If you’re just tuning in, I’m writing a series of columns for a distinct subset of readers.
Retirees who have plenty of money saved but are reluctant to spend it due to uncertainty about their future expenses, investment returns and life expectancy.
(If you’re not there yet, one day you may be. So I suggest you read on regardless.)
In my last column, I detailed how you can reduce these uncertainties by turning them into probabilities.
That means calculating historical asset class returns and prospective spending – and also spending a little time with a longevity calculator.
Here’s why doing these things is important…
Most of us go through life as if we have all the time in the world.
We don’t. Your most valuable asset is not your house, your bank account or your investment portfolio.
It’s the amount of time you have left on this little blue ball.
It makes no sense – especially if you’ve worked, saved, invested and compounded your money for decades – to delay gratification for too long or indefinitely.
You need to start converting your hard-earned money into the things that make you happy.
Psychologists insist that people get more gratification from spending on experiences rather than on more stuff.
Look around your house – and in your closets – and you’ll see countless items that seemed powerfully attractive before you bought them but now hardly elicit a shrug.
(You might consider that before you spring for the next object of fascination that comes along.)
Maximizing your fulfillment from experiences – by planning how you will spend your time and money – is how you maximize your life.
Bill Perkins, author of Die With Zero, points out that unlike material possessions, which quickly depreciate, experiences actually gain in value over time.
Experiences pay what he calls a memory dividend.
You don’t just enjoy a great experience. You also enjoy the memory of the experience – often in the company of those with whom you shared it – year after year after year.
(I might add that the anticipation of the experience is another part of the payoff.)
You cannot overestimate the value of memory dividends. Nothing pays a higher rate of return.
In the words of Carson, the butler of Downton Abbey, “The business of life is the acquisition of memories. In the end that’s all there is.”
One day when you’re too frail to do much – if you’re fortunate enough to live that long – the best part of your life may be your memories.
You can look back on the life you lived and experience pride, joy and the bittersweet feeling of nostalgia.
And you can begin to live more deliberately now by realizing that as your health inevitably declines so will your capacity for new experiences.
Perkins suggests that you mentally divide your retirement years into three categories: the go-go years, the slow-go years and the no-go years.
The go-go years are when you’re first retired and raring to have all those bucket-list experiences you’ve been putting off.
Later on – depending on your health but typically in your 70s – you enter the slow-go years. You’re still making memories but at a slower pace.
In your 80s and beyond, you may find that you don’t have a lot of “go” left, no matter how much money remains.
Dying with a pile of unspent money means you wasted the life energy that you expended earning it.
(Hence the old saying that the loudest laugh in hell is reserved for the man who dies rich.)
If you’re planning to give money to worthy people and causes, consider doing it now.
Most of them will benefit from getting some of your wealth sooner rather than later.
(I refuse to spoil my adult kids, but the last thing I want when I kick the bucket is for them to go, “Woo-hoo, we finally hit the jackpot!”)
Don’t deprive your current self to care for a much, much older future self who will have no need for all that money.
Is this really a problem for retirees? You’d be surprised.
Perkins cites studies that show most retirees are saving more aggressively, living more frugally and decumulating their assets more slowly than necessary.
Retirees who had $500,000 or more at retirement had spent down a median of only 12% of that money 20 years later or by the time they died.
Eighty-eight percent remained unspent!
Even folks with less than $200,000 saved had spent down only a quarter of their assets after 18 years of retirement.
Of course, no one attempts to die with zero if they are consumed by fears that they will hit zero before they die.
If you fall into this category, I’m going to recommend a specific investment that guarantees that won’t happen.
It’s called an immediate annuity.
Many of you are thinking, “Oh, good. I own an annuity.”
Unfortunately, it is almost certainly a variable annuity rather than an immediate annuity. And the former is greatly inferior.
In my next column, I’ll explain why.