Many people spend years saving and building up their wealth for a carefree retirement and yet don’t necessarily receive the full benefit of all their hard work. Bill Perkins has written a book “Die with Zero” in which he presents a retirement strategy that will lead you to relieve financial stress, live more richly, and hopefully die happy.
Yes, the title of the book sounds a bit harsh so perhaps “Live until Zero” might be a better description of the message he wants to convey to those who are trying to find answers on when and how to retire.
What Is the Die with Zero Retirement Saving Strategy?
Die with Zero is a retirement strategy that means exactly what it says: your goal is to die with zero dollars left in your investment accounts.
If the thought of that made your stomach drop, I do not blame you. We are taught that nothing could be worse than having no money, and we spend our entire lifetimes prioritizing and accumulating as much wealth as we can. The thought of spending it, let alone spending all of it, seems inherently risky and having money in the bank also provides us with financial independence.
But ironically, not spending all your money might be the riskier option. Why? Because the only thing money is good for is spending it, not? Money has no inherent value unless exchanged for goods or a service. That becomes even more true when you spend it on life experiences that increase your happiness or gifting some to your children to help them achieve financial freedom. Therefore, dying with zero means dying having spent your money on living a rich and fulfilled life.
Every Extra Dollar You Die with could Represents a Missed Life Experience.
Of course, it is impossible to know the most important variable to make “Die with Zero” possible, which is when you will kick the proverbial bucket. This means it is incredibly unlikely you will pull off dying with zero.
But dying with $200,000 left is still better than dying with $1 million because it implies you had an additional $800,000 worth of life experiences you missed out on. Maybe this was $800,000 of travel. Maybe you got to buy your dream home or your dream car. In any case, wouldn’t you rather move on having lived your dreams rather than leaving behind hundreds of thousands of unspent dollars?
Rather than simply letting it pile up, why do you not convert it into life-enriching experiences.
The Utility of Money Changes Over Time
Perkins points out in his book that we often overlook how the utility of money changes over our lifetime. We assume the value of a dollar is constant, so money will always have the same impact on our life. But the reality is that there are certain times in your life when money is more useful than others.
For example, the life experiences you can only have at certain times in your life, like traveling or having a family. Whether we care to admit it or not, we will lose both energy and mobility as we age. Our children will also grow up and be less inclined to spend time with us as they pursue their own lives and looking after their own families.
Our time on earth is painfully short, and the time we have with our health, finances, family, and friends all aligned is even shorter. Instead of focusing on increasing your wealth, we should rather focus on experiences that will create what Perkins calls “memory dividends” we can live from.
Memory dividends are joyous experiences for the duration of our lives and beyond. This might include the enjoyment of researching and planning a dream vacation, the experience of the trip itself, followed by the years of lasting memories that the trip will evoke. In the end, the enjoyment and fulfilment that one experience can yield is much higher than the financial cost.
But What About Leaving an Inheritance?
If you have children, adopting a Die with Zero retirement strategy can seem like you are doing them a disservice. Is it fair to leave your kids with no money after you die?
Dying with zero does not mean leaving your kids with no money. In fact, giving your children their inheritance earlier in their lives, even if it is a smaller amount, is likely to set them up better financially than leaving them your entire estate later.
Most people say the period of life when they can most benefit from financial gifts is age 20 to 40, yet most children receive an inheritance after age 60. During these two crucial decades, young people are paying off student loans, getting married, starting families, and buying their first homes. Most people in their sixties are merely eyeing retirement. A $100,000 gift at age 40 can be life changing but a $300,000 inheritance at age 60 just gets added to the pile of assets already accumulated.
As a parent, it is important to help set your children up financially. If they need capital to start a business at age 30, what good will making them wait until age 60 to help them?
The point is not to give your child the most money possible. It is to gift the money when it has the most significant impact on their quality of life. And in most cases, that will be when they are younger. As a bonus, by gifting your child money earlier in life, you will get to see and experience them benefitting from it.
How Do I Die with Zero?
Dying with zero is as simple as saving less for retirement, retiring earlier, increasing your planned withdrawal from your retirement accounts, or making periodic lump-sum withdrawals for specific experiences at certain points in your life.
The wealth management industry typically touts a 4% safe withdrawal rate from your retirement accounts. That means withdrawing only 4% per year in retirement to ensure you never deplete your capital. But if you are trying to die with zero, you do want to deplete your capital. In this case, a 5% or a 6% withdrawal rate may be more appropriate.
Choosing a higher withdrawal rate can also lower your target portfolio balance. Adopting a “Die with Zero” strategy will not only increase the cash flow you expected to have in retirement, but it will free up more of your funds for spending in the present. You will most probably end up with a richer life now than later when you are much older.
What if I Run Out of Money When I Need Expensive Long-Term Care?
One of the main criticisms of the Die with Zero philosophy is that it is a risk because it may leave you broke when you most need extra cash at the end of life for long-term health or critical care.
While nobody wants to think about how and when they will move on, it is important to be realistic about how much money you really need. A life expectancy calculator can give you a mathematical prediction of your longevity based on your current age, health, and habits. It is not a crystal ball, but it might help ground your expectations. Many people believe they will be the exception that lives to 100 years, but it is more likely that you will not see your 90th birthday.
Around 70% of people will need long-term care at the end of their life, but most will need it for less than five years. You should feel confident planning for a maximum of five years of long-term care (with a margin of error if it really makes you nervous).
Running out of money is unlikely, even if you make your best effort to die with zero. For those who retired with more than $500,000, statistic show that the average retiree still had a big portion of their nest egg left in their estate.
Dying with zero does not mean dying broke. In fact, it is about the opposite: dying rich. Your goal is to die rich with memories and life experiences rather than with thousands of unused dollars in your bank and investment accounts. “You can’t take it with you,” as they say.
So, should your retirement strategy be to die broke? All depends on your specific set of circumstances, and it will vary from person to person. At JMI Wealth we pride ourselves on the advice we give, providing answers and solutions to our investors. Sitting down with you and discussing and evaluating the various scenarios and solutions that can work for you, is what we do.
