Should You Die With Zero?

One of the most common personal finance questions I get asked is, “Am I saving enough?” Whether we are discussing saving for retirement, a child’s education, or something else entirely, many people are worried about the size of their nest egg. In fact, 48% of U.S. adults experienced “high” or “moderate” levels of anxiety around their level of savings according to Northwestern Mutual’s 2018 Planning & Progress Study.

Despite this anxiety, the evidence suggests that the opposite seems to be true—many individuals seem to be saving too much. As I stated in Ch. 2 of Just Keep Buying:

The Investments & Wealth Institute reported, ‘Across all wealth levels, 58 percent of retirees withdraw less than their investments earn, 26 percent withdraw up to the amount the portfolio earns, and 14 percent are drawing down principal.’

This means that only about one in seven retirees are withdrawing principal within a given year! The remaining retirees are living off of their investment or less than what their investments earn annually. The end result of this behavior is lots of money left to heirs. Once again from Ch. 2 of JKB:

According to a study by United Income, ‘The average retired adult who dies in their 60s leaves behind $296k in net wealth, $313k in their 70s, $315k in their 80s, and $238k in their 90s.’

Surprisingly, retiree wealth tends to go up, not down, with age. This suggests that more people should be asking the question, “Am I saving too much?” rather than “Am I saving enough?”

This is the primary idea behind Die with Zero by Bill Perkins. In it, Perkins presents a radical new way to think about saving and spending money, namely, that you should try to die with $0 to your name. His reasoning is simple—every dollar you didn’t spend while alive is wasted life energy. It’s money that you never needed to work for in the first place or money that could’ve been given to heirs earlier in time. Either way, Perkins comes to the same conclusion—you should aim to die with zero.

Of course, this is easier said than done. With all the uncertainties surrounding retirement (i.e. living longer, health issues, etc.), the risks associated with striving to “die with zero” are considerable. Running out of money when you are unable (or unwilling) to work is not something that should be taken lightly.

Despite this very real risk, Perkins’ argument seems to be a move in the right direction. Given the inheritance data presented above, dying with zero (or closer to zero) would be an improvement over the status quo. Why? Because, as the saying goes, “Wealth is wasted on the old.” This is especially true when it comes to inheritances. As Perkins notes:

For any income group you look at, the age of “inheritance receipt” peaks at around 60. In other words, if you were betting on how old someone will be when they inherit money—assuming you know nothing else except that they stand to inherit—60 is your best bet.

More importantly, as Perkins explains, the distribution of the age when people receive an inheritance is a bell curve. This means that roughly the same number of people receive inheritances at age 40 as at age 80!

But, is this what heirs actually want? Do people want to wait for an inheritance? Or would they prefer less money earlier in time? To find out I asked Twitter the following question:

Imagine you will receive an inheritance from a distant relative who you’ve never met. However, you have to choose WHEN and HOW MUCH you will receive. Assuming all amounts are adjusted for inflation, which do you prefer?

  • $250k at age 30
  • $500k at age 40
  • $1M at age 50

After more than 17,000 votes, the answer was overwhelmingly $250k at age 30! Among those who answered, 70% chose $250k at 30, 16% chose $1M at 50, and 14% chose $500k at 40. This is true despite the fact that implied return on your money by delaying your inheritance from age 30 to 40 or 50 would be over 7% per year (in real terms).

To give you some context on how amazing 7% real returns are, consider the fact that the U.S. stock market provided real returns of 6.9% since 1926! So not only would delaying your inheritance (in the example above) provide you with a higher return than U.S. stocks, but that return would have been guaranteed for decades as well.

Think about that. Even when we offer people a return stream that is basically unmatched in the investment world, the vast majority of them would still prefer to have less money earlier in time.

Why does this matter? Because your heirs probably feel the same way! Just like my Twitter audience, the people you will eventually gift money to would most likely prefer to receive that money earlier in time, even if it’s a smaller amount.

Ultimately, this thought experiment exemplifies the tradeoff between time and money and why the optionality associated with money earlier in life is so valuable to people. After all, what good is an inheritance if you are too old to use it? Of all the points made in Die with Zero, this seems to be the most compelling. As Perkins states:

By giving my money to my kids and other people at a time when it can have the greatest impact on their lives, I’m making it their money, not mine.

Of course, it’s easy to say “die with zero” in theory, but it’s much more difficult in practice. There are tons of unaddressed issues at play. How do you give your money away fairly? When is the right time to give it? How much should you give? I wish I had all the answers to these questions, but this is what makes financial planning an art as much as a science.

Ultimately, dying with zero is no easy task, but dying with closer to zero seems like a worthy goal that we should all strive for. Either way, it’s rare for a book to change the way I look at money, but Die with Zero succeeded after I read it earlier this year. I can only hope that it will have a similar impact on you. Happy investing and thank you for reading!

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This is post 307. Any code I have related to this post can be found here with the same numbering:

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