Given the headline you just read, you probably think I hate the book Die with Zero: Getting All You Can from Your Money and Your Life. Nothing could be further from the truth. I think it's a great book and, like The Psychology of Money or How to Think About Money, I actually wish I'd written it. It is the best book I know of to read for those of us WCIers whose most challenging of the five lifetime money activities (earning, saving, investing, spending, giving) is spending.
Some of the ideas it teaches I had already come up with on my own before reading the book, but its author, Bill Perkins, did a much better job than I would have at explaining them. Plus, he came up with a few ideas that I had not yet considered. That said, the book and its philosophy have three gaps that are well worth discussing and exploring, and I hope to do that in this post.
The Basic Philosophy
I assume everybody reading this blog post has not yet read Die with Zero. Let's spend a few words explaining the philosophy behind the book. Maybe the best place to start is to list Perkins' nine rules from the book:
- Maximize your positive life experiences.
- Start investing in experiences early.
- Aim to die with zero.
- Use all available tools to help you die with zero.
- Give money to your children or to charity when it has the most impact.
- Don't live your life on autopilot.
- Think of your life as distinct seasons.
- Know when to stop growing your wealth.
- Take your biggest risks when you have little to lose.
It's hard to see much there worth disagreeing with, but just reading the rules doesn't necessarily help you to understand the philosophy. Each of those rules deserves its own post on this blog and really its own book chapter (go read the book). Even my criticisms of the book in this post are really just little nitpicks.
I think I should start in the same place as Perkins, talking about the Aesop fable of The Ant and the Grasshopper and giving Perkins' big caveat. In his words:
“The industrious ant worked all summer long, storing food for the winter, while the carefree grasshopper fiddled and played all summer. So when winter came, the ant was able to survive, while the grasshopper was in dire straits. The moral of the fable? There's a time for work and a time for play. Great moral. But when does the ant ever get to play? That's the theme of my whole book right there. We know what happens to the grasshopper—the grasshopper starves—but what happens to the ant? That is, if the ant spends his short life slaving away, when does he get to have any fun? We all have to survive, but we all want to do much more than survive: We want to really live . . .
I believe everybody wants that kind of life—but, realistically, not all of us can get it. And just to be up front: if you're struggling to make ends meet, you might get some value out of this book, but not nearly as much as someone with enough money, health, and free time to make real choices about how to put those resources to the greatest use.”
Perkins' idea is that there are three limited resources: money, time, and health. Your life is going to end with zero time and zero health. Why not make sure it ends with zero money as well by using that money to optimize the time and health available during that life?
As a young person with lots of health and time, you trade time for money and enjoy cheap experiences that take a great deal of effort. As a middle-aged person (the real Golden Years per Perkins) with still substantial health and now lots of money, you trade money for time and experiences that are more luxurious and require less effort. Throughout your life (and not just as an older person with limited health), you use your time and money to get better health. Eventually, you get to the point where your health doesn't allow you to use your now bounteous resources of time and money to buy awesome experiences. Your biggest fear should be wasting your life, not running out of money.
Due to this and the various errors in thinking he tries to stamp out with the information in this book, most people die richer than they have been at any other point in their lives. To Perkings, that's a huge tragedy. He'd feel more successful at maximizing his life if he died with $0 in the bank, having swapped all his money/life energy for wonderful experiences—thus the title of the book. Great stuff, right? Well, there are a few problems worth talking about.
#1 Eat, Drink, and Be Merry for Tomorrow We Die
The first problem with the book and philosophy is that it leans way too far toward hedonism. Hedonism is the pursuit of pleasure and sensual self-indulgence. Perkins says, “The business of life is the acquisition of memories.” That's mostly hedonism. It's “eat, drink, and be merry for tomorrow we die.” To understand why that's a problem, one needs to go to the source for that quote you've likely heard many times before. It's a letter from the apostle Paul to the Corinthians:
“If after the manner of men I have fought with beasts at Ephesus, what advantage is there to me, if the dead rise not? Let us eat and drink, for tomorrow we die!”
Paul is saying that if this life were all there was, then you might as well have a great time without concern about anything else. But Paul also teaches that this life is NOT all there is. As a great Christian apostle, he teaches that an eternity is waiting for us and our actions on this sphere have a significant impact on that eternity. It's hard to reconcile the existence of a loving God with all of the bad things that happen to good people on this planet UNLESS our time between birth and death is only a tiny part of our real existence.
You don't even have to be a believer in eternity to see hedonism break down as a life philosophy. Go ahead. Go spend all day seeking pleasure and fun. Do it again the next day. Keep going. Within a few months, you'll discover the same thing that everyone else who has tried this has discovered. Your life becomes empty and meaningless. Real happiness comes from a balance of pleasure and purpose. Die with Zero does not emphasize finding and seeking purpose nearly as much as I think it should. That said, almost all of its ideas can certainly be adapted by one seeking balanced pleasure and purpose. It isn't a reason to dismiss the book or the philosophy in its entirety.
More information here:
What We Can Learn About Work-Life Balance and Retirement from the French
#2 The Tools to Really Die with Zero Don't Exist
Perkins is serious when he says to die with zero. He wants your last check to bounce. Well, that's great in theory. In the real world, Sequence of Returns Risk (SORR) exists. You don't know when you're going to die, and you don't know what kind of returns your investments will see between the time you stop working and whenever you die. Despite this, Perkins is exactly right that most wealthy people are way too hesitant to spend their money. One of the stupidest ideas out there is that you can only “spend the income” from your investments. Perkins fully wants you to spend the principal, too. I agree. But it's harder than it looks, because you don't want to run out of money before you run out of time any more than you want to run out of time before you run out of money.
Some tools can help with this, but they're far from perfect. The classic one is a pension provided by a government or an employer. These have issues, of course. Governments don't fail all that often, but employers certainly do and the pensions may fail with them—especially if something happens to the government. But the bigger issue is that few people are actually working at jobs today that provide pensions. Only 15% of privately employed people have access to any sort of defined benefit plan. Many of them aren't funding it or funding it adequately either. Even if the funding is mandatory, many employees don't stick with the job long enough to qualify for it. And when they leave the employer, they often cash out the pension. Sometimes they think they can invest it better on their own, but more often, they just spend it in a lump sum. Either way, the guarantee of a spendable income stream until death is gone.
Now, you can buy a pension from an insurance company. These are called Single Premium Immediate Annuities (SPIAs), but you can't really buy one that is indexed to inflation anymore, so you risk having $100,000 to spend today and only having $50,000 (or less) in today's dollars to spend in 10-30 years. There's also the risk of the insurance company going under, and typically, state annuity guaranty associations only insure the first $250,000 or so, which isn't going to cut it for wealthy WCIers trying to die with zero.
In fact, the best deal out there as far as an inflation-indexed annuity is to delay your Social Security payments to age 70, spending from your other assets in the meantime. Only 9% of people do that, which is a bit of a problem. For a wealthy person like I hope most readers of this site are or eventually become, another issue arises. Social Security may only make up 10%-50% of your retirement spending. If you spend the rest prematurely, you've still got a serious lifestyle funding problem.
A reverse mortgage might help you to spend your home equity without losing your house until you die. A really good long-term care insurance policy might also help protect against that potential expense late in life, but presumably your SPIA/pension/Social Security payments can be used to pay for long-term care, too.
There are a few other partial solutions you can implement—like TIPS ladders and buckets of money assigned to every period of your life—but for most people, these don't result in dying with zero, particularly if they die at an age younger than their life expectancy. The fact remains that no perfect financial solution exists for most of us to actually die with zero. You're either going to have some money left over (bad) that you could have spent on yourself or given to family or charity, or you are going to run out of money before you would prefer (very bad).
It's a great theory but very hard to implement perfectly. That doesn't mean you shouldn't try to implement it as best you can. Just realize there are going to be limitations in implementation. To be fair, Perkins finally acknowledges this, at least a little, in the last (two-page) conclusion of the book, “An Impossible Task, A Worthy Goal.” But the inability for anyone and everyone to buy an inflation-indexed SPIA is a serious obstacle to really implementing a Die with Zero strategy. Hopefully, they'll become available again at some point in the future.
More information here:
Lessons Learned from Achieving Financial Independence
#3 Giving Money Has Potential Negative Consequences
In the book, Perkins points out that surveys show that a majority of people think the best age to inherit money is between the ages of 26-35. However, most money is inherited around age 60, when your parents die in their 80s or 90s. Perkins thinks you should do something about that by intentionally giving the money you plan to leave to heirs when the heirs are 30ish instead of waiting until you die. He points out that leaving money to others at your death isn't really generous anyway, which is true. You no longer have the option to spend that money on yourself. It HAS to be given—whether to heirs, charity, the taxman, or some combination of the above.
The idea is that when you're 30ish, you're supposedly mature enough to not have it stolen from you or to misspend it all at once but that it can make a really huge difference in the quality of your life. You have enough health to exchange it for a ton of quality life experiences and great memories you'll treasure for decades. I agree with that.
However, Perkins completely ignores some of the consequences of giving money to young people. They make different life decisions than they otherwise would, for better AND for worse. Being hungry or living a lifestyle less than you desire is extremely motivating to most of us. Remove that motivation at your (and perhaps your children's) peril. I like to think I'm pretty motivated by my desire to help people on one of the worst days of their lives in the emergency department and by the mission of The White Coat Investor. But there is no doubt I have less motivation to do both of these types of work than I did a decade ago, when more income would actually change how I could live my life than I do now, seven years out from financial independence.
Katie and I wrestled with this issue as we set up our estate plan a few years ago. In the end, we decided that we would give intentionally just as Perkins recommends, but we decided AGAINST giving the majority of our children's inheritances to them during young adulthood. Our current plan is to split their inheritance into four pieces:
- The 20s fund: This combination of a 529, UTMA, Roth IRA, and HSA is a substantial sum of money for a 20-year-old, but it's only a tiny percentage of their anticipated inheritance. It will give them experiences we couldn't afford in our 20s, teach them to manage inherited money appropriately, and help us decide if we can safely give them large lump sums later or if we need to set up spendthrift provisions for them.
- 1/3 at 40 years old: The rest of the inheritance is being split into three pieces. This first piece is likely to pay off any mortgages and give a huge boost to retirement savings, likely getting our children to financial independence about the same time we got there in our early to mid-40s. We figure it's hard to ruin somebody by giving them money at 40. Their financial habits are already in place, and they've had two decades to work at it. Twenty years is just too long to starve while waiting on an inheritance to save you from your bad financial and life decisions.
- 1/3 at 50 years old: This chunk should get them to financial independence if they're not already there.
- 1/3 at 60 years old: This is ideally money they're managing for the next generation, but it does provide a “third strike” if it turns out they suck at managing money and blew the first two (three?) inheritances. I'm 29 years older than our oldest and 40 years older than our youngest. I may not be around to give all these gifts while alive, but we expect most of these gifts to be completed while at least one of us is still alive, and the trust we already have in place will carry out our wishes if necessary.
The trust does allow us, as trustees, the flexibility to give this money earlier if we think our kids can handle it, but only if we're still alive. Perkins would suggest that 40 is older than ideal and that 50-60 is way too old to really make a difference. Which may be entirely true. I turned 50 this year. Katie is younger. All four of our parents are alive, and any inheritance we get will make zero difference in our financial lives at this point. Perkins may be right, and we may end up giving money to our kids at earlier ages. But the fact that he doesn't even mention that dumping a couple of million dollars on a 25-year-old may have some untoward consequences seems like a huge oversight.
There is also the issue mentioned above that the tools to ensure you don't hit zero before death are less than ideal. So, by necessity, it seems most people, at least those not leaving a random amount of money to charity at death, HAVE to provide at least some of the inheritance at death. This is what I call the “unintentional giving problem.” Some of your giving can be intentional but not all of it, because you can't be precisely sure of how much you will need. Plus, the tools you really need to die with zero don't currently exist. The best solution I can think of is to have the unintentional giving go to the grandkids and/or great grandkids, possibly via trust, but to be completely intentional with your children.
Die with Zero is well worth reading and applying in your life. The philosophy is good but not perfect. Do the best you can when applying it to your own financial and overall life plan.
What do you think? Have you read Die with Zero? What did you like and dislike about it?