Since “Die with Zero” was published in July 2020, it has been discussed countless times within the FIRE community. The key concept is distinctively at odds with the basis of FIRE.
Although I do believe the idea behind Die with Zero, if we continue to invest and grow our dividend portfolio the way I’ve written on this blog – buy quality companies with strong moats, live off the growing dividend income, and never ever touch the principal – then we are guaranteed to die rich, not with zero.
The idea of living off dividend income is quite simple. It basically comes down to not touching the principal, also known as the golden goose, and using the income (or golden eggs) forever. Therefore, one would guarantee to die with a large pile of money that can be donated to charities or given to loved ones.
Is this approach the correct one? Should dividend investors aim to die broke, as Bill Perkins urged? Or should dividend investors never touch their principal to allow for the smartest and safest path to financial independence? Or do we need to consider a middle-of-the-road, more balanced approach, and consider what you want to leave behind when you’re no longer around?
I don’t think the answer is all that simple, so I figured I’d write about it.
The Die with Zero key message
First of all, if you haven’t read the book yet, I highly recommend it. It is a great book and made me reconsider many things about life.
Bill Perkins, the author and a former hedge fund manager and high-stakes poker player, stated that the typical financial path made us oversave. As a result, we don’t use the money to enjoy our lives. We end up spending our healthiest decades grinding away to build a nest egg. When we retire, we find out that we aren’t able to enjoy the portfolio we built up over decades because of our deteriorating health. Instead, Perkins argued that you should spend money consciously when you are younger so you can build memory dividends.
This key idea definitely makes sense to me and a few things have stuck with me since I read the book:
Memory dividends. Throughout the book, Perkins argued that experiences pay you back again and again over your lifetime. The earlier you have an experience, the longer it compounds. A trip you take at age 30 pays memory dividends much longer than the same trip at age 75. This idea makes a lot of sense to me.
Time bucket. Many of us have a bucket list – a litany of things we want to do before we die. A time bucket is a list of experiences that you associate with the seasons of life when you can actually do them. For example, it’s a lot easier to backpack through Europe and sleep in hostel dorms in your 20s than in your 70s. I listed my time bucket a few years ago. Looking back now, I realized that I’ve only managed to accomplish one out of six! (Need to work on the other ones!).
Fulfillment curve. Your net worth tends to keep climbing as you get older. However, your ability to convert money into genuine enjoyment peaks much earlier and starts to decline just like your health. Perkins argued that we should be spending money much earlier, instead of only focusing on saving.
At the “enough” point, we should stop focusing on accumulating and start shifting to deliberately spending money to maximize our fulfillment with money. A good example is gifting money to your kids – giving them money when they are starting out in their 20s and 30s will provide them with the most benefit and you the highest fulfillment. The same amount of money when they’re in their 50s or 60s, via the form of inheritance, might not be as impactful.
Dividend investing & living off dividends = die with the most
If you consider the idea of living off dividends, that’s completely opposite to the idea behind die with zero. The die with zero concept is that you deplete all of your capital (or at least as close to zero as possible). On the other hand, dividend growth investing and living off dividends mean utilizing the recurring dividend income so you don’t have to touch and withdraw from the capital. This is especially true when your dividend income continues to grow each year organically due to dividend payout increases.
Now, many people have stated that dividends are magic but they certainly are not free money. Dividends are profits that companies decide to pass on to their shareholders, rather than reinvesting the money in the company. So yes, they are certainly not free money found. Many people also argue that, by using the dividend growth investing strategy, dividend investors tend to overaccumulate because the portfolio yield is below 4% (as is the case for our dividend portfolio), whereas the indexing crowd would simply withdraw 4% from their portfolios. Furthermore, by sitting on a pile of cash, estate planning could be more complicated and you may end up paying a large amount of tax.
Yes, these arguments are valid to some extent. But I would say you can’t just see things in black and white only.
As humans, we love to treat every life decision as a binary decision – yes or no; do or not do; good or bad. But just like many things in life, there’s no one right answer for everything. This is the same thing in personal finance. Investing, retirement, portfolio preservation, and estate planning aren’t black or white. There are many shades of grey in between. You and I are certainly different, so you most likely will make different financial decisions than I. This is the case even though the decision may not make sense to me, it makes perfect sense for you in your situation.
So, just like The White Coat Investor stated in his article on Die with Zero, I believe the truth sits somewhere in the middle between the FIRE movement’s constant savings and Perkins’ die with zero. Somewhere in the middle is a healthy balance that allows you to spend money while potentially making a significant impact on the people you love.
Focusing on memory dividends
When we consider dividend growth investing and using dividends to fund retirement, the risk isn’t necessarily whether or not we’d run out of money. I know that most dividend growth investors are relatively conservative (ourselves included). They build up many buffers and typically have different levers they can adjust in retirement to ensure sufficient cash flow.
So what’s the real risk for dividend investors?
I believe the real risk is that we’re so focused on growing our dividend income that we completely ignore the idea that we can spend some money during our accumulation phase without making a significant detrimental impact on our retirement. To phrase it differently, because we emphasize being savers, we forget how to spend along the way. When we need to spend, we do a miserable job at it.
We are constantly worried about running out of money. Yet we don’t step back and ask ourselves, what if we run out of life?
I believe this is where Die with Zero is correct. It’s not about save-save-save for 30+ years then switch to spend-spend-spend when you retire. It’s not a binary switch. It’s about finding the right balance between saving and spending while you’re alive and creating everlasting memories.
If you ask me ten years ago, I’d tell you that I’m wired to save constantly and to grow our dividend portfolio so we hit the early retirement milestone as quickly as possible.
My mentality has shifted since. Mrs. T and I both know early retirement will happen for us; it’s not a matter of if anymore, it’s a matter of when. It’s a choice we can make. It’s comforting to know we have worked hard over the last 15 years to make early retirement a reality soon.
As a result, we’ve been exercising our spending muscles more and more and focusing on creating memory dividends. When we surprised Kid 1.0 for his 10th birthday with a trip to Disneyland, the happiness and memories will last for our entire lifetime. Similarly, when we visited Taiwan, Iceland, and Japan, the memory dividends from these trips have already paid out more joy than almost any dividend cheques I have ever received. I can’t describe the happiness I had when we enjoyed a sunset over Mt. Fuji together as a family, when we explored the lava cave in Iceland, when I saw how much the kids were enjoying their first sushi omakase in Japan, and the list goes on.
Perkins is absolutely right that we get far more out of doing it while the kids are young and we are healthy than we would have by banking the money for some hazy future. In 10 or 15 years from now, our travel experiences will be different. Both kids will be older and may not want to travel with us at all.
I truly believe the most dangerous phrase in life is “we’ll do it next time.” And the second most dangerous thing is telling ourselves that we’ll travel and spend and live later. The danger is that later has a way of never arriving, or arriving too late for us to fully enjoy the moments.
So while I have conflicting thoughts with Die with Zero, I don’t believe the book is completely wrong. The key messages are correct – don’t under live, don’t put off spending until later, and prioritize experiences and family time while you are healthy.
Our balanced approach with Die with Zero
For Mrs. T and I, dying with zero simply doesn’t make sense. We want to eventually pass down money to both kids and their kids (if they have kids). We also would love to make an impact on our community (i.e. donate to local charities or non-profits).
After some discussions, we decided to take a more balanced approach while still applying ideas from the book. Here are some things we have been doing or planning to do:
- As mentioned, we have been putting a stronger focus on spending money while we can to create memory dividends. It doesn’t mean we go nuts on spending. It means we are making conscious decisions when we spend. For example, we could have celebrated our 15th wedding anniversary at home. Instead, we decided that it’s worthwhile to go to Whistler and spend time together. Our wedding anniversary dinner at Araxi certainly wasn’t cheap but we all enjoyed the food and had a great time together. It wouldn’t be the same experience saving that money and letting it compound and finally spending it 20 years from now.
- A growing dividend income means we can spend more. When companies raise their dividend payouts each year, our dividend income will rise too. The way we have constructed our portfolio means the rise in dividend income should be higher than inflation. This gives us the flexibility to spend more or save the extra for a planned larger expense (for example, if we plan for an around-the-world trip).
- Selling principal is an option. When we started building our dividend portfolio, we very much only wanted to spend dividend income. As our portfolio value increases over time, we are getting more comfortable with the idea of withdrawing a small percentage from our principal when necessary. So, rather than withdrawing 3% or 4% every year, we can plan for withdrawing 0.5% or less. Having a constant cash flow in the form of dividend income creates a safety net; dipping into our principal allows for major expenses or meaningful splurges.
- Leaving a legacy. Perkins stated that leaving a big inheritance is silly. He believes it is way more meaningful and impactful to give your kids money when they’re in their 20s or 30s than when they’re in their 60s. That concept makes a lot of sense, but it doesn’t mean leaving a legacy or inheritance is a sign of failure. The two aren’t exclusive. Mrs. T and I believe in helping the kids along the way – paying for their post-secondary education, funding their TFSAs initially, helping a portion of their house down payments, or even putting money in their kids’ RESPs. These tactics will help them financially, especially when they have a young family. At the same time, leaving some money to our loved ones and donating some to local charities or non-profits also makes sense. We want to make a positive impact on this world and give back.
As we get closer and closer to early retirement, we are spending more time thinking about spending and decumulating. This is certainly the case for Carl over at 1500 Days, who retired some years ago and Mark over at My Own Advisor, who recently retired. Both Carl and Mark have been writing more about the spending and decumulation side of things. It’s also nice that I know people who are ahead of us on the FIRE journey, and I can bounce ideas and get advice from them.
This is exactly why the FIRE community is so great.
Final thoughts
So, should dividend investors aim to die with zero? I don’t believe so, but we should all take the spirit of Die with Zero more seriously.
To me, dying with zero is impractical and doesn’t fully align with my (and Mrs. T’s) values. I am not going to gamble, guess my death date, and spend money till I have nothing to that set date. That’s just simply irresponsible. I also don’t see leaving a legacy as a mistake.
I do, however, believe that consciously spending money and exercising my spending muscle is well worth it. There’s no need to sacrifice our healthiest, best years building a pile of money that we may (neve r?) end up touching. Spending on experiences and family while we can enjoy them will create enormous value. Helping and giving to those in need is another way to create joy and happiness.
Ultimately, it’s not healthy to only admire and focus on the numbers. Numbers don’t do anything for you in life. What’s more important is to use the numbers to have a fulfilling life.
So I’m not aiming to do the extreme and die with zero. I’m taking a more balanced approach. I’m aiming to live with plenty and make sure I spend some money along the way and enjoy what money can create for me.
My fellow dividend investors and savers, do you struggle with the idea of spending? Have you read Die with Zero? I’d love to hear your thoughts.
