I watched my 96-year-old mother as she napped in the comfortable nursing home. I couldn't help but think of how long she, as a grade school teacher, and my father, as a municipal worker, had worked, sacrificed and saved for their retirement. And now, after a combined, cumulative 90 years of working and saving, their nest egg was being completely drained by the nursing home in less than 18 months.
I realized that although I had advised them how to responsibly save for their retirement, I had neglected to advise them how to responsibly spend during their retirement, while they still had each other to enjoy it and before they ended up in the nursing home. I had failed to properly advise my own mom and dad.
If you have spent a good portion of your life learning a skill while others played, working while others slept, putting your money into investments while others were just spending; you are probably sitting on a nice pile of your hard-earned money known as your net worth. But some of us end up becoming victims of our own delayed gratification. The very traits that have made us so successful have also resulted in delayed gratification to our own detriment.
Your money in the bank or brokerage account is electronic money, a series of ones and zeroes, and nothing more than just IOUs provided to you for your past work, time and effort. These IOUs, not yet converted into enjoyable spending or gifting, are your uncompensated past work, time and effort. The challenge you will face will be if and when to reverse course and start redeeming all those earned electronic IOUs with enjoyable spending and rewarding gifting.
With pre-mortem gifting, you can enjoy giving to your choice of deserving individuals or charitable causes while you are still alive to enjoy the pleasure and satisfaction. You can gift to your children when they have the greatest need and can benefit the most from your generosity, whether it is for their advanced education, their wedding or their first house; rather than having them receive the inheritance by default when they are retired adults. Sometimes the best gift one can leave behind is nothing for the grieving family to fight over. Steel baron and philanthropist Andrew Carnegie famously said: "He who dies rich, dies disgraced."
The Traditional Approach
The traditional approach to retirement savings involves a conservative strategy of a recommended allocation of capital to stocks, bonds and cash, with a 3%-4% annual withdrawal rate. Most traditional estate planning seeks to preserve your net worth up to and usually beyond your life, with the remainder being distributed to your heirs, attorneys and the taxman.
The Annuity Approach
The annuity approach advocates purchasing annuities and numerous other insurance products to theoretically guarantee a lifetime income stream and protection against future calamity. In this scenario, you will die with an annuity and insurance policies, but you will never really ever get to actually spend or gift all that you have earned and saved in life while still alive and able to enjoy it.
The "I'm Spending it All" Approach
Then there is the adventurous and, perhaps, scary "I'm spending it all" philosophy that asks the question: "Do you want your money to outlive you?" Seven former U.S. Presidents, including Presidents Thomas Jefferson, James Madison, Ulysses S. Grant and Harry S. Truman, all died broke.
The "I'm Spending It All" plan is a voluntary, strategically planned, semi-impoverishment very late in life, after having experienced the thrill, enjoyment and satisfaction of piling up a respectable net worth and then converting every last cent into spending and gifting while still alive to enjoy it. It involves dying insolvent, but not illiquid or destitute.
Understanding the "Spending Converting Curve"
The "Spending Converting Curve," illustrates how you can convert your past work, time and effort (net worth) into enjoyable spending and meaningful gifting while still alive. By applying your work, time and effort to building a pile of net worth, you slowly climb the curve. This is a process of using your income to build up your net worth. You descend the other side of the curve by liquidating assets and converting your net worth into enjoyable spending and satisfying gifting.
Assigning a date for the peak transition from building net worth to spending net worth and determining the degree of downward slope is a decision for each individual based on factors such as age, health, family history, life expectancy, one's concern over leaving hard earned money behind and one's tolerance for being almost broke before being dead.
By keeping the last, mortgaged, income producing property, you can still have a passive income stream without giving up control or custody of your capital. Because your cash-on-hand (an asset) could equal your outstanding mortgage (a liability); you will be insolvent, technically broke, but still liquid and not destitute. When you die, the cash-on-hand will pay off the outstanding mortgage so you will not only have spent everything you earned in life, but you will also have paid off all your bills without bouncing the last check to the undertaker ... don't stiff the undertaker.
You Need to Ask Yourself:
"Do I want to be the patient in the nursing home with the most money or the one with the greatest memories? Would I rather be rich and have broken dreams or be broke but have rich memories?"
Your gravestone will have two dates separated by a hyphen. You have no control over the dates, but you do have control over the hyphen ... that's your life. Make the most of that hyphen.