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Die With Zero - Track 011

Die With Zero

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  • St. Barts Birthday Became A Lifetime Memory
    • The host threw a once-in-a-lifetime 45th birthday on St. Barts, renting an entire beachfront hotel and flying in dozens of guests for private concerts and themed nights.
    • He bought flights, booked all 22 rooms, and arranged a private Natalie Merchant concert that still yields vivid memories decades later. Transcript: Unknown Speaker I recently celebrated my 50th birthday. I certainly had a wonderful time on that day, but actually wasn’t the biggest party of my life. My biggest, best party happened five years earlier, after I had set out to plan the most memorable 45th birthday celebration I could afford. The idea was to bring together all my family and friends from every stage of my life and to introduce them all to one of my favorite places on the planet, the serene and beautiful Caribbean Island of St. Barts, where my wife and I had spent our honeymoon. Even though turning 45 is just a semi-milestone, I knew I didn’t want to wait until I turned 50 to have this experience. My mom was already old, and I wanted her to be able to fly in and to fully enjoy the celebration. My dad was already debilitated and couldn’t travel, so it was even more important that my mom attend. Plus, my friends weren’t getting any younger either. Who knew if there’d be another chance to bring all these people together? That year was the right time bucket, and I was determined to make the party happen. I wanted to have this significant and unique memory for the rest of my life. Of course, this was going to cost some money. Fortunately, by this point in my life, through a bit of skill and a tremendous amount of luck in my work as an energy trader, I was doing well financially. But I know money is a concern for everyone, and many of the people I wanted to invite, including friends from childhood and college, couldn’t afford to fly to St. Bart’s and pay for a room in the secluded hotel I had had my eye on. The people you share experiences with truly affect the quality of the experience. And nowhere is that more true than at a once-in event. So I knew that if I wanted to have this kind of unique birthday bash, I was going to have to step up and pay for a lot of my guests to attend. Still, my wealth is finite, just like everybody else’s. And as I started running the numbers, I ran up against my limits. Having this dream celebration would cost a big portion of my liquid net worth. Was it really a good idea to spend that much money on just one week, no matter how amazing that week might turn out to be? We all face some version of this question whenever we consider a major purchase. Of course, the dollar amounts differ from person to person, often by orders of magnitude, but the core question is the same for all of us. What is the best way to spend our money for maximum enjoyment and in order to generate maximum memories? Now, you already know some of my answers to this question. Invest in experiences that yield long-lasting memories. Always bear in mind that everyone’s health declines with age. Give your money to your children before you die instead of saving for their inheritance, and learn to balance current enjoyment with later gratification. But even though I’m a big believer in these principles, my 45th birthday party gave me pause. I had to talk myself over the psychological hurdle of spending a fortune on a single week-long party, no matter how memorable it would be. I had to tell myself again and again that I was never going to turn 45 again. And I asked myself when, short of my funeral, someday way in the future, I was ever going to be able to get all these key people in my life together again. Once I got over that psychological hurdle, though, I was all in and I went all out, creating the best party my money could buy. The party of a lifetime. I rented out the secluded beachfront Hotel, Tijuana, on the white sandy beach of the island’s largest bay. All 22 rooms and suites. To house everyone, I also booked several rooms at the equally stunning hotel next door, the Cheval Blanc. I bought flights for dozens of guests. On top of all that, I arranged for boat trips and picnics and nightly food and entertainment. One evening was sushi and karaoke night. Another was a night of old school R&B. Then there was Natalie Merchant. When I was living in New York in my 20s, just starting out and sharing a tiny apartment with my roommate, he and I used to listen to Tiger Lily, Merchant’s 1995 debut solo album. I loved that album. I knew that the former 10,000 Maniac singers’ mellow lyrical style would set the perfect mood for one special evening and that it would be a hit with everyone from my mom to the guys I’d Grown up with in Jersey City. So I arranged through Merchant’s reps to bring her down to the island for a private concert, telling my guests only that we’d have a surprise guest. The night of the private concert was as wonderful as you can imagine. I remember holding my wife from behind and just listening to the music and to Merchant telling the story of how she had composed one of the songs. I also remember drinking champagne like crazy. It was a pleasure seeing my mom chatting with a great singer too. But it wasn’t just that concert that was incredible. I would never change anything about that trip. Picture it. You’re walking down from your room to the beautiful beach on a crystal clear day with gentle waves rolling in. And wherever you look, all you see are your loved ones. You see your best friend from college. Then you walk some more and glimpse your best friend from your working years. Your mom is coming out of her cabana. You see other close friends on their deck or by the pool. And everyone is in awe of the beauty all around. And everyone is happy. Trust me, sharing that common experience is just the best feeling ever. At some point, I actually had the thought, this might just be what heaven looks like. The feeling came to me again and again. The whole week was awesome in every way, and I’ll never forget it. Not until my brain stops working. To this day, people in my life are still talking about that week. And every so often, some little thing happens that reminds me of that wonderful party. And all those glorious feelings come rushing back again. Reliving those days and nights in my mind feels almost as good as actually being there. At the end of my life, I am convinced my joy will come from my memories. And that trip to St. Bart’s will be right near the top of the list. (Time 0:00:09)
  • Think Of Your Peak As A Date Not A Number
    • Net worth usually rises then falls so you should identify the single point when it should peak during your life.
    • Call this your net worth peak: the latest date you should keep accumulating before deliberately spending down to maximize experiences. Transcript: Unknown Speaker And how to do that is the focus of this chapter. Now, this is not how most people think about spending and saving, so let me explain what I mean. First of all, think about everything you own right now, from your house to your baseball card collection, from the value of your investments in the stock market to the cash in your wallet. These are your total assets. If you have any debt, such as student loans, a mortgage, or car loans, then total up all those loans and subtract that amount from what your total assets are. What you’re left over is your net worth. What you own minus what you owe. Sounds familiar, right? Net worth is a basic concept, and it’s one we touched on earlier when we looked at data showing that Americans’ median net worth tends to rise with age. If you understood that discussion, you already understand the next important point, which is that a person’s net worth isn’t the same throughout their life. That’s a key point to understanding the peak. Your net worth tends to change over your lifetime. That’s just how it is for most people. For a good chunk of your life, especially when you are starting out, you are simply spending the money that you are currently earning. At that early stage of your life, you are not increasing your net worth. If you’re living in a rented apartment, carrying a lot of student loan debt, and not yet earning enough to pay off the debt, you have a negative net worth because you owe more than you own. But as you chip away at those student loans and assuming your income rises faster than your spending, you typically start to save money, which means your net worth can start to grow from Negative to positive. And it becomes more and more positive over time. If you stay gainfully employed, your net worth generally keeps rising, regardless of whether the rise is slow or fast. I’m not saying that’s how it should be. That’s just how it usually is. Let’s say your net worth at age 25 is 2,000, and then your net worth at age 30 is 10,000. By 35, it will most likely be some number higher than 10,000, and it will typically be higher than that at 40, and higher still at 45. The statistics on household net worth by age of head of household bear out this trend. Look at the rates of home ownership, since owning your own home is a common way to build wealth. You might not think of your home in the same way as you do about money in the bank, but there’s no denying that owning a house adds to your net worth. Whereas only about 35% of Americans under 35 own their own place, the home ownership rate for Americans aged 35 to 44 is nearly 60%. And it is nearly 70% for Americans in the 45 to 54 age bracket. It’s even higher as people get older. But these basic statistics describe only what people are currently doing about their net worth, not what they should be doing if their goal is to maximize their lifetime enjoyment. So what should you be doing? This is where my advice diverges from what most people do. You should find that one special point in your life when your net worth is the highest it will ever be. I call that point your net worth peak or just your peak. Why should there ever be a peak? Why can’t your net worth just keep going up? First, remember that, from my perspective, your overarching goal is to maximize your lifetime fulfillment, to convert your life energy to as many experience points as you can. Doing that requires figuring out the optimal allocation of your money and free time to the right ages, given the inevitability of declining health and eventual death. As a result, some years you need to save very little money so that you can spend more on your meaningful life experiences, while other years you should save more money so that you will Have more money to enjoy more or better experiences later. But there’s an even more important reason for net worth peak. Your goal is to die with zero. If your net worth keeps climbing, rising from your 60s to your 70s and beyond, then there is no way you will die with zero. So at some point, you must actually start dipping into your lifetime savings. If you don’t, you will end up with unspent money, which means you haven’t acquired as many experience points as you could have. That is why I say your net worth reaches a level at which it is the highest it should ever be, after which you must start spending it down on experiences while you can still extract a lot Of enjoyment from those experiences. That point, in effect, your peak. You can’t leave the timing of the peak to chance. To get the most out of your money in your life, you must deliberately determine the date of your peak. (Time 0:07:51)
  • Find Your Net Worth Peak To Time Life Experiences
    • Net worth typically rises with age as debt is paid and home ownership increases, but that trend describes what people do, not what maximizes lifetime enjoyment.
    • The author advises a different approach: identify the single point in life when your net worth will be highest — your “net worth peak” — and use that to plan major experiences.
    • A peak exists because money plus limited time and declining health mean you should optimize when to convert wealth into experiences, not just keep accumulating.
    • Instead of chasing a dollar target, pick a peak age and allocate money and free time to maximize fulfillment before health or life circumstances make experiences harder.
    • This reframes financial planning from perpetual saving to strategically timing spending for the greatest lifetime utility. Transcript: Unknown Speaker By 35, it will most likely be some number higher than 10,000, and it will typically be higher than that at 40, and higher still at 45. The statistics on household net worth by age of head of household bear out this trend. Look at the rates of home ownership, since owning your own home is a common way to build wealth. You might not think of your home in the same way as you do about money in the bank, but there’s no denying that owning a house adds to your net worth. Whereas only about 35% of Americans under 35 own their own place, the home ownership rate for Americans aged 35 to 44 is nearly 60%. And it is nearly 70% for Americans in the 45 to 54 age bracket. It’s even higher as people get older. But these basic statistics describe only what people are currently doing about their net worth, not what they should be doing if their goal is to maximize their lifetime enjoyment. So what should you be doing? This is where my advice diverges from what most people do. You should find that one special point in your life when your net worth is the highest it will ever be. I call that point your net worth peak or just your peak. Why should there ever be a peak? Why can’t your net worth just keep going up? First, remember that, from my perspective, your overarching (Time 0:09:48)
  • Use A 70 Percent Rule For Survival Threshold
    • Calculate a survival threshold before decumulating using 0.7 times annual survival cost times years left to live as a simple rule of thumb.
    • Example: $12,000/year for 25 years → $300,000 nominal, threshold ≈ $213,210 (≈71%). Transcript: Unknown Speaker The threshold I’m talking about, how much you need to save at a bare minimum, is a number. But as you’ll see in a moment, that number may well be lower than what dutiful savers are already on track to save. That’s because the threshold is based on avoiding the worst-case scenario, that is, running out of money before you die. It’s the amount of money you need to have saved up just to survive without any other income. Once you have met this threshold, you don’t need to work for money, and you can start carefully dipping into your savings. So what is that threshold? Well, it’s not the same number for everybody, because the cost of living varies based upon where you live, among other factors. And if you’re supporting people other than yourself, you obviously will need more savings than if you are a family of one. But for everybody, the survival threshold is based on both your annual cost of living and the number of years you expect to live from the present day. Let’s look at an example. Let’s assume your annual cost of survival is $12,000. That’s admittedly really low. But I am using this example not to tell you specifically how much you will need, but just to give you a feel for how the basic calculation works. Let’s assume for this example that you are 55 years old and that, having looked at a life expectancy calculator, you expect to live until you’re 80. So your money will have to last you another 25 years. That is, years left to live equal 25. How much do you need in your nest egg today to have a survival amount for the rest of your life? Well, to get to a very rough answer, not the final answer, you would just multiply your annual cost of survival, the cost to live one year, by the number of years you’ll be spending that Amount, years left to live. Cost to live one year multiplied by years left to live, 12,000 times 25 equals $300,000. Again, this is not the final answer. The real amount you need to save up is actually much lower than $300,000. Why? Because your nest egg just doesn’t sit there while you dip into it year after year. Assuming you invested in a typical stock bond portfolio, your money is usually earning interest, working to bring in income even when you are no longer working. Therefore, whatever interest it’s earning above inflation, whether that interest is 2% or 5% or whatever, is helping to offset the cost of your withdrawals. Time for another disclaimer. Always bear in mind that even a stock bond portfolio does not always earn interest above inflation. Rates of return can vary from year to year sometimes by quite a bit. For the sake of this example though let’s assume an interest rate of 3% above inflation. And let’s extend the example to take that 3% above inflation interest into account. Suppose you start with $212,000 in savings and you spend $12,000 your first year. How much do you end up after the first year? Well, you don’t end up with just $200,000. Instead, you end up with closer to $206,000. Because even if you withdrew the entire $12,000 at the beginning of the year, such that the first $12,000 earned you no interest, the 3% you earn on the remaining $200,000 earned you A full $6,000. You can extend this process out for the same annual withdrawals and the same annual interest for the full 25 years. The fixed annual withdrawal is an annuity, much like the annuities you can buy from an insurance company. And there’s a technical formula called the present value formula for an annuity for calculating how much you need to start with to generate a given annuity. If you were to plug these numbers into that formula, you will find that the initial $212,000 will last you nearly until the end. To be precise, you need to start with $213,210 if you want your money to last 25 years at 3% interest and a $12,000 annual withdrawal. With each withdrawal, your initial amount does shrink. It just doesn’t shrink as much as you might think because the interest earns you back part of what you need. This is why you need only a portion of the annual cost of survival times the number of years. Interest will earn you the rest. So what is that fraction? As a simple rule of thumb, I suggest 70%. In our example above, the fraction is actually just over 71% because $213,210 is 0.7107 times $300,000, or 71% of $300,000. If the interest rate were higher, the fraction you’d in savings would be lower. For example, if your interest rate is 5% and everything else remains the same, you’d only need $173,426 or a little less than 58%. And of course, if the interest rate is zero, you need all of the money, the full $300,000 to come from savings alone. But 70% covers you in most cases, and it’s a nice, simple number. So let’s capture all of this in one basic formula for calculating your survival threshold. Survival threshold equals 0.7 times the cost of one year to live times the years left to live. (Time 0:13:38)
  • Extra Money Costs Time And Health
    • More money often costs you more free time and health, so accumulating beyond a certain point yields fewer experience points.
    • Working five extra years to earn $500,000 can cost you five years of health and missed experiences that money won’t replace. Transcript: Unknown Speaker You need all three. Money alone is never enough. And for most people, accumulating more money takes time. So by working more years to build up more savings than you actually need, you’re getting more of something, money, but you are losing even more of something at least as valuable, free Time and health. Here’s the bottom line. More money doesn’t equal more experience points. Most people forget those costs of acquiring more money, so they focus mainly on the gains. So for example, 2.5 million does buy you a better quality of life than 2 million, all other things being equal. But all other things are usually not equal. That’s because for every additional day you spend working, you sacrifice an equivalent amount of free time. And during that time, your health gradually declines too. If you wait 5 years to stop saving, your overall health declines by five years, closing the window on certain experiences altogether. In sum, from my perspective, the years you spend earning that extra $500,000 do not make up for, let alone surpass, the number of experience points you lost by working for more money And instead of enjoying those five years of free time. (Time 0:24:04)
  • Begin Spending Wealth Between 45 And 60
    • Start spending down wealth earlier than conventional retirement planning suggests, often between ages 45 and 60.
    • Simulations show most people’s optimal net worth peak lies in that window; waiting to 62–65 often leaves unspent money at death. Transcript: Unknown Speaker For most people, the optimal net worth peak occurs at some point between the ages of 45 and 60. Let’s look at that more closely. First, let me make clear that 45 through 60 are chronological ages. As noted with the example of Ann and Betty, if a person’s health is excellent, so their biological age is lower than their chronological age, the peak is on the higher end of that range. For the ultra-healthy, the real outliers, the peak might even be higher than 60. Obviously, if someone has an illness that portends early death, then their peak occurs before age 45. But in general, most people hit their peak between the ages of 45 and 60. That’s what our simulations show. For most people, waiting until they are past this age range causes suboptimal fulfillment results. Because they end up dying with more than zero, running out of time in which to have many fulfilling experiences. Clearly, earnings growth also has a big effect on a person’s peak. Someone with rapid earnings growth hits their peak early. At the other end of the earnings spectrum are people who need to keep adding to their savings into their late 60s, perhaps even later, if they are to have any discretionary experience After retirement. But again, in general, most people hit their peak between 45 and 60. What does this all mean for you? It means that unless you are an exception, you ought to start spending your wealth down much earlier than what is traditionally recommended. (Time 0:29:22)
  • If You Keep Working Spend And Give Now
    • If you love working, keep doing it but increase current spending and give money away now rather than hoarding for later.
    • Give to schools, fund trusts for children, or splurge on experiences while you’re healthy enough to enjoy them. Transcript: Unknown Speaker When I first talked about dying with zero, I told you about the people who understandably protest that they enjoy their work. So what’s the harm with money earned from that kind of work enjoyment and seeing it go unused in your life? As I’ve already said before, optimization doesn’t care where the money comes from. Once you get the money, you owe it to yourself to spend it wisely. A version of this question comes up when I talk about spending down once you hit your peak. What? Do you really expect me to quit a job I love just because I’ve hit some magical date? And my answer is no. If you want to keep working, be my guest. Just be sure to ramp up your spending accordingly so that you don’t end up dying with lots of money left over. That would be a waste no matter how much you enjoyed your job. I know there are a few lucky souls among us who are indeed living the dream, and they are doing in life what they always dreamed of doing. These are those rare individuals who can’t wait to get to work each day and who feel bad when they have to go home at night. They truly love what they are doing. But again, those individuals are few and far between. You may be one of them. But if you’re not one of the lucky ones, if you’re more in love with the paycheck you bring home than with the daily experiences of being in your office, then the time has come to do a real Gut check on your life and determine what you really want to get out of it. Our culture’s focus on work is like a seductive drug. It takes all of your yearning for discovery and wonder and experiences, promising to give you the means, money, to get all those things. But the focus on work and the money becomes so single-minded and automatic that you forget what you were yearning for in the first place. The poison becomes the medicine. That’s nuts. Look, if all you want is to have a pile of money at the end, well, I guess that’s your choice. But bear in mind that I have never seen somebody’s total net worth posted on their tombstone. Wouldn’t you rather try and figure out what unique experiences you’d like to have for your own as personal keepsakes for down the road, not only for you, but for your family and loved Ones? This is precisely why I decided to splurge for that 45th birthday party. I’ve had this conversation with my friend Andy Schwartz. Andy’s a successful entrepreneur in the adhesives business, Glue. He’s in his mid-50s, married with three children in their 20s and teens, and has no plans to retire even though he could. He’s got lots of reasons. The work continues to challenge and engage him intellectually. He loves spending time with others in his industry. He feels responsible for the financial well-being of his employees. If I didn’t like it, if I felt like it was a chore, I would sell it and get out, he says. So Andy is not somebody who’s working simply because he’s afraid he won’t have enough to retire on. He loves the business, and he enjoys growing it. The business itself is a rich source of life experiences for him. If you ask him why he likes growing his wealth, given that he is already wealthy, he’ll mention his grandchildren, for whom he wants to provide a cushion, and charities to which he’d Like to give money, such as his high school and college. Fine, I say. I’m glad you’re content. So continue working and earning more money. But be sure to spend it now. If you want to give money to your high school or college, do it now. If you want to give money to your children and future grandchildren, start to do it now. For children who are currently too young, set up a trust. As for the rest, spend it on making the best life you possibly can for yourself. (Time 0:31:24)
  • Negotiate Phased Retirement Or Cut Hours
    • Reduce work hours or phase into retirement to free time for experiences without quitting outright.
    • Ask employers about phased retirement or negotiate reduced hours if you’re a valued employee to protect both income and health. Transcript: Unknown Speaker So if you aren’t ready to quit your job, but want to make the most of your money before you die, start spending more money than you have been. Another strategy for squeezing the most experiences out of your early golden years without quitting your job is to cut back on your work hours if you can. If you’re lucky enough to be working for an employer that offers a formal phased retirement program, definitely look into it. Unfortunately, only about 5% of all employers offer such programs, according to a 2017 report by the U.S. Government Accountability Office. However, the percentages are higher in some industries, such as education and high tech. The good news is that many more employers have informal programs, with managers offering phased retirement to high-performers employees with in-demand skills. It makes sense. The more valuable you are to your current employer, the more likely it is they will be willing to work with you on your terms. Short, be careful not to be constantly seduced by money. Sure, it’s nice to feel appreciated and to be paid well. And employers who value you might tempt you to work longer hours than would be optimal for you. It’s easy to succumb to such temptation. After all, if you are 55 and a valued worker, chances are you’re earning more per hour than you ever earned before. But remember, your goal isn’t to maximize wealth, but rather to maximize your life experiences. (Time 0:36:51)
  • Spend On Health To Extend Enjoyable Years
    • Invest in your health now because physical capability strongly determines which future experiences you can enjoy.
    • Examples: join a motivating gym, hire a trainer, do resistance training, swim, and spin to slow age-related decline. Transcript: Unknown Speaker Remind yourself that you can’t take your money with you. Every dollar you don’t spend at the right time will have far less value to you later, and in some cases, it will bring you no enjoyment at all. Remember, too, to invest in your health, even if you haven’t done much of that in the past. As I explained earlier, your health massively changes your ability to enjoy all kinds of experiences. So it’s well worth your while to spend time and money improving or at least maintaining your health. Whether by joining a ritzy gym, the kind you actually look forward to visiting, hiring a personal trainer, or following along with fitness videos. One of my sisters, Tia, has really taken this advice to heart. At 57, she still works in her family’s business, but she redesigned the way she does her job so she no longer sits in a chair for 9 or 10 hours a day like she used to. She understands that everyone’s muscles atrophy with age, and she’s slowing down the rate of that decline by doing resistance training several times a week. She also regularly swims and takes a spin class. She’s on it. Tia’s not going to run a marathon anytime soon, but through these investments in her health, she’s actively changing her current and future experience of life. (Time 0:42:44)
  • Rebucket Your Life Regularly Before Peak
    • Re-bucket your life every 5–10 years to update desired experiences and timing before your net worth peak.
    • Especially near midlife, re-evaluate hobbies, friendships, skills, and adventures so retirement isn’t aimless. Transcript: Unknown Speaker As you go through your life, your interests change and new people enter your life. So it’s a good idea to repeat the time bucketing exercise every now and then, such as every five or ten years. One of the most important times to re-bucket your life is when you’re nearing your net worth peak. Many people at midlife have forgotten what used to bring them fulfillment and have been too busy taking care of careers and children to explore new interests either. As a result, many people enter retirement with only a vague idea of what they’ll do with all that free time. Or they have some specific ideas, typically trips they want to take, but only for the first year or two. So after a while, they tend to find themselves adrift, feeling aimless, and maybe even itching to go back to work, the one place they’ll know they’ll have a built-in sense of purpose, Belonging, and accomplishment. In the worst cases, this sense of aimlessness can even lead to anxiety and depression. So before you quit or scale back your job, really think through what you want to do once your work won’t be taking up much of your everyday time. Is there a long-dormant hobby you want to pick up again? A particular friendship you want to rekindle? A new skill you want to learn or a club you want to join? What adventures do you really want to have? And when do you want to have them? Put those in the appropriate buckets and start making new memories. (Time 0:44:04)