Pursuing "enough" is harder than pursuing "more."

Imagine you pass away and leave $75,000 in a bank account (approximately the median inheritance for the 50th-90th percentile of total wealth.) That sum represents money you didn't need to earn, right?   Effectively, says author of 'Die with Zero', Bill Perkins, you worked for 'free'.  I would add you might have missed out on experiences. You could have taken an amazing safari or two with that money! 

‘Die with Zero’, published uncomfortably in the first months of the Covid-19 pandemic, presents this reductive but powerful thought experiment.  It emphasizes that our time is limited, and many experiences are more valuable when we are young.    

I know what you are thinking.  "I wasn't working for free! My favorite charity or my family will get the money I earned!"  Bill makes three points.  First, you would be much better off giving them that money during your lifetime as they would have received it sooner, which is generally more useful to them.  Second, you improve your quality of life by giving.  Third, even if you want to give away your money at death, you don't need to bequeath a random or unlimited amount.  You have needs too! 

Choose how much receipients will receive at your death.  Plan for that. Spend the rest on experiences or gifts and die with zero.  That’s the model of the thought experiment, and it’s a critical one for Lifetime Financial. 

It’s such a compelling argument that I have never met a person or read a review that disagrees with the logic, aside from the critical objection that the problem itself is a luxury for most.  Americans can’t save, including many in the middle and upper-middle class. Bill himself is, unsurprisingly, a Wall Street Billionaire.  But for many it’s a real issue. (Over 60% of Americans live paycheck to paycheck.) 

Taken literally, there’s nothing hard about dying with zero.  Just spend everything you earn.  I won’t charge you for that financial advice.  Bill acknowledges dying with zero is an impossible task.   He doesn’t want you to jeopardize a secure, comfortable retirement.  The hidden difficulty in the aphorism is you need to figure out how much is enough and then use it or gift the rest. 

Well, now I will start to charge you, because it's really freaking hard to calculate 'enough.’ (Ask Walter White!) There are so many variables in a financial plan: market returns, inflation, future income and saving levels, expected and unexpected expenses, longevity, and more. It's unthinkable that we could create a plan for you to die with zero. 

And the price for miscalculating could mean living in poverty; a very unfortunate outcome.  (Poverty among seniors has declined slowly over the last few decades, but 11% of those over 80 in the USA still live in poverty.)     

So instead of pursuing ‘enough,’ because it’s hard to figure out, we as a society simply pursue 'more.'  We work more and save more. We plan conservatively and tell ourselves the lie that 'at worst we end up with more money.' But it's not.  At worst you left important memories unlived and worked hours of your life for free.   

The pursuit of ‘enough’ is harder than the pursuit of ‘more’.  And while it’s true one can never be exactly right about ‘enough,’ one can be ‘less wrong’.  Lifetime Financial uses research-based methods like utility models based on prospect theory,  statistically valid longevity estimates, and tools like annuities (not all annuities are bad) to balance planning for a safe retirement and LIVING. 

I'm going through this exercise myself.  I want to put $6,000 in a Roth IRA for each of my daughters in 2022. I know that the tax-free income compounding from a Roth will be worth more than if I invest it myself and gift it to them at my death.  At an historically average real (after inflation) rate of return of 5.5%, they will get more than double (in today's dollars) than what I could give them via inheritance.  They get the knowledge that their dad is supporting them, and they can plan their own lives a little differently.  

But I don't know if I'll need that money for my own retirement!  My plan is solid, but it's far from assured. I'm a planner myself and I acknowledge it's a tough call.  It takes solid knowledge and courage! 

I'm going to do it. I've done the research, I trust my planning skills, and having ‘enough’ while living a meaningful life is a habit I'd like to continue to demonstrate to my kids as they navigate adulthood.