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Dying broke: A worthwhile retirement goal?

February 11, 2015

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Retirement

Most retirement planning strategies are centered on trying to preserve financial resources for as long as possible. However, one author recently wrote a book advocating a radically different approach: making it a goal to spend every penny you have before you die.

It is an interesting argument, but there are problems with it. How well the idea appeals to you may depend on your perspective on risk.

The "spend it all" theory

Dr. Stanley Riggs is the author of "Build Wealth & Spend It All: Live the Life You Earned." The premise is that retirement strategies designed to preserve wealth generally result in some of that wealth going wasted, because the owner dies before getting a chance to use it all.

Instead, Dr. Riggs advocates a financial plan geared toward spending your money while you are still young enough to enjoy it, so you don't run the risk of dying with some of your money unspent.

Whether or not you agree with the premise that dying with money unspent is indeed a risk worth worrying about, the argument raised by Dr. Riggs prompts an examination of just what retirement planning should be designed to do.

Risk and other considerations

In deciding whether you want your retirement plan to mandate spending all your money while you have the chance, here are some of the risks and other considerations you should think about:

  1. Opportunity cost. This definition of risk is not measured in terms of things you do, but in terms of things you fail to do. If you tend to regret the opportunities you have missed in life, then perhaps Dr. Riggs' "spend it all" approach is well-suited to you.
  2. Longevity risk. On the other hand, one of the problems with spending all your resources before you die is that you don't know how long you are going to have to live with the decision. Retirement planning is probably the only aspect of life in which longevity is considered a risk, and in this context, the risk is that you get the timing wrong by spending your last dollar long before you die.
  3. Interest rate risk. As bond yields, savings account rates, CD rates and other traditional sources of income have plunged toward zero, retirees have seen the ability of their assets to generate income all but disappear. This exacerbates the risk of spending your money too quickly, because with low bank rates it will take more savings to generate the returns you need.
  4. Uneven returns. Of course, you can invest your money for growth rather than income, but the risk of investment volatility is amplified when you are spending money at a rapid rate.
  5. Inflation. Another factor that complicates the timing of how quickly you can afford to spend down your assets is inflation. Steep price increases can draw down your resources faster than you had planned.
  6. The social safety net may have holes in it. One assumption is that even if you spend all your money, you won't be completely destitute in your old age because of Social Security and various other social welfare programs. However, with an aging population and ever-increasing national debt, it remains to be seen how well the U.S. can continue to support those programs.
  7. Spending can become an obsession. If your motivating force is to spend your money before you die, you might reach a point where that spending is no longer a pleasure, but more of an obligation or an obsession.
  8. Multigenerational wealth has value. Over the long run, the way families get ahead and make life better for their descendents is by building wealth over multiple generations. In other words, if it helps your grandchildren get a leg up, is handing down some wealth really such a bad thing?
  9. Leaving money on the table is not necessarily a waste. If an extra cushion effectively acts as insurance against running out of money before you die, then failing to spend all your money is not really wasted. It is also not wasted if you leave that money to causes you believe in.

Of course, by building up debt and failing to save adequately for retirement, many Americans are on course to meet Dr. Riggs' goal of dying broke. How much they appreciate reaching that goal when the time comes will largely come down to timing. Those who live a long time after going broke may very well regret pursuing a strategy designed to destroy -- rather than build -- their wealth.

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