There is an old story about an ant and a grasshopper. The ant worked hard all summer to save up for the winter, while the grasshopper just didn’t care about winter at all and enjoyed all summer. In the end, the grasshopper died from starvation (a bad ending for him) but when did the ant really live (also a bad ending)? Is there a strategy with a good ending? This insight is presented in the book I just finished reading titled Die with Zero by Bill Perkins. Let’s explore it further.
We earn money so that we can spend it on our necessities and having life experiences. All we care about in the end is experiences. Money is just a middleman. But yet, we focus so much on earning and saving money that we forget the main purpose of it. According to Bill, the optimal scenario would mean we die with zero balance in the bank account. That is, we utilized all the money we earned or saved for some life experience.
We tend to earn more as we age. The amount of money we are able to make when we are in our 20s is typically less than what we can make in our 40s. However, our ability to get life enjoyments decreases with age. We would get more happiness from certain experiences when we are younger. Now, that does not mean we should spend all our money and not save at all (acting like a grasshopper). Clearly, there is an optimal strategy for earning and spending, and we should think about finding it.
According to the statistics presented in the book, our spending tends to decrease as we age. We save a lot of money for retirement. But fail to utilize most of (surprisingly, well over 80%) our savings. Some of us even die richer than what we retired with (because of compound interests)! This is just wrong. We probably spent some life energy to earn the money that went unused. It is like we worked for free!
The biggest objection to dying with zero is related to inheritance. My unused money will go to my children. So, it is not unused after all. But, if I really wanted to give my money to my children, I should do it earlier. Why wait till I die? Assuming that I would die around 80s or 90s, my children would be well in their 50s or 60s. The inheritance at that point would be like a small bonus rather than a life-changing amount, it would have been in their 20s. With their age, their ability to utilize that money also decreases.
Besides, if I wait till death, I am leaving too much to chance. I don’t control when and how much my children will get. All I can control is who gets it. The same reason works if I decide to donate to charity after my death. My money will be taken away anyway, so I can’t be generous after death. If I really care about a cause, I should donate while still alive.
We need health, time, and money to enjoy life experiences. At different points in time, we have an abundance of some of those resources and lack some of the others. So, a fixed strategy like the 50-30-20 rule (spend 50% on needs, 30% on wants, and save 20%) is suboptimal. The numbers should change depending on our age. We have a lot of time and health at a younger age, so saving less makes sense. Mind that we should spend on experiences and not on things. Experiences come with memory dividends. I described this in detail in this post about buying happiness.
The issue is that we do not know when exactly we will die. But, that should not stop us from making reasonable estimates. I can guess that I am probably going to die around my 80s or 90s. It does not make sense for me to save up for the age of 135. There are many tools that help us make better predictions of how much we will live (see the list at the end of the post). We can’t predict accidental deaths, but we can estimate natural deaths reasonably.
The bigger risk is longevity risk. That is, we run out of money before we die. One way to tackle it is through some insurance. For example, there are products called Life annuities. It is like opposite of life insurance. We pay a big lump sum at the beginning and forget it. In return, we keep receiving some monthly salary till we die. That way, we never run out of money. The other strategy is to keep that lump sum and live off the interests, dividends, and savings. Worth considering both. Bill claims that we will most likely not do better than the insurance providers.
To maximize the experiences, Bill says we should create time buckets of 5 or 10 years and put the experiences we want to have throughout life in those buckets. The time buckets work better than a single bucket list. This bucketing takes into account all resources that we need for experiences, namely, time, health, and money. I am not so much into this idea. My wants keep changing as I grow. I would rather stick to a short-term (5-year) list and keep adjusting it.
According to Bill, all money represents some spent life energy. So, if we don’t die with zero, we have wasted life energy to earn the remaining money. I don’t completely agree with this. There are people who really love their jobs and might even do those jobs without payment. Also, some part of my income is passive. I am not spending any of my life's energy to earn interest and dividends. But, I get the point. I should still aim to die with zero. Bill compares this extra money (that came without trading life energy) with an extra life in a game. Why waste it?
The main takeaway from this book is to stop being on autopilot mode and keep in mind that we are trying to maximize our life experiences (not money).
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Long term care insurance (look up for your country)
Life annuity: https://www.investopedia.com/terms/l/lifeannuity.asp
the Actuaries Longevity Illustrator: http://www.longevityillustrator.org/
Living to 100 calculator: https://www.livingto100.com (My expectancy is 89 years!)
Newsletter: Curiosity Chronicle
Video: The Discovery That Transformed Pi (Veritasium)
Quote: "Be more dedicated to making solid achievements than in running after swift but synthetic happiness" — Dr. A. P. J. Abdul Kalam, Wings of fire.