Is this a CRAZY Approach to Retirement?! | How Do You Compare?

Today's video might just make you reconsider your approach to retirement. It's unconventional, potentially controversial, but yet quite thought provoking. This approach is laid out in a recently published book by Bill Perkins called Die With Zero. Let's get into it. Now a core message from this book is the idea that money is a tool. It serves no benefit unless it is serving you. Money has no inherent value on its own. For instance, if I gave you a million dollars but said you couldn't use that million dollars on yourself or anyone else, that million dollars is essentially worthless. Well, the classic problem with building wealth is that it takes time and typically has an inverse relationship to your health. When you're young, you have a ton of health, but typically very little wealth. But then as you age, that flips. At age 75, many are the wealthiest they've ever been, but don't have as much health to enjoy that wealth. Now you may not agree with this entire approach. I certainly see some issues in certain parts of the book, but there are two powerful core concepts from this approach that I think every retiree can benefit from consciously thinking about. The first is considering the maximum amount of enjoyment you're able to get out of each year of your life. Think about this like a point system, and each year has a theoretical maximum number of enjoyment points that you can earn. Well, not every year is created equal within your life, and the main catalyst for this is your health. The stronger your health, the higher those theoretical ceiling of enjoyment points can be. On the screen, I have a graph that shows what this might look like conceptually. Now, to prove out this theory, let's look at a trip for traveling across Europe. Now, if money is no object, are you more likely to reach a higher level of happiness on that trip when you are, let's say, 35, or when you are 70? All things being equal, the obvious answer is 35. At half the age, you're gonna be able to get over jet lag faster, explore towns and countryside more effectively. You're unlikely to get worn down as quickly. Now, this isn't to say that trip won't be fulfilling at age 70, but the ceiling of enjoyment is higher at a younger age because of your health. So, this concept expands. And all things being equal, a dollar of wealth can be used more effectively at a younger age because of this. So, working a year longer than you need to when you're in your 60s in order to have a little bit more wealth when you're in your 80s is a tough trade-off. You're essentially trading years when you're younger with a higher ceiling for years when you're older that have a lower ceiling for enjoyment. Another core concept of this approach is the lasting return on memories. And it's weird to think about there being a return on investment when it comes to memories. But having incredible experiences earlier in life is more preferential to having those same experiences later in life. And the main reason for this is there is a return on investment from those incredible experiences. Now, think back to your favorite vacation. Think about what you were doing, who you were spending time with, and why it was so special. Now, I would guess just thinking back to this memory gave you positive, nostalgic feelings. Neurologists have shown that thinking back to memories gives us a portion of the same feeling we received when we were actually experiencing that memory. This is the whole return on memories we are talking about and why you should prioritize those memories sooner in life rather than later. For one, no one knows how long we have here on this earth and there is no guarantee of tomorrow. Second, however, an incredible experience right now will give you a memory dividend of sorts that will keep paying you back as you age. But herein lies the core problem of traditional retirement planning. There is a huge swath of retirees that will continue to grow well through the remainder of their life. This is shown in net worth statistics. Most people retire in the 55 to 64 age group, but as you can see with the table on the screen, from 65 to 74, wealth continues to rise on average. But in the die with zero approach, this is not advised. It means the average person is carrying unused potential later into their life, which by definition, they will not be able to gain as much benefit from that unused potential. Instead, under this unconventional approach, a retiree's wealth should actually peak earlier in life and there should be a spend-down phase. Now, the idea of your wealth peaking, I understand, is a pretty scary thought for most retirees. If your wealth just keeps growing through time and you're still reaching your income goals, then you really don't have to worry about running out of money. And this is the whole approach that the wealth management industry really sells and drives home to no end. But the core problem with this approach is building ever-increasing wealth is done at the cost of your life. Let's say someone retires at 65 and follows the normal curve for wealth. Their wealth continues to grow through retirement and maybe barely peaks, if at all. Well, the money left at the end represents a significant amount of unused potential. Now, with that unused potential, you could have retired sooner. You could have spent more throughout your life and you could have made incredible memories with your spouse and your family. Now, there are probably some objections you're considering relative to this approach. Now, we'll talk about a few of those objections here in a second, but before we discuss those objections, which of these three retirees do you believe had the most successful retirement? Now, all three couples had the exact same trajectory of wealth. They all had accumulated a million dollars at age 50. But the first couple was able to retire at age 58 and they spent $80,000 per year, inflation adjusted, moving through time. Couple two, however, worked a little bit longer, but was able to spend $30,000 more per year in retirement. Both of these couples ended up near zero towards the end of their life. The third couple took a completely different route. They ended up both working longer and also spending less. And because of this, they had a large estate left at the end of their life. So now, who do you think was most successful? Now, there isn't necessarily a right answer, but the couple that you pick will say a lot about the way that you think about money. Now, for those of you that pick couple number three as having the most successful retirement, my question to you is why? You must see value in having a large sum of money left at the end of your life. But if you see value with wealth at the end of your life, how do you make the decision around the best time to retire? Theoretically, working until 70 would result in more wealth than working and retiring at age 63. So the water starts to muddy really quickly in terms of picking the right time to retire based on that goal. Now, the biggest case for having wealth at the end of your life is the case for the next generation. But the approach of die with zero does not mean your children will not benefit at all from your wealth. If this is a goal you have, then a case can be made that giving that wealth at the end of your life is some of the worst timing for giving that wealth. For instance, let's say you had children between ages 24 and age 30. By the time that you reach age 65, your youngest will be 35, and at age 85, they'll be 55. Consider our initial discussion around the concept of maximum enjoyment points. By the time you are likely to pass on that inheritance, your children will be quite a bit older, and they will likely have planned and saved for their own retirement, and the wealth that you deliver to them will simply be excess. And they have far less ability to use that wealth later in life than they would have earlier in life. And so the die with zero approach urges retirees to give sooner in life rather than the end of life. Yes, you end up giving smaller amounts, but those amounts are more impactful. The same can be said for charity. Pick a charity that you feel really strongly about, like maybe helping impoverished youth. There are kids right now that need your help, not just kids in 25 years. The approach of die with zero does not mean that only you benefit from your wealth, just that you deploy that wealth in a completely different fashion. So the next objection then is the idea of running out of money. How do you spend and enjoy wealth earlier in retirement, but still minimize the risk of running out of money later in retirement? First, know that this approach does not believe you won't need money in later years. It does not mean you should spend all your wealth early and just live on Social Security later in retirement. But it does note that you will need less than you think, and swaths of retirement research really backs this up. Retirement spending falls as you age, and this makes sense. As health declines, your discretionary income or spending declines as well. You will not need nor want the same income at age 80 that you did at age 60. But furthermore, this approach drives home the importance of a well-built plan. Now, there are two schools of thought when we talk about retirement planning approaches. You have the probabilistic planning approach, and then you have the safety-first planning approach. And on the probabilistic planning approach, you essentially invest in a diversified portfolio, and you allow the growth of that portfolio to fund your retirement. Now, because we don't know what the future holds, we have to run a lot of simulations. Here's an example of a retiree with $1.7 million in savings, and this is what their retirement looks like over the next 30 years. On the high end, they are left with about $13 million, and in the worst case, they are left with about $2 million. And so any way you slice it, their wealth grows through retirement, even in the worst case scenario. And so pretty safely, this couple can afford to spend more or start giving away their wealth in ways that they really value. Now, the other approach is safety-first planning. And although a retiree with this approach gives up some potential upside, they guarantee safety and they guarantee that they use their wealth adequately. So on the income side, an income annuity would fit this bill. A probabilistic retiree might start by following the 4% rule, only taking 4% from their assets, and then allowing that to grow for inflation. Now, by following the 4% rule in 85% of cases, that retiree will expect a sizable nest egg left at the end of their life. Instead, a retiree could purchase an income annuity. They would be able to gain a higher starting payout rate, and they would guarantee that income for the rest of their life, regardless of if they live to 75, 85, or 95. Now, the 4% rule will have inflation-adjusted income, and typically an income annuity won't be inflation-adjusted. But keep in mind, they have Social Security, which is inflation-adjusted, as well as the spending smile that we just talked about. We expect retirement spending to dip. So you don't necessarily need to keep up with inflation at the same rate. Now, the return on investment with the income annuity is likely to be smaller, but the point is you ensure that you effectively use the wealth that you have. You guarantee that income, you spend guilt-free within the income that you're bringing in each and every year, and you don't have to worry about planning for if that income is going to last. The same can be said with long-term care. Again, outperforming a long-term care policy really shouldn't be that difficult, but the problem is the unknown. Certain retirees will leave too large of a safety margin due to fears around needing significant long-term care costs, and then end up forcing inadequate use of their wealth. Instead, insurance could be purchased to make this a known and planned expense. And so, like I said at the beginning, this approach is unconventional, potentially controversial, but is quite thought-provoking, and there are certain concepts that you can really take and apply to your retirement, even if you don't believe in the full approach. Now, if you like this type of video or it made you reconsider certain beliefs that you had around your approach and around money, let me know in the comments below. If you have other objections we didn't cover in this video, let me know that too in the comments. Now, if you like this style of video, I think you're really gonna find this video right here valuable. I talk about six uncomfortable retirement truths that you need to hear, and once again, it may make you reconsider certain beliefs you have in retirement. Thanks for watching, and always remember, you don't need more money, you need a better plan.