In a world where retirement planning often revolves around accumulating a sizable nest egg, the unconventional and thought-provoking book “Die With Zero” challenges the status quo.
Authored by Bill Perkins, this book presents an alternative approach to retirement and financial planning that encourages individuals to prioritize experiences, passions, and meaningful moments over amassing wealth for the distant future.
Unlike traditional retirement strategies that focus on accumulating as much wealth as possible, “Die With Zero” advocates for living life to the fullest in the present while still ensuring a comfortable and enjoyable retirement.
In this blog post, we’ll delve into the unique concepts presented in the book and explore how they differ from the conventional wisdom of financial planning.
P.S: This post and the concepts discussed are intended for individuals who possess the financial means and expertise necessary to ensure they won’t deplete their resources during their lifetime if they plan appropriately.
Why should you Die with Zero
Money is a resource meant to be converted into experiences that make you happy.
Earning money you never get to spend is a waste of your precious life hours.
If you look at retirement from a purely mathematical view, the optimal plan is to accumulate just enough money that you can spend down to zero by the time you pass away. Leaving unspent wealth at the end of life translates to missed experiences and suboptimal use of resources. Unspent wealth would also mean you might have been working for free all along!!!
A point exists in life when individuals can derive the most enjoyment from their wealth (between ages 45-60 for most), and beyond that point, excessive saving becomes counterproductive.
At this point, you must embrace experiences, travel, hobbies, and passions that were previously overshadowed by work commitments.
However, too many of us keep accumulating, never get enough, save more than we need to, and keep shifting our goalposts endlessly.
“Once you’re in the habit of working for money to live, the thrill of making money exceeds the thrill of actually living.”
Problems with Traditional Retirement Planning
The conventional approach advocated by the current personal finance industry and its experts can be summarized as follows:
1. **Early Investment:** The advice is to start investing as early as possible.
2. **Expense Multiplier:** It’s suggested that if your current annual expenses are X, you’ll need around 30X in today’s value to retire.
3. **Monthly Saving Target:** To achieve this corpus (adjusted for inflation) by age 60, a specific monthly savings goal (based on return assumptions) is recommended.
4. **Withdrawal only at Retirement:** Once you reach 60, the suggestion is to start withdrawing your annual expenses (adjusted for inflation) from this corpus while keeping the remaining corpus invested.
However, this approach has three significant drawbacks if your aim is to maximize the utility of your wealth:
Static Savings and Spending Rate
Rather than adhering to a consistent savings rate throughout your healthy years, a more balanced approach between present experiences and future savings is advisable.
For instance, someone in their early twenties may be better off not saving at all. At this stage, the impact of “not saving” on the final retirement corpus is minimal due to the small initial salary and savings.
It’s more optimal to invest in experiences and passions while time and health allow.
Saving can gradually increase in the late twenties or early thirties as income rises.
Additionally, most retirement planners assume a constant spending level in all retirement years, yet studies show that spending decreases significantly in one’s 70s and 80s. After a certain age, you won’t be able to utilize a large portion of your savings, potentially resulting in over-saving.
Neglect of Experiential Investment
Traditional financial planners often overlook the significance of life experiences.
Reflecting on life, the richness of experiences shapes one’s perception of a fulfilling life. Deliberate planning for the experiences you value is crucial. Without this, you may inadvertently follow the default societal path, missing out on actively choosing your journey.
Prioritize investing in experiences as they not only provide immediate gratification but also yield dividends in memories and personal growth.
Decumulation Dilemma
Accumulating wealth over a lifetime creates a behavioral challenge when it comes to decumulation.
Research shows that retirees are slow to spend their assets. Even those with substantial savings before retirement often leave a significant portion untouched.
Conversely, some retirees continue to accumulate wealth even after retirement. Those with guaranteed post-retirement income (like a pension) tend to spend less of their assets compared to those without such assurances.
This highlights a disparity between saving for retirement and actual spending in retirement, suggesting that many are not on track to exhaust their savings during their lifetime.
Common Fears and Societal Pressures
Let’s address some objections and misconceptions regarding the “Die with Zero” approach and provide explanations for each:
Fear of Running Out of Money
Many people fear running out of money before they die, and this fear is entirely understandable.
Nobody wants to spend their later years in financial hardship, so saving for the future is essential. However, the issue lies in saving excessively for too late in life.
Statistics show that most individuals continue accumulating wealth for many years and often delay spending until very late in life.
Love for Your Job
Some argue that they love their jobs and don’t see the need to change their approach. They may even say they would pay to pursue the work they love.
However, even those who find their work enjoyable could benefit from allocating some time and resources to experiences beyond work. It’s unlikely that anyone would want to work 24/7, especially as they age.
In your forties, fifties, or sixties, you might want to reduce your working hours and explore other interests.
While you can continue working if you enjoy it, be sure to use the money you earn for things you value.
Whether it’s first-class trips, memorable parties, or attending live performances, not spending your hard-earned money is a missed opportunity.
In essence, it’s like earning an extra life in a video game and then choosing to waste it instead of making the most of it. “Maximizing your life” doesn’t differentiate the source of your money.
Concerns About Leaving Money to Kids
Leaving money to your loved ones or charitable causes is a valid consideration, but it’s important to note that they would likely benefit more from receiving your wealth sooner rather than later.
Delaying the transfer of wealth until after your passing may not be the most efficient approach.
Additionally, once you give money to others, it becomes theirs, not yours. The concept of “dying with zero” focuses on how you utilize your money during your lifetime.
The money you’ve given to your children or causes will remain theirs, so there’s no need to plan to leave money behind specifically for them.
Practical Steps to the Die with Zero Approach
Here are three practical steps to get you started on the path to making the most of your life.
Step 1: Know When You Die
The first crucial step in the Die with Zero approach is understanding when you might leave this world. Knowing an approximate timeframe for your life expectancy will empower you to make informed decisions about earning, saving, and spending.
To help with this, consider using a comprehensive life expectancy calculator, such as the Living to 100 calculator
Step 2: Know Your Peak
Before diving into spending down your savings, it’s vital to ensure you have enough to sustain yourself throughout your lifetime. This cautionary step is especially important for those who haven’t saved enough for retirement.
A basic formula for calculating your survival threshold is:
Survival Threshold = (Cost to Live One Year) × (Years Left to Live)
Meeting this threshold is the bare minimum, but it’s the starting point to think about starting breaking and enjoying your nest egg responsibly.
Also your “peak” is more of a date than a number. For most people, this would be between the ages of 45 to 60. Ideally, you should reach near the above number by this age bracket.
For the ultra-healthy, it might even be above 60.
Step 3: Plug and Play
To visualize different scenarios for optimizing your spending while maintaining your health and enjoyment, consider using the Spend Curve app
This tool helps you make informed decisions on how to spend your money wisely.
Additionally, the Time Buckets Toolkit App at allows you to design your life around the experiences you want to have during your lifetime.
It’s a fantastic resource for organizing and realizing your goals.
Summary
Key Takeaways:
– Redefining Retirement: “Die With Zero” challenges the traditional notion of retirement focused on accumulating wealth. It encourages prioritizing experiences, passions, and meaningful moments over amassing fortunes.
– Optimal Wealth Utilization: The book emphasizes converting money into experiences that bring happiness. Leaving unspent wealth at the end of life can lead to missed opportunities and a suboptimal use of resources.
– Dynamic Savings Approach: A balanced approach between present experiences and future savings is advised. Saving patterns should adapt with age and income, avoiding over-saving and ensuring resources are used to maximize enjoyment.
– Investing in Experiences: Life experiences are crucial to a fulfilling life. Deliberate planning for valued experiences is key, as they provide immediate gratification and yield dividends in memories and personal growth.
– Decumulation Challenge: Accumulating wealth can lead to difficulties in spending down assets during retirement. Many retirees leave a significant portion untouched, potentially resulting in over-saving and unutilized resources.
– Fear of Running Out of Money: While saving for the future is essential, saving excessively for too late in life can be counterproductive. Statistics show that many individuals delay spending until very late in life.
– Balancing Work and Enjoyment: Even those who love their jobs can benefit from allocating time and resources to experiences beyond work. Prioritizing personal values and using earned money for meaningful activities can enhance overall fulfillment.
– Leaving a Legacy: Leaving money to loved ones or causes is valid, but they may benefit more from receiving wealth sooner rather than later. The concept of “dying with zero” focuses on how you utilize your money during your lifetime.
Disclaimer: This post is just an overview of the key concepts mentioned in the “Die with Zero” book. I strongly recommend purchasing and reading the complete book for a more in-depth exploration of the author’s ideas and insights
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