Maximizing Your Return on Experience: A Smarter Approach to Retirement Spending

Nobody wants to run out of money in retirement and become a financial burden on their family and children. But what happens when your retirement savings, income sources, and careful planning result in you having significantly more money when you pass away than when you started retirement? Is dying with a large portfolio really the objective? Is that the best use of your life?

 

The Die with Zero Philosophy

In a recent meeting with clients, we explored the concept of maximizing your ROE—return on experience—a powerful idea shared by Bill Perkins in his book “Die with Zero.” The retirement puzzle involves making the most of our long life and career earnings while managing the reality that we don’t know when we’re going to pass away. The challenge is balancing financial security with maximizing your life experience.

The Memory Dividend Concept

When we spend money on experiences—whether it’s helping someone, taking a vacation, or creating meaningful moments—that experience becomes something we enjoy for the rest of our lives. Perkins calls this a “memory dividend.” You have an experience and get fulfillment from it initially. Then, every time you reflect on that experience or discuss it with friends and family, you’re able to re-experience some of that joy.

This creates a compounding effect of joy and life fulfillment over time. Each year, you build up these memory dividends, effectively maximizing your overall life satisfaction.

Calculating Your True Financial Needs

The key question becomes: How much do you actually need to maintain financial security for the rest of your life? Perkins shares a relatively simple net present value calculation that can help answer this question.

Case Study: Tom and Jill’s Retirement Plan

Let’s examine Tom and Jill, both 60 years old with a retirement income need of $84,000 annually. Tom’s Social Security benefit is $36,000 per year, and Jill has a spousal benefit of $18,000 annually. Assuming they both wait until age 67 to claim benefits and factoring in inflation at 2.5% per year, we can calculate their true financial needs.

By age 67, their income need grows to approximately $99,000 per year due to inflation. Their combined Social Security benefits total about $64,189 (including cost-of-living adjustments). This means they need roughly $35,000 annually from their portfolio after Social Security kicks in.

Using a net present value calculation with a 5% assumed rate of return (roughly 2.5% after inflation), Tom and Jill would need just over $1 million to provide this lifetime of cash flows, assuming they live to age 94.

The Reality Check: Are You Being Too Conservative?

Here’s where it gets interesting. Tom and Jill have actually saved $1.5 million for retirement. If they stick to their basic $84,000 annual spending plan, projections show they’ll likely pass away with approximately $9 million—six times their starting amount. Even in a worst-case market scenario, they’d still triple their money.

This raises an important question: Is tripling or multiplying your money over your lifetime really what maximizes your quality of life?

The Timing of Gifts and Experiences

One crucial insight from the “Die with Zero” philosophy concerns the timing of financial gifts. If you wait until you’re in your 90s to pass money to your children, they’ll be in their 60s or 70s—past the age when certain experiences and opportunities have maximum impact.

Many life experiences are time-bound. Learning to ski, for example, is much easier and less expensive when you’re younger. Similarly, helping grandchildren with education costs or down payments on homes needs to happen at specific life stages to have maximum impact.

The same principle applies to charitable giving. Making donations earlier in life allows you to see the impact and help solve problems sooner, rather than waiting until after you pass away.

A More Balanced Spending Approach

Instead of the ultra-conservative $7,000 monthly spending plan, what if Tom and Jill spent closer to $9,000 monthly? This would give them an extra $24,000 annually for enhanced experiences, family gifts, or charitable giving. Even with this increased spending, they’d still likely end up with about $2 million, with a worst-case scenario of $1 million remaining.

Using Guardrails for Peace of Mind

To address the fear of spending too much, a guardrail approach provides excellent risk management. Starting with $9,160 monthly gross income based on their $1.5 million portfolio:

• Bottom guardrail: If the portfolio drops to $1.1 million, reduce spending by about $460 monthly (a 5% reduction)
• Top guardrail: If the portfolio grows to $1.7 million, they could increase spending by an extra $1,700 monthly

This approach provides a “license to spend” while maintaining financial security.

The Best Time to Spend and Give

Early retirement—when health is at its best and family members are still active—offers the greatest opportunity for meaningful experiences and impactful giving. Your ability to enjoy life and help others is typically at its peak during these years.

Optimizing for Life, Not Just Legacy

The goal isn’t to die broke, but rather to optimize for the best possible life while maintaining reasonable financial security. By understanding how much you truly need for financial security and using tools like guardrail spending approaches, you can feel confident about increasing your “return on experience” throughout retirement.

The provocative title “Die with Zero” doesn’t mean literally ending with nothing—it means being intentional about not dying with vastly more than necessary while missing opportunities to maximize life experiences along the way.

Remember, it’s not a financial advisor’s job to tell you what to do with your money, but rather to help you understand how much you can realistically spend and implement the lifestyle that’s most important to you.