Making sure lifestyle inflation never gets ahead of our income and wealth inflation is a core fundamental in personal finance. Ideally, we want to widen that gap between income and expenses so that we can one day live free.
However, what if you are already living free? Or what if your investment returns are so strong that you end up dying with too much? Dying with too much money is as suboptimal a situation as never having enough money to retire comfortably.
Therefore, for disciplined investors, I thought it would be worthwhile to discuss whether your lifestyle inflation can keep up with your investment inflation. I've noticed that a lot more people are now concerned about how to properly spend down their wealth.
Let's go through a quick example.
Tether Your Lifestyle Inflation To Your Investment Inflation
If you decide to take investment risk, you should definitely reap the investment reward. Don't let people who were too scared to buy real estate, stocks, alternative investments, and cryptocurrencies tell you otherwise.
There is rarely ever a free lunch unless you are relying on the government for everything. If you spend hours cooking your meal, you sure as heck should get to eat it! And if you sometimes slice your finger, then all the more reason to savor the results.
Let's say you spend $100,000 a year on average and you have a $2,000,000 investment portfolio. For the past 10 years, you've logically tied your spending to your income gains. For every $1 more you earned after taxes, you spent 20 more cents.
However, after a difficult year due to the pandemic, you decide to live it up a little. Your investment portfolio gains have been much higher than you expected at this stage. So you decide to tether your spending increase to your portfolio increase by a 1:1 ratio. In other words, if your portfolio went up 30%, you get to spend 30% more money.
Over the next 12 months, your portfolio increases by 10% to $2,200,000. Therefore, you give yourself permission to raise your spending by 10% to $110,000. But you soon realize that your 1:1 tethering is too conservative.
$200,000 in gross gains equals a $150,000 gain after paying a 25% tax rate. $150,000 minus $10,000 in after-tax spending still leaves $140,000 in net worth gains. Therefore, so long as your larger investment portfolio is generating greater absolute gains than your spending, your lifestyle inflation will always be falling behind.
What is a disciplined investor who wants to live their best life now supposed to do? Adapt.
Controlling Lifestyle Inflation Should Be Easy For Investors
The one thing I know about aggressive savers and investors is that most of us have a difficult time spending more money as our wealth grows. We are so used to being frugal that spending money on unnecessary things sometimes feels like a crime!
Before buying anything, we rightly calculate how much gross income we need to earn to pay for something in after-tax dollars. We also always think about opportunity cost if we spend money now.
In my mind, I believe that whatever money I don't spend, I can double it in 7-10 years based on historical return averages. Heck, I just shared a 5-year structured note example that returned 150%. Therefore, expecting a doubling of your money every 10 years is not that farfetched.
But eventually, you will get to an age where you may start to doubt being able to benefit from the future returns given you may not live long enough. This doubt has started to creep in my mind this year because two people I know passed.
Now, I'm not so sure I want to invest as much money in the next private fund with a 7-10-year lockup period because I might never enjoy the rewards. Instead of investing $500,000 in a fund, perhaps it would be better to invest $300,000 in the fund and spend the $200,000 today.
Example Of Super Frugality And Minimum Lifestyle Inflation
Here's a comment from a reader named Joseph on my Roth IRA conversion post.
My income is $250K, which is middle class at best in Northern CA. I have an IRA worth $20 million from 30 years of saving and sound investing.
Proposed IRA legislation would trigger 50% RMD for IRAs over $10 million if income exceeds $400K. I was planning on selling my house, and moving after retiring, which would generate capital gains easily surpassing $400K and trigger a $5 million IRA RMD.
This seems punitive, in fact draconian; am I missing something?
What I think Joseph is missing is spending more or giving more of his money away while alive! Having $20 million in an IRA alone is massive. Joseph is also probably in his late 50s or early 60s.
Given he makes $250K a year, he is spending at most $187,500 a year if he spends 100% of his after-tax income assuming a 25% effective tax rate. With a net worth of at least 106X his annual spending and at least 80X his gross income, Joseph will more than likely pass with too much.
Remember, my recommended net worth target before declaring financial independence is 20X your average annual gross income. Joseph is at 80X, if not more!
Why Not Spend More Money?
When I asked Joseph why not spend more, he responded,
Spending a lot of money doesn’t make me feel good for very long. In fact the most rewarding things I do don’t cost any money, e.g. a new personal record on my bike, a good tennis match, or the first scent of the cool ocean breeze on a hot smoggy day.
This is a great response. The best things in life are often free. There are only so many bike accessories you can buy and professional sports matches you can watch. There's no way to go through even a quarter of the $20 million in Joseph's lifetime on simple things.
Therefore, if he can't spend it on himself, then the logical decision is to spend more money on others. There are plenty of people and organizations who could use the money. Super funding multiple 529 plans is one idea. A 529 plan is one of the best ways to pass down wealth in a tax-efficient manner.
But Joseph doesn't mention family or issues he cares about, so I'm not sure what he'll end up doing. And the reality is, it's his money. He is free to do whatever he darn pleases.
I'm assuming most of us don't want to die with tens of millions of dollars in the bank. Dying with even $3-$5 million might feel like a waste, depending on your retirement philosophy. If the estate tax threshold gets lowered under the Biden administration, all the more reason to spend or give our money away.
Therefore, let me propose some solutions to ensure that our lifestyle inflation keeps up with our investment inflation. Frankly, I'm having a difficult time coming up with a framework that works. So I could sure use some of your ideas.
Ways To Ensure Lifestyle Inflation Keeps Up With Investment Inflation
For those of you who are financially independent or very close to financial independence, here are ways to let your spending inflate responsibly.
- If you are bullish, spend an amount equivalent to 50% – 100% of your investment gains each year after adjusting for estimated taxes. For example, if your $3 million portfolio returns $300,000, after applying a phantom tax, spend $150,000 – $300,000 on whatever you want.
- If you are uncertain about the economic outlook, spend an amount equivalent to a quarter of your investment gains adjusting for estimated taxes. Consider the remaining 75% of gains you don't spend as a buffer in case things turn sour.
- If you are bearish, keep spending the same. If you are wrong after 12 months, spend an amount equivalent to half your investment gains adjusting for phantom taxes.
- Alternatively, if you are bearish, take at least 10% off the table and spend half the gains. It's much better to enjoy your money than lose it in some nebulous market.
- At least once a year, tally up your net worth and trailing 12-month spending. The difference will likely be even greater than the difference between your investment gains and spending. Donate a quarter of it to charity.
More Spending Suggestions For Those Still Focused On Growing Wealth
Here are some spending suggestions for those still on their financial independence journey. You are someone who maxes out your tax-advantageous retirement accounts and saves and invests another 20% or more.
- If you are bullish, increase your percentage spending by the percentage return of your investments each year. In other words, if your investments go up 10%, increase your spending by 10%. If your investments go down 20% one year, cut spending by 20%.
- Don't buy anything you don't need until you generate returns equivalent to 10X what you want to buy. This is my 10X consumption rule that helps create an “invest first, spend later” mindset.
- Start a side hustle. After one year, designate your side hustle income for your wants. This way, the more you want something, the harder you will try at your side hustle. Here are 20 side hustle ideas.
- Tether an amount you want to spend to a particular exercise activity. For example, for every 1 mile you run you get to spend $10. Therefore, if you see a $100 pair of shoes you want to buy, you must first run 10 miles. Gamifying your spending through exercise is a win-win. We should be risk-averse when it comes to our health so we can increase our chances of living longer.
My Favorite Spending Strategy
Out of all these responsible spending suggestions, my favorite is tying spending to a side hustle. With this method of spending, you are never losing! Making money on your own is often more rewarding that making money from a job.
For example, my newsletter could be considered my side hustle to my regular posting on Financial Samurai. This past weekend, we were hit with a “bomb cyclone,” which caused water to leak into my chimney. As a result, I stayed up from 12 midnight to 6 am Sunday wringing out sponges and towels every hour.
I didn't want to write a newsletter Sunday morning because I wanted to sleep. But I told myself that if I really wanted to send my son to a language immersion school, which costs a lot of money, I needed to write one. So I did and took a nap after.
Spending money on things you don't need when you're still trying to build your capital is not ideal. At the same time, you've also got to live a little to make all that hard work and risk-taking worth it.
More Focused Spending Going Forward
Personally, I'm going to review my investment gains at the end of each year and carve out 20% to be spent on whatever the hell I want. If I end up losing money, then I will try and cut expenses by 10%.
For so long, I've felt guilty about spending it up because I either didn't have a day job or I wanted to ensure my kids have more opportunities. But now that I'm middle-aged, I'm much more focused on spending down my wealth.
To me, the most important group that can use our support is the ~15% of the population that has a disability. Some are minor, some are major. Whichever the case may be, I think it's important we help level the playing field for them.
Readers, do you have a system for increasing your spending as your net worth grows to ensure you don't die with too much? Do you have any other responsible ways to tether spending to investment or net worth growth? Ever though of letting lifestyle inflation far surpass your increases in wealth? If you were 60 with a $20 million IRA, what would you do with the money?
If I’m 60 with a $20 million IRA, I’d be a lot more relaxed about spending. Travel more luxuriously and more often. Remodel the place.
Unfortunately, we’re not at that point yet. I don’t feel comfortable tying spending to gains. Maybe when we’re wealthy. For now, we still live modestly.
Good post. The truth is many people work far too long save far too much and spend too little when it would truly maximize their quality of life. Evidenced by the continued increase in net worth as people age into their 70s and 80s when that money has massively diminished utility.
I am all about spending 10x on the things you love and ruthlessly cutting the rest. But that is when you are on a budget, which I am now to fend off sequence of return risk. Once I am past that test when either my investments have performed so much so that even a 30% dip won’t hurt our spending habits, then I am all about this. I want to spend on great experiences for my family, playing top notch golf courses, getting massages every week, and on and on. Plus I want to give more too. So the better my investments perform, the more you bet I will be giving away over the years. Anyways, for now, I am staying the course, but we can catch up about this in a a few years!
The rule of 72, coupled with historical market returns of 10% for longer than any of us have been alive, suggests we should be able to double our portfolio wealth every 7 years (on average) if we are not drawing from it and have not buried it all in bonds or the backyard.
However, we do have to watch inflation as the whole thing about wealth is that it measures purchasing power (and it is relative, but let’s not go there at the moment). With the low two percent inflation we’ve had the past few years, that makes our actual returns after inflation more like 8%, which makes our 7 years to double into 9 instead and, if you only have to pay Federal income tax on it (presuming it is pre-tax retirement fund) at, say, 24%, then it really takes 12 years to double so far as you are concerned, because 4% of your 10% return is not really yours to keep.
At any rate, after that 10% earnings loses 2% to inflation, and another 2% to taxes (which doesn’t even include any state income taxes), I really might not want to pull out 6% because that would only be enough to prevent the portfolio from shrinking in actual spending power, and life is little if not uncertain.
The question then is how much do you want to leave in your estate, how long are you likely to live (chances are you have no idea on the latter), and how much do you intend to live it up in your time remaining (if you can), how much risk are you willing to accept, how much money do you need to live on, and how much passive income will you have in retirement, and what are the taxes on that going to be like? Don’t forget to figure in Medicare.
It gets complicated fast. Make a spreadsheet, in fact, make several, and you have to get used to the idea you are going to have a part-time job managing your finances (to include tracking inflation and market trends) for the remainder of your life.
This is because you really don’t want that that nice smiling man in the suit down at the nice clean office taking care of all that for you. For starters, between management fees, balancing churn, kickbacks to him from the investment funds he selects, commissions, sub-optimal investments, etc.) you could easily lose another 2% or more from your rate of return.
Meaning it could take 18 (72/4%) years, or more, to double the value of your money in today’s dollars, even without drawing any of it.
I would like to clarify some elements in your post…
1 – Inflation
Inflation is already accounted for when your adjust your withdrawal rate.
For example, on a $2M portolio, if you make 10% return, that mean an increase of $200K for the portfolio. If you withdraw 3% annually from the portfolio, that is $60K initially. If you adjust by the same %, say 10%, then withdrawals increase to $66K annual thereafter.
If there was also 2% inflation at the same time, what you purchased before will now cost $61K instead of $60K, leaving you $5K for additional spending.
The portfolio still has $2,134K in investments ($2,000K X (1+10%) – $66K) after the withdrawal. So it will still compound at a rate around 7% instead of 10% because of the withdrawal. You could therefore double each 10 years even after withdrawals.
If you remove another 2% for inflation from annual returns (real rate of return), you are taking inflation into account twice …
2 – Income tax
You calculate 20% income tax rate on portfolio returns, or 2% of portfolio value (20% X 10% = 2%). But that assume you realize 100% of your gains each year.
The reality is that you only need to realize the amount for which you withdraw from your portfolio. Interest income and dividend comes first as they are paid to you in cash and you don’t have a say on the amount you receive. Then, you can sell some assets to make up for the difference.
You also have access to tax-free investment accounts and lower tax brackets when your income is lower, which would help when the portfolio is still not too big (let say, less than $5M).
If you are into real estate, you receive cash rent (taxable in full), and you can refinance or use a HELOC if you want to withdraw from equity (non-taxable).
So, on the $2M portfolio example, that would be $66K withdrawal. The amount should cover all the income taxes that you have to pay. If you pay $10K in taxes, that is 15% on your withdrawal, or 0.5% relative to the portfolio. That is not a significant amount.
So, if you manage your taxes efficiently, taxes shouldn’t be a big drag on your portfolio…
If you make some major change inside your portfolio that triggers some big taxable event (sell all the real estate to switch to stocks, or sell all the growth stock to switch to value stocks, for example), that should be on you, and be removed from your specific portfolio return. So, unless you do something of that kind annually, income taxes should not be a big long term drag on your porfolio return.
3 – Management fees
I agree that if you let someone else manage your assets, it will cost a lot. For investments, the best are ETF if you don’t want to manage yourself. I’m not into real estate, but my guess is that it’s better to do it yourself in you want to invest in it.
So, I think it’s very feasible to double your portfolio every 10-12 years after withdrawing a small amount annually.
Hi Manuel,
I think we might not be on the same page as far as what we are calling things. When I say I want my wealth to grow 10%, I mean in spending power, not in some arbitrary number of dollars that are not worth what they were when the investment was made. It might be simpler to just look at growth, inflation, and taxes.
1 – Inflation
Okay, say I have 2 million invested and am expecting an annual return of 10% at the start of Year 1
A year later I have $2,200,000 in Year 2 dollars. However, 2% inflation means that I only have $2,156,000 in Year 1 dollars (spending power has decreased by 2% on everything in the portfolio, cash, principal, growth, dividends, etc.).
To actually get $2,200,000 in Year 1 dollars for a real return (one based on spending power) of 10% I would have to have reached $2,244,898 in Year 2 dollars.
To get $2,244,898 in Year 2 dollars (equal in spending power to $2,200,000 in Year 1 dollars) I would have had to invest my $2,000,000 Year 1 dollars at a rate of approximately 12.24% (disregarding compounding in shorter timeframes for simplicity).
So 2% inflation means you are not earning 10% (in spending power) any more than hiding cash under a mattress (and getting zero percent growth and earnings) means you are losing zero spending power to inflation. I know you know this, I am just trying to very clear.
2 – Taxes
All of that happened before taxes are figured. This is appropriate, as taxes, whether we are considering income taxes on a pre-tax retirement plan, or long term capital gains tax on a non-retirement investment, mostly only occur when I draw cash from either (unless I am very heavy on dividend yielding stock on non-retirement accounts).
Possibly (I honestly don’t know and am making no judgement) you are not a U.S. citizen and don’t have to consider 401k plans. We won’t even consider back-door Roth conversions here.
But let’s consider a million dollar pre-tax 401k.
Assuming I am over age 59.5 and not yet age 72, drawing from a pre-tax retirement plan (e.g. a 401k plan) this year will cost me a minimum of 24% of whatever I draw. That’s my marginal Federal income tax. In addition, there is state income tax if my state taxes income (sadly, it does).
That means that regardless of how much or how little I draw, at least 24% of that money is not actually mine (except on paper) and will never be mine, regardless of the fact it is still sitting in my account and growing, because even that growth will still be taxed at the same rate when I do get around to drawing it, and only the portion I get to keep is of real value to me.
Yes, there are things that could affect my Federal income tax, such as drawing enough to place me in a higher marginal tax bracket for the year, or the Federal income tax increasing (don’t look for a decrease in our lifetimes, especially if you are a U.S. citizen), or losses that can offset part of the tax (but that’s beyond the scope here).
So, regardless of what it cost, or did not cost, to get it there, dollar for dollar, the money in a pre-taxed retirement account is worth less than an equal sum in a non-retirement account, once taxes are considered. This is because, dividends aside, I can pretty much arrange that any drawing from non-retirement accounts is done as Long Term Capital Gains, which are taxed at either 15% or 23.8%, depending on how much income I have that year.
So, to say the same thing, but flipped, dollar for dollar, money in non-retirement plans and funds is better than money in pre-tax retirement plans (we are not considering why you put it where you did at this time). And money in Roth IRAs is even better as it will never be taxed again. Of course, there are considerable barriers to moving money between these categories. (Unless maybe your name is Peter Thiel.)
Also, if the Democratic party succeeds in raising Long Term Capital Gains taxes to more than my marginal tax rate, they will effectively make pre-tax retirement funds more desirable than non-retirement investments.
I hear they are looking to raise Long Term Capital Gains taxes to 28.8%. Which is actually rather odd and many, perhaps most, economist believe that around 28% is where the government would actually collect less money in taxing long term capital gains than it does now, because at that level, people would be much more inclined to buy and hold and hold. This doesn’t sound like a bad thing, especially with all the trouble and unfairness caused by bot traders responding (sometimes wildly incorrectly) in a fraction of a second. That is, until one considers that imposing higher artificial barriers to trading will make for a market that is less efficient in allocating resources.
Too much of one extreme does not make the other extreme good. That pretty much goes for everything; but I’ve digressed.
Hi Snazster ! Here is my reply :
1 – On inflation, I agree with you that – overall – a 2% inflation rate decrease your purchasing power by 2%. So, on a 10% nominal return, your real return is only 8%.
My point was that, if you increase your withdrawals by 10% on year 2, your real purchasing power increased by 8%, after an inflation of 2%.
So, you would still have more purchasing power in year 2 than year 1, with the exact same withdrawal rate.
The key here is to get a return that is higher than inflation, which is not guaranteed these days with bonds rate lower than 2% and inflation at more than 5%. If your returns are lower than inflation, then you will eventually have a decrease in purchasing power over time.
In practice, my solution is harder to do than it sounds, because the 10% return will be more like a “roller coaster ride” in the stock market or real estate than a “smooth and easy ride” in the bond market or in cash …
2 – You are right to say that I am not in the US. I’m from Canada.
You have a good point about the 10% penalty for withdrawal from the IRA. We don’t have that penalty. And it scare me a little bit because – in the end – the Canadian government could get this idea from the US government if they need more money. And everybody knows how much money they need right now ! :( Honestly, that’s really a scam in my opinion – to penalize you to use your own money – but we have to play by the rule, no matter what they are…
So, for an average american citizen planning on early retirement, they would absolutely need a “bridge account”, ie. a non-taxable account that will get you to 59.5. This mean you can withdraw at a higher rate from this account (let say 6% or more), and have no withdrawals at all from your IRA during that time.
If you “retired early” at 40, your “bridge account” could be completely depleted after 20 years, when you will have access to IRA account.
And since you didn’t withdraw any money from the IRA during that time, the IRA account could grow a lot more. This mean you may not need to put that much money initially inside your IRA.
What I would do in this situation is to calculate a “target value” at 59.5 for each account (IRA, taxable) and try to not “overfund” the IRA account since these fund are somehow inaccessible. On $2M portfolio, this may have to look more like $1M IRA account and $1M taxable account (a 50-50 split).
As for myself, it is easier to plan with more flexibility in the use of each accounts. Let’s hope this can stay the same !
The best of all is the Roth IRA / TFSA account. Not taxable at all. The best is to full it to the max and try to never use it. I would plan to use it only in case of emergency (other funds depleting too rapidly) or when it is so big that I won’t be able to use it all. That’s the “Peter Thiel way” of Roth tax planning. Ideally, you have some share of Tesla in it or some other high growth stocks. :-)
I don’t mind dying with millions in the slightest. My wife and I live rich lives for $100K a year. We could afford to spend twice that, but why? We travel, we have three great cars between the two of us. We like our paid for house. We have great shared hobbies of tennis, fishing, hiking, running and pickleball. We eat well, we have friends, we have good relationships with our three grown kids. We volunteer, life is great. No desire to inflate our spending to match our means.
As an economist, it is referred to as economic waste. Would the millions not be better spend on someone else or an organization that could use the money?
There is no right or wrong answer. It depends on your retirement philosophy.
I don’t consider handing down seven figures to each of my three kids economic waste, I consider it a very light form of generational wealth. We have always given away a high percentage of our income, in fact if we had invested what we’ve given away we’d have another two million in our portfolio, but we preferred to give it away. My parents gave me a seven figure inheritance, I like the idea of handing down at least twice that to each of our grown kids. I totally agree there is no right or wrong, its all about personal choice. Thought provoking post.
I go through save vs. spend moods all the time. I’ve been having difficulty engaging in transactions for the things I wish to spend on, so I just end up not spending. In fact, our monthly household spending is at its lowest point in the last 5 years. Our investments are inflating, but the cost of our lifestyle is actually deflating. This is partially by design, but also because of residual effects of the pandemic. I will definitely hit the spend lever when I can figure out what it is that I want!
Thanks Sam! Intriguing food for thought as you’re best known for! My lifestyle spending has definitely increased over the past 5 years, but not at the same pace as my investment return increases. I’m not sure I’d be comfortable spending a whole lot more. But, I do pay up for conveniences like food delivery which is getting more and more expensive.
I also enjoy a lot of things that are free or cheap. A good show on Netflix gives me very similar enjoyment as a short vacation and is so much cheaper. And a brisk walk in the fresh air is also very enjoyable and refreshing. Seeing the sun today after a huge storm made me SO happy and it didn’t cost a penny lol.
I believe that a $250k salary and a 2 million dollar IRA is far closer to average than a 10 million IRA. It makes all the difference in the world to the calculus. It’s quite possible to burn through 2 million in a 30 year retirement period if you toss a few possible age associated events in there; long term care requirements, illness and healthcare costs not adequately covered by conventional health care insurance coverage would be common possibilities. The break-point between inadequate and adequate assets is somewhere around 2 million in assets for a 30 year horizon with reasonable standard of living. It’s in this category that decisions made on cost of living, management of assets, withdrawal rate and social security, tax strategies actually are meaningful. If you’d prefer to speak to the top 1%, then the 10 million IRA is a reasonable example. If you want to include at least 50% of the other 99%, the realities of return on investment, withdrawal rate, tossing in tax strategy, social security strategy, long term health insurance costs, medicare supplemental insurance costs, home equity and after-tax savings are the relevant factors in success/failure.
Very few persons would consider “too much” savings as a problem. There are any number of “set it and forget it” solutions to to that circumstance.
Sounds good. But what are you exactly debating? The reader I highlighted has a $20 million IRA, which partly inspired me to come up with ideas on how to better spend our money while living.
With a $2 million IRA and Social Security benefits, that’s still pretty good. But the money can easily be exhausted before death as well if not careful.
Tethering $2 million to spending can work too. For example, the S&P 500 is up 20% YTD and +$400,000 in the portfolio. Boosting spending by 20% or $100,00 more one year doesn’t seem unreasonable.
Great advices ! I’m still building my wealth. But I agree to increasing your spending based on portfolio size and performance. I would maybe do it with a 2-3 year lag, since “unrealized gains/losses” are pretty much unrealiable on a year-over-year basis.
I chose a method that measures probability of failure for spending level. I build an income plan spreadsheet for now until my best case life expectency including pensions, fica, etc. I chose to use my longest living relative as my best case life expectancy. I then plug in how much I would like to spend for each year in fixed year dollars. (more in earlier years and less as I would age into slow go and no go years). From what I understand most seniors attrition spending at about 2 percent per year. I then take all my savings and model using it to fill in the needed additional income and then use the historical returns and associated consumer price indexes I could expect for my investment style. I also convert to future year dollars in the calaculations…but the input and output are fixed year as that’s easier for me to relate to. I then roll through the historical years (connecting the first and last year record to make a continuous loop of historical data) and vary how much I take out and see how many are successful or how many are not until I come up with a spend amount that just has zero failures. One of the things that makes me happy in retirement is having low risks of failure…so I choose the model to look for highest spend level to have a zero failure rate. So I can adjust it real time based on the market the day I take funds out. I’m never at risk within the constraints of my model of failure. Im still at risk for things outside the model like war or other things. The interesting thing is once you build the model…and you hear of possible government legislation…you can just quickly alter the model and know rapidly what kind of impact and how best to mitigate it. Most of the time…the suggested changes effect can be mitigated by reducing spending a few early years. Thank goodness most potential legislation is simply talked about and not initiated. Anyway…I sleep well at night this way and know I am also spending at my optimal level. Mine is simply built with excel spreadsheets as I wanted to keep it simple. All the best!
I’m more interested in passing down my wealth to provide for housing and education tied to certain moral character traits on behalf of the family recipients (for generations, if possible.)
I’m tired of paying attorneys only to hear them say, “Set up a simple Trust that cashes everything out and disperses it all to children and grandchildren.”
Any help would be appreciated.
I’m not a fan of people who want to control their children/descendants via money from beyond the grave. It usually ends badly for most of those involved.
If you insist on going down that road, it’s better to force them to stay in your haunted mansion for a week before…, oh wait, that’s the start of too many horror movies.
I agree with you. It usually ends badly. Hoping, with Sam’s advice, to avoid that. Also with $10 mil to disperse (after a lifetime of low-paid hard work and prudent investing), I don’t just want it to be spent on 3 Ferraris.
I like your suggestions, but I think you should caveat emptor for your readers (who will probably do it themselves anyway) that they should hit yourother milestones first before they do what you are suggesting here. Like net worth at 20x gross income. House that’s worth <30% your net worth.
Hi Justin,
I’m not sure it is optimal to wait until net worth equals 20X gross income to spend up. It takes a long time to get there, as well as 30% of net worth for your primary.
I think it’s better to spend up if you know you are on the right direction and that you will eventually get there. It’s the people who have no clue where they are going and how much they could accumulate, who should probably maintain their lifestyle inflation more aggressively
wow- how is that even possible on 250k? I’m guessing he purchased company stock in his IRA (probably a tech company) that really took off? Crazy that he’s still working.
I’ve been around long enough to know that anything is possible with enough time.
Just look at Tesla stock today. Wow! Huge multi-bagger in just 5-10 years.
Tesla is officially my first 20-bagger ! Bought in the $50 range…
I’ve had many 3 and 4-baggers, but no 10-baggers yet. Tesla was my first.
Got to love it! I’m almost there too. Did you make enough to retire? :)
Tesla is paying for one kid’s college education so far. And I’ve got Tesla in my son’s custodial Roth IRA as well.
It’s fun to earmark specific investments to purposes.
I was already “early retired” before I bought Tesla, but the gains in recent years made retirement much more sustainable permanently. I revised my goals upward with the pandemic crash. Don’t want to have any doubts in the future that I would need to go back to work.
My Tesla shares are inside a portfolio. It’s around 3.5% of total portfolio. I don’t want to depend on any single company for my future wellbeing. So I diversify into many investments. It’s also easier to deal with emotions when stock drops. I can splurge and buy more instead of getting scared and bail out.
Tesla still had a substantial impact on my performance. But I could not say that this one single investment will be enough to provide for a retirement.
Also, this would be unfair to other investments that did also really well during that time.
I don’t earmark investments to specific purpose. I just try to make the best investments I can make taking the least risk possible. As such, I had put my Tesla shares in multiple accounts. The best would have been to put it all in a tax-free TFSA (Roth IRA), but I splited half-and-half with my RRSP (IRA). If it had gone wrong, I would have lost my TFSA room permanently without possiblity to deduct my losses. I thought this was the optimal way of doing things.