Many financial planners are very familiar with this pattern. On sites that provide retirement advice, references to the “slow-go” and “no-go” years abound. But the message of declining “go” doesn’t seem to have reached the general public. And if you’re not aware of this fairly predictable pattern, you’re likely to (incorrectly) expect steady expenditures on experiences from the day you retire until the day you die. That’s one reason you might greatly oversave and underspend.

  An Abundance of Caution

  But there’s another, more intentional reason why people routinely save too much and spend too little, leaving money behind for when they die. Some people never actually planned to spend all that money on life experiences but instead were saving for the unforeseen expenses of old age, especially medical expenses. It’s not just that everyone’s health declines as they get on in years, creating higher medical expenses toward the end of their lives. It’s also that the actual expenses are hard to predict: Will you need triple bypass surgery or years’ worth of treatment for cancer? Will you have to spend years in a nursing home?

  In theory, that’s what insurance is for: to protect against whatever calamity might strike. But even people with insurance sometimes find themselves with high medical bills. This can happen because of high deductibles or costly prescription co-pays, or just because the insurer for some reason denies coverage. Since most people want to stay alive after falling ill, it’s natural and reasonable to save up for medical care. And when the costs of care are uncertain, people tend to save even more.

  Yet even after taking the uncertainty of costs into account, many people still save too much. To me, that’s like going out and buying something silly, like alien robot invasion insurance. That is, assuming there’s some very, very tiny possibility that alien robots could invade our planet and wreak havoc on our lives, does that mean you should build a special shelter to protect yourself? I’d rather take my chances and use the money for something more useful and more enjoyable.

  Planning for your medical care by saving money is a lot like that, even though it is true that you’re much more likely to need costly medical care than to see heavily armed and ultra-intelligent extraterrestrials. To put it bluntly, no amount of savings available to most people will cover the costliest healthcare you might possibly need. For example, cancer treatments can easily cost half a million dollars a year.

  Or, if your out-of-pocket medical expenses amount to $50,000 per night (as they did for my father’s hospital stay at the end of his life), does it really matter whether you’ve saved $10,000 or $50,000 or even $250,000? No, it doesn’t, because the extra $50,000 will buy you one extra night, a night that might well have taken you a year’s worth of work to earn! Similarly, $250,000 saved over however many years will get wiped out in five days. I’m not suggesting that you should rack up large hospital costs with a plan to then stiff the hospital on those bills. What I’m saying is that you can’t pay your way out of high-priced end-of-life medical care; since uninsured medical care is so expensive, it won’t make any real difference for the vast majority of us whether we save for it or not. Either the government will pay for it or you will die.

  But let’s say you’re not part of the vast majority—let’s say you’re worth millions or tens of millions. What then? Even if I earn enough that I could save up for a few extra months of life in the hospital, I can’t see the logic in doing that: There’s a big difference between living a life and just being kept alive, and I’d much rather spend on the former. So I will not work for years to save up for a few more months on a ventilator with a quality of life that’s close to zero—or, depending on the level of suffering, maybe even negative. So instead of engaging in “precautionary saving,” as economists call the practice, I’ll let the cards fall where they may. We all die sooner or later, and I’d rather die when the time is right than sacrifice my better years just to squeeze out a few more days at the tail end. Or, as I like to say, “See you at the grave!”

  Besides, it is much smarter to spend your healthcare money on the front end (to maintain your health and try to prevent disease) than to spend it at the end, when you get a lot less bang for every buck you spend. In fact, many insurance companies not only cover preventive care such as mammograms but believe enough in the long-term cost savings of disease prevention that they actually pay you (in the form of gift cards, for example) to get regular screenings and other preventive care. You won’t be able to avert every possible illness, no matter what you do, but you can make some health problems a lot less likely—and you’ll enjoy better quality of life all along the way.

  It might sound like I’m urging you to focus all your efforts on your youth and to not give a second thought to what happens when you’re old and frail. But that would be a misleading distortion of what I’m saying. Even though it’s a huge mistake to greatly sacrifice your quality of life now for better quality of life in old age, I do understand the desire to be taken care of when you’re old and vulnerable. So how do you make sure you’re covered if you need long-term care, without having to save up massive amounts of money you won’t spend if you don’t need nursing care? The answer: long-term care insurance. Look into it and you might discover that it costs less than you think, especially if you start paying premiums before you’re 65.

  There’s a more general point I want to get across: For every single thing you might be worried about in your future, there is an insurance product to protect you. That doesn’t mean I recommend buying insurance for every single thing; obviously, insurance costs money. But the fact that insurance companies are willing to sell insurance for various risks shows that these risks can be quantified—and removed for those who don’t want to take those risks.

  In this chapter, I’ve tried to show you why dying with zero is a worthy goal—a way to prevent one major waste of life energy. But what about the how? If you’re like most people, you’re still doubtful about the feasibility of actually hitting this goal, especially given the uncertainty about how long you will live. The how is the subject of the next chapter.

  Recommendations

  If you’re still concerned and resisting the idea of dying with zero, try to figure out where this psychological resistance comes from.

  If you love your job, and you love going to work every day, identify ways that you can spend your money on activities that fit your work schedule.

  4

  How to Spend Your Money (Without Actually Hitting Zero Before You Die)

  Rule No. 4:

  Use all available tools to help you die with zero.

  If you’re still with me, I assume you agree that trying to die with zero is a good idea, at least in principle. But you are probably skeptical about the feasibility of hitting this goal.

  And you are right to be skeptical. In fact, dying with exactly zero is an impossible goal. To attain it would require knowing exactly when you’re going to die—but none of us is God, so we can’t know the day we’re going to die.

  Still, just because we can’t predict the exact date doesn’t mean we can’t get close. Let me explain. Have you ever used a life expectancy calculator? Many insurance companies offer them for free on their Web sites, and I think they’re kind of fun to try out. These calculators are, admittedly, imprecise tools, but in order to forecast how long you’ll live, they ask a series of questions about your current age, your gender, height, and weight (how good is your BMI?), smoking and drinking patterns, and other major predictors of overall health. Some also ask about your family history and whether you use a seat belt. After you’ve answered all the questions, the calculator typically gives you a number—you’ll live to be 94! (Or 55 if you don’t lose 90 pounds and quit drinking like a sailor and smoking a pack a day.)

  Trying to figure out how long you’ll live might not be your idea of fun; it might feel like a morbid exercise, right up there with planning your funeral and listing your beneficiaries on a life insurance form. Fine. You don’t have to love it for it to be worth doing. If you don’t want to use a life expectancy calculator, that’s your choice—just don’t tell me you have no idea how long you’ll live, and then use that as an excuse to save money like you’re going to live to be 150.

  Whatever number the calculator comes up with is just an estimate derived by actuaries, the experts hired by insurers to forecast risk based on relevant statistics. If the calculator gives you one number, you can think of it as just an educated guess based on the past life spans of people who are roughly like you. Many people who are like you died younger than this average, and many died older. So there’s an average and there’s also a range. To reflect this reality, some life expectancy calculators report their results in probabilities. They might tell you, for example, that you have a 50 percent chance of living to 92, a 10 percent chance of living to 100, and so on. These probabilities just go to show that predicting life expectancy for one individual is an inexact science. But knowing only the probabilities of survival to a given age is still better than not knowing at all. If you don’t have any idea when you’ll die, you won’t be able to make decisions that are anywhere close to optimal. That means that if you’re the cautious type, you’ll just save and spend as if you expect to live to be 150; you might even act as if you expect to live forever, like those people who never dip into their principal and live only on the interest earned. As a result, you will die with much, much more than zero—which means you will have wasted many hours of your life energy earning money that you will never get to enjoy.

  Knowing at least approximately when you’re going to die will help you make much better decisions about earning, saving, and spending. So I urge you: Go ahead and try a life expectancy calculator.

  You might be wondering which particular calculator to use. I posed this question to the Society of Actuaries, since they’re the real experts. They wouldn’t endorse a certain calculator but instead referred me to their own Web site (soa.org), which mainly provides tools for professional actuaries. There is one very accessible tool their Web site recommends: the Actuaries Longevity Illustrator (http://www.longevityillustrator.org/). Based on your answers to just a few questions, it produces a chart that shows your probabilities of dying at different ages. Its point is to show you the risk of outliving your resources—but by looking at the extreme, you can see how low a probability there is that you will live past a certain age.

  Another approach is to ask your insurance agent, and many insurance companies that sell life insurance offer free online calculators for anyone to use.

  If you’d like to get a more precise estimate of your life expectancy based on additional health factors, you’ll need to answer more health and lifestyle questions. One helpful tool is the Living to 100 calculator (https://www.livingto100.com), designed by a doctor and researcher who studies exceptional longevity.

  What did you discover after trying one or more of these tools? If you tried multiple calculators, how consistent were the results? Are you likely to die later than you’d thought? Are you thinking you might want to change your lifestyle, or see what happens if you rerun the calculation in a few years? All good questions, and thinking about them is a first step toward optimizing your spending.

  But how? Given that we want to die with zero, and given that hitting exactly zero is impossible, how do you get close to zero? How do you deal with the variance of human life?

  The first item to confront is the uncertainty. The possibility that you will live longer than you expect is called longevity risk. Nobody wants to die early—the possibility of that is called mortality risk—but nobody wants to die after their money runs out either. (With no money, your quality of life will take a dramatic dip, to put it mildly.) So there’s uncertainty on both sides of our expected life span, and we want to figure out how to deal with the negative financial consequences of that uncertainty.

  For that, as noted, there are financial products. Now, I don’t really want to be pushing financial products, and I definitely don’t want to get into their minutiae (which I am no expert on), but there are some basic elements you really need to understand before you decide that dying with zero is not for you. And I don’t have to be a certified financial adviser to tell you what those basic elements are—any more than I need to be an auto mechanic to tell you that if you want to drive yourself across the country you’ll need a car.

  You Are Not a Good Insurance Agent!

  You probably already know about the financial product used to deal with mortality risk, the risk of dying early. That’s life insurance, of course. Life insurance companies don’t know exactly when you’ll die, just as you don’t—but they can nonetheless pay your beneficiaries when you die, whenever that happens to be. The insurers can do that with great certainty, because they are simultaneously insuring millions of other people: Some of these insured will die earlier than average, but others will die later, so the “errors” on both sides will cancel each other out. That means an insurance company doesn’t need to know when you yourself will die—they just need to know enough life expectancy data about their total insurance pool to make sure they can pay out and still make a profit overall.

  This ability to pool risk across a large number of people is what gives insurance companies their edge over you as an individual. It’s why people are willing to pay money to buy insurance of all kinds, instead of trying to protect themselves from risk on their own. You are not a good insurance agent.

  So that’s life insurance—it helps you deal with mortality risk, and 60 percent of Americans own at least some life insurance. What fewer people realize is that there are financial products designed to deal with longevity risk, too. Since many people are fearful of running out of money before they pass on, there is one product that they should definitely look into. These products are called income annuities (or simply annuities). Annuities are essentially the opposite of life insurance: When you buy life insurance, you’re spending money to protect your survivors against the risk that you’ll die too young, whereas buying annuities protects you against the risk of dying too old (outliving your savings).

  If you don’t want to hear it from me, listen to Ron Lieber, The New York Times’ “Your Money” columnist. “The insurance companies that create annuities often make them seem like investments,” he wrote in a recent explainer about annuities. “But really they’re more like insurance.” Lieber went on: “Like insurance to stave off financial disaster, an annuity is something you purchase to guarantee that you won’t run out of money if you live a long time.”

  In fact, thinking of annuities as insurance makes them a lot more sensible than thinking of them as investments—because as investments they are not good at all. But that’s not their goal—their goal is to insure you against the risk of outliving your money.

  How do they achieve that goal? Well, buying an annuity means you give the insurance company a lump sum—say, $500,000 at age 60—and in return you get a guaranteed monthly payout (for example, $2,400 each month) for the rest of your life, however long that happens to be. Like all insurance, annuities aren’t free—insurance companies have to make money to stay in business!—but if your goal is to maximize the life experiences you can buy with the money you’ve earned, they’re a very sensible solution. That’s partly because, even after the insurance company’s fees, your monthly payouts amount to more than you would probably be willing to pay yourself if you wanted to make sure you didn’t outlive your money. For example, one popular rule of thumb for retirement spending is the “4 percent rule,” whereby you withdraw 4 percent from your savings each year of retirement. Well, with annuities, your annual payouts will probably amount to more than 4 percent of what you put into the annuity—and, unlike the 4 percent withdrawals, those payouts are guaranteed to continue for the rest of your life.

  The reason the insurance company can give you a rate of return that is both steady and reasonably high is that you are not leaving any money on the table. You relinquish your principal forever. In the extreme case—if you die the day after you buy the annuity—you won’t see any more of the money you put in, and it will instead go to monthly payments to the lucky stranger (another annuity buyer) who lives into her nineties. Without an annuity, on the other hand, you are forced to self-insure—to be your own insurance agent. That’s not a great idea, because unlike the insurance agents who work for big insurance companies, you don’t have the ability to pool risk and cancel out errors on both sides. So, to feel financially secure until the end of your days, you will have to leave a large cushion to cover the worst-case scenario: You will have to oversave, which means that more likely than not you will end up dying with considerable money left over. You’ll have worked for years earning money that you never got to enjoy. So by trying to play insurance agent, you are not even close to maximizing your life. Again, this is why you are not a good insurance agent!

  Economists generally think that annuities are such a rational way to deal with longevity risk that many experts have long wondered why more people don’t buy annuities—a question economists call “the annuity puzzle.”