What Do The Rich Worry About?

Read far and wide.  Can you guess what part of the world this is?

Recovered from my big reveal last week yet? 🙂   Today’s post is an interesting segue while revealing yet another tidbit about me.

I read an article recently in The Globe & Mail, a Canadian newspaper.   Yes, I do read magazines from outside the U.S.  Of course, I stick with English newspapers published around the world, ‘cos you know, my French sucks.  It is so important to read news from around the world, not only to know what’s going on, but to understand the issues from their local perspective (and not the Americanized version we see – “Around the world in 60 seconds” news capsule).  Otherwise, we in U.S. are fed information that are so parochial that we think the entire world revolves around America.  I am not talking about fake news here, just Americanized news! 🙂

Some of us think America is practically the entire world anyway…

We ain’t speakin’ French, come hell or high water.

….particularly, in the proud ‘Lone Star’ state where I spend a lot of time.   Everything’s big in Texas, as they say.   The state is as big as a country by itself that some of us don’t know or care about the rest of the world.   Brexit? What’s that, some of my fellow residents will ask, unless that’s a new twist on Grits served at Aunt Martha’s diner.   We do hear there are folks raising cane about that “wall thing” in Washington (another foreign country for us), but hey, that might as well be happening on the moon, for all we care in our little Texas town.  

Some of us are livin’ life in tall cotton, while others don’t have a pot to piss in.  You get the idea!

OK, enough Texan slangs, we’ll get back to the story.   The article in The Globe & Mail was titled:  What do the rich worry about?  Surprisingly, it’s money.

Of champagne dreams and Swiss getaways (img credit: Switzerland Tourism)

The article cites 2017 survey by an American financial research group (Spectrum, based in Illinois).  It shares a striking revelation that 20% of ‘ultra-high net worth’ individuals (defined as between $5 million and $25 million in net worth) are worried about having enough money to fund their retirement!  Multi-millionaires worried about outliving their money?  Don’t cry for them, Argentina!

The article, focusing on a Canadian perspective, interviews Canadian financial planners who deal with high net worth clients.  Apparently, even the Canadian rich think no differently than American rich:

People feel angst about running out of money in retirement whether they have $1-million, $10-million or $50-million, says Gordon Stockman, a fee-only financial planner and principal of Efficient Wealth Management Inc. in Mississauga.

They are all trying to estimate whether they will have enough income to support their current lifestyle, he says. “Most of us wish to go into retirement maintaining whatever lifestyle we’ve become accustomed to having. High-net-worth people spend lots of money. It’s the same equation, just bigger numbers.”

Once they achieve a certain standard of living, it’s difficult to dial it back, says Ian Black, a fee-only financial advisor at Macdonald, Shymko & Co. Ltd. in Vancouver.

“High-net-worth people may have multiple residences, such as a summer home or place in the southern U.S. or Maui, plus there’s property tax, insurance and travel between those residences,” Mr. Black says. “People making a lot of money are often time-starved, so they spend more on help, such as gardeners and housekeepers, to do things for them.”

Okay, I get it.  They worry about money because they have a lifestyle to keep.   Like you gotta have a beautiful summer house in Hawaii and hire a full-time gardener and housekeeper to care for it, you know, so that the 2 weeks in a year you spend there is absolutely picture-perfect.   

Yes, some of the multi-millionaires can afford it, but probably nothin’ else.

Stop wasting money on stupid sh*t!

That’s what I felt like telling them when I read the article.   If they are still in the room, I would add: Understand what is enough. You will occupy only 6 feet of space when they carry you out for the last time, or may be far less.   Even if you are part of the 1%, spending on expensive sh*t is a surefire way to become part of the 99%!  

All people, rich or poor, want happiness, but the pursuit of it can lead to financial perversion if we don’t control ourselves.

Friends, lifestyle creep has nothing to do with how much wealth you have.   Like the Canadian financial planner said, “it’s the same equation, just bigger numbers”.   The 4% rule, or the 3.27% rule if you prefer, doesn’t care about absolute dollars.  It only cares about how sustainable your lifestyle is, in relation to your assets.

If you absolutely need to have an over-the-top lifestyle, then even a multi-million dollar fortune will fall short.   

The problem isn’t that some multi-millionaires don’t have enough, but they don’t have enough to keep spending the way they do!   After all, a family spending $1 million a year, drawing down from a massive $10 million net worth, is still on the highway to the poorhouse.   The same ultra-rich family spending just $400,000 a year may finance their retirement for life!  

Remember the ‘sustainable’ in SWR?  Applies to rich and everybody else.

The thorny issue is that for a family spending $1 million a year, spending $400,000 a year is a massive sacrifice in lifestyle, one they may not be willing to make.   That’s no different that you or I spending $50,000 a year today to live our relatively modest lifestyle, but suddenly being told to spend 60% less, or only $20,000 a year from tomorrow because you only have $500K in total assets to live on!   It’s the same equation, just different numbers.

The safe withdrawal rate (SWR) is also the sustainable withdrawal rate.  Sustainable retirement has nothing to with absolute wealth.  What matters is wealth relative to the living expenses that you want to sustain.   It’s crazy that even some fabulously wealthy people don’t get it.  

This is why vast fortunes are squandered.  

This is why tennis champion Boris Becker was recently declared bankrupt.  This is why superstars of American sports who routinely command multi-million dollar incomes during their playing career are unable to sustain their retirement.  According to a 2009 Sports Illustrated article, 78% of National Football League (NFL) players are either bankrupt or are under financial stress within two years of retirement.  An estimated 60% of National Basketball Association (NBA) players go bankrupt within five years after leaving their sport.   It’s not lack of talent, obviously, as NFL and NBA are extremely competitive leagues where only the best make the cut and are extremely well-paid.   It is lack of financial discipline.   

Maybe they are getting the wrong advice?  If you come across any such folks (no matter what their finances are), point them towards this website.  I also offer personalized consulting to help all folks (regardless of net worth) to achieve a sustainable and financial worry-free retirement!

Please share your comments on this article below, and also, let’s see who first guesses the location of the first picture of this article.

Mr. TFR

Raman Venkatesh is the founder of Ten Factorial Rocks.  Raman is a  ‘Gen X’ corporate executive in his mid 40’s.  In addition to having a Ph.D. in engineering, he has worked in almost all continents of the world.  Ten Factorial Rocks (TFR) was created to chronicle his journey towards retirement while sharing his views on the absurdities and pitfalls along the way.  The name was taken from the mathematical function 10! (ten factorial) which is equal to 10 x 9 x 8 x 7 x 6 x 5 x 4 x 3 x 2 x 1 = 3,628,800.