starters, there are several different types. Also, depending on a whole host of factors such as your age and health, your total savings, and your tolerance for risk, you might be better off bypassing annuities completely or using A mix of investments, of which annuities are just one. Financial advisors can help you sort these things out. I don’t blame you for not wanting to read a book about annuities. But you can’t be totally ignorant, and you have to be clear about what you want the advisor to do. First, you need to understand that some financial advisors don’t particularly want to bring up annuities. If your advisor gets paid a percentage of what financial professionals call your assets under management, their incentive is to accumulate assets under management. The last thing they want is for you to take all your money out of the portfolio they are managing for you. After all, for them, annuities are the competition. But let’s assume you’re working with a fee-only advisor, someone you pay a flat fee for giving you financial advice. This kind of advisor doesn’t have an incentive to avoid annuities and also doesn’t get paid commissions for selling annuities. Great. No conflicts of interest in either direction. Your advisor can do the mental gymnastics to come up with a plan for you. (Time 0:13:41)
  • Solve For Life Enjoyment Not Just Wealth
    • Clarify the problem you want your financial advisor to solve before asking for recommendations.
    • An advisor great at growing assets only helps if your goal is maximum wealth; that may conflict with maximizing life enjoyment.
    • The book’s premise: prioritize maximizing your total life enjoyment over simply accumulating money.
    • Money is a means to enjoy life, and obsessively maximizing it can get in the way of that goal.
    • Tell advisors your objective so they design strategies (including annuities vs investments) that match your desired life outcomes. Transcript: Unknown Host If you’ve got a roofing problem, don’t call the plumber. The best plumber in the world won’t fix your leaky roof. Likewise, your financial advisor might be a great stock picker. That’s helpful only if the problem they are solving for is for you to be as rich as possible, whereas we’re solving for your total life enjoyment. Let me say that again. We are solving for your total life enjoyment. That is, the premise of this book is that you should be focusing on maximizing your life enjoyment rather than on maximizing your wealth. Those are two very different goals. (Time 0:15:04)
  • Spend According To Projected Death Date And Health
    • Plan spend-down around your projected death date and annual cost of staying alive to identify the bare minimum you need.
    • Spend aggressively earlier when health and interests are higher; decline in later decades requires front-loading experiences. Transcript: Unknown Host My full answer to that question comes in chapter eight, know your peak. But let me just give you a brief preview here. It starts with tracking your health, so you know when to start spending more than you are earning, when to crack open your nest egg. Also means knowing your projected death date and your annual cost of just staying alive. Because those two numbers together will tell you the bare minimum amount you will need between now and the end of your life. All of your savings beyond that amount is money you must aggressively spend down on experiences that you enjoy. I say aggressively because your declining health and diminishing interests mean that your list of activities will narrow as you age, which means that your spending rate won’t remain Constant. If you want to die with zero and make the most of whatever health you have at every point in your lifetime, you will need to spend more in your 50s than in your 60s, more in your 60s than in Your 70s, let alone your 80s and 90s. (Time 0:16:44)
  • Avoid Survival Bias That Drives Irrational End Spending
    • People are biologically wired to avoid thinking about death, which creates extreme overvaluation of small life extensions and leads to wasteful spending.
    • Planning ahead prevents frantic, inefficient end-of-life spending when health is poor. Transcript: Unknown Host Avoiding death is our number one priority, and that single goal dwarfs everything else. My friend Cooper Ritchie put it well when he said, the human brain is wired to be irrational about death. People avoid the subject of death. They behave as if it’s never coming, and too many don’t plan for it. It’s just some sort of mystery date in one’s future when we expire. This kind of blanket denial explains why so many people are willing to spend tens or even hundreds of thousands of dollars to prolong life for just a few more weeks. Think about it. That’s money that they spent years or decades working for. They gave up years of their life while healthy and vibrant to buy a few extra weeks of life when they are sick and immobile. If that’s not irrational, I don’t know what is. Granted, money has absolutely no value to you when you’re dead. That’s why I say you should die with zero. Because of that, it’s not irrational once you’re near the end to spend all of your remaining money to prolong life, even a little bit. At that point, it’s use it or lose it. (Time 0:18:15)
  • Use A Countdown To Make Time Tangible
    • Use a countdown of estimated remaining days to instill urgency and guide choices about time and spending.
    • Apps like Final Countdown can remind you how many weekends or holidays remain and shift daily priorities and relationships. Transcript: Unknown Host At the same time, thinking about death can be distressing. So we tend to avoid thinking about it. And we behave as if it is never going to happen. We keep putting off wonderful experiences if in our final month, we can easily squeeze in all those experiences that we had put off all our lives. Needless to say, that’s not possible. So it’s totally irrational. I know it might sound morbid and it might make you uncomfortable, but I’ve actually started using an app called Final Countdown that counts down the days and the years and the months And weeks and so on before my estimated death date. And I’ve been urging all my friends to do the same. Yes, I can see how this app could be unnerving, but the reminder of death gives a much needed urgency to one’s life. By seeing how many weeks I’ve got left, for example, I’m reminded how many or how few weekends I’ve got. Seeing the number of years reminds me that I have only got so many Christmases to enjoy or so many summers or autumns. And those in-your reminders have changed my thoughts and the things I do, like the people I reach out to and how often I tell people I love them. Final Countdown makes me a much better match against the autopilot instincts that would have me act as if death didn’t exist. (Time 0:21:50)
  • Use A Death Countdown To Prioritize Time
    • The host uses an app called Final Countdown to display days, weeks, months, and years until an estimated death date.
    • Seeing concrete counts (weeks left, number of future Christmases) creates urgency and shifts daily choices away from autopilot.
    • The reminders changed the host’s behavior: reaching out to people more and telling loved ones they care.
    • Final Countdown is presented as a simple tool to balance living in the present with planning for the future.
    • The point ties to the book’s thesis: dying with zero is about managing time and life energy, not just money. Transcript: Unknown Host I know it might sound morbid and it might make you uncomfortable, but I’ve actually started using an app called Final Countdown that counts down the days and the years and the months And weeks and so on before my estimated death date. And I’ve been urging all my friends to do the same. Yes, I can see how this app could be unnerving, but the reminder of death gives a much needed urgency to one’s life. By seeing how many weeks I’ve got left, for example, I’m reminded how many or how few weekends I’ve got. Seeing the number of years reminds me that I have only got so many Christmases to enjoy or so many summers or autumns. And those in-your reminders have changed my thoughts and the things I do, like the people I reach out to and how often I tell people I love them. Final Countdown makes me a much better match against the autopilot instincts that would have me act as if death didn’t exist. Death, of course, does exist. In fact, as I explained in a later chapter, we all die a thousand deaths before our one final death. And Final Countdown is one tool that can help us live a life more mindful of that reality. What I’m saying is that dying with zero is not only about money, it’s also about time. Start thinking more about how you use your limited time, your life energy, and you’ll be well on your way to living the fullest life you possibly can. (Time 0:22:12)