Die broke: Spend ’til the end

Smart personal finance is all about balance.

You work while you're young to provide for the day when you may not be able (or willing) to work any longer. If you don't save enough, you may find yourself unable to lead the life you want in retirement.

But if you save too much when you're young, you risk sacrificing years of youth and vigor for an uncertain future. In a worst case scenario, you may not even live long enough to enjoy the money you've saved.

The key is to find some sort of balance: to save enough for retirement, but to also use money to enjoy life while you can.

Die Broke

In his 1997 bestseller Die Broke, Stephen Pollan offered a controversial approach to retirement. Instead of focusing on the future, he encouraged readers to put as much emphasis on today as tomorrow. He offered a four step prescription for making the most of your money:

  • Quit today. Use your job to generate income to pursue your personal goals rather than using the job itself to fulfill those goals.
  • Pay cash. Live frugally. Wait to buy things until you can pay with cash.
  • Don't retire. Plan to be productive all your life. You'll earn more money and be more satisfied.
  • Die broke. Forget about leaving an estate. Use the money you've saved. Make the most of what you've earned.

“By choosing to die broke,” writes Pollan, “you turn the future from something to fear to something to embrace and rejoice over. Dying broke offers a way out of your current misery and into a place of joy and happiness.” His message is to enjoy tomorrow and today.

Spend 'til the End

In the newly-published Spend 'til the End, Scott Burns and Larry Kotlikoff offer similar advice, but they place more emphasis to the details. Burns and Kotlikoff analyze dozens of hypothetical scenarios as they seek to discover which choices provide the greatest “lifetime living standard per adult”.

The authors believe that in order to obtain a balance between today and tomorrow, you must:

  • Maximize your spending power.
  • Smooth your standard of living.
  • Price your passion.

Burns and Kotlikoff draw on research into economics and behavioral finance. They cover big concepts and small, all while keeping the information accessible to the average reader. Most of all, they stress that you are just as capable as a financial professional to research and choose the best course for your life.

Maximize Your Spending Power

To maximize your spending power, you must make the most of big life choices. Where will you live? What will you do for work? How much will you spend on a mortgage? How will you invest for retirement?

The authors suggest that it's okay to choose a job that you love, but that you should be realistic about how much income you can generate. They also note that where you live can make a huge difference to your standard of living. Whether you should buy or rent is a complicated question, but if you do buy a home, Burns and Kotlikoff urge readers to prepay the mortgage. “Paying off your mortgage is one of the smartest and safest investments you can make,” they write.

Finally, the authors believe that the best way to maximize investment returns is to fire your broker and to invest the money yourself in low-cost index funds. (Their philosophy is very similar to that found in The Four Pillars of Investing, which I reviewed two weeks ago.)

Smooth Your Standard of Living

It may not make sense for everyone to save for retirement. If your financial situation leaves you pinched, you should find a way to make your present circumstances more comfortable and then worry about the future. In fact, the authors note, for young people it sometimes makes sense to borrow. If done sensibly, borrowing money can help smooth your standard of living:

Consumption smoothing is a balancing act. It's about balancing future and current spending, but it's also about balancing safety with opportunity.

In economics-speak, consumption smoothing means maintaining a balanced standard of living over the course of your entire life.

  • Rather than oversaving today to live rich tomorrow, consumption smoothing means giving yourself permission to enjoy today, as well.
  • But it also means that instead of overspending today and being broke tomorrow, you recognize when it makes sense to save.

This is difficult to do, of course. There are many variables: income, life expectancy, unexpected emergencies. Much of Spend 'til the End is devoted to exploring specific techniques for consumption smoothing.

For example, the authors stress that diversification — not just of investments, but of all your economic resources — is crucial to maintaining a balanced lifetime standard of living. This is why it's critical to not invest in your employer's stock. It's foolish to draw your paycheck and your investment income from the same source. It's also the reason that many financial planners believe it's good to have both a Roth IRA and a traditional IRA — it diversifies your retirement resources.

Consumption smoothing is all about providing a constant lifestyle.

Price Your Passions

Life is about more than money. Money helps ease the way, but it does not give us meaning. Instead, we derive pleasure from our passions: our relationships, our hobbies, our beliefs. But each of our passions carries a financial consequence.

In some cases — such as living with a partner — doing what we love can actually increase our standard of living. Because a couple can share expenses, living together is a financial net gain. It's more difficult to evaluate our leisure activities:

We're constantly trying to figure which is worth more: money or leisure. And guess what? Most people choose leisure. Even as the financial services industry puts out warning after warning tell us that we're all going to be eating cat food unless we save and invest more money while working more years, any examination of the choices people age fifty-five and over make leads to only one conclusion: we like leisure more than we like money.

But, the authors argue, this isn't necessarily a bad thing. If we're able to pursue the things we love at a price we can afford, it's worth it.

Conclusion

Spend 'til the End is primarily about little tweaks you can make to the way you manage your money in order to improve your lifetime standard of living. It's about consumption smoothing. For example, there's a short chapter on tax-efficient investing. This may seem like an esoteric topic, but optimizations like this make a difference to your future comfort. Much of the book's advice is geared toward those nearing retirement, but there's still plenty for readers of every age.

Spend 'til the End was the perfect book for me to read at this place in my life. Still, it's not a great book. In fact, I had several problems with it:

  • Some examples are too detailed, too specific.
  • The book seems to lack cohesiveness. (Perhaps because there are two authors?)
  • The writing style can be simultaneously glib and dry (no mean feat).
  • Though I can't say this about many books, this one seems poorly edited. The copy-editing is particularly poor.

The real problem is that many of the choices this book asks readers to make require intricate knowledge of tax code and an understanding of myriad variables. There's no way for the average person to calculate these numbers by hand. Indeed, the authors rely heavily on a piece of software developed by Kotlikoff. ESPlanner can analyze these variables, and it's used for many of the examples in the book. Because of this, Spend 'til the End occasionally reads like an advertisement for a piece of $150 retirement planning software.

I don't want to sound too harsh. I like Spend 'til the End. It's thought-provoking. And any personal finance book that name-drops Scrooge McDuck and The Big Lebowski is a winner with me.

I recently had a chance to spend a couple hours on the phone with Scott Burns, one of the authors of Spend 'til the End. Look for highlights from our conversation next Thursday.

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Joel Carry
Joel Carry
11 years ago

Spending money is human nature and we find it very hard to suppress. When we have the financial ability, we spend money and buy things that we don’t really use or need.
You mentioned above, the average person doesn’t have the tools and the knowledge to know how to act during times of great wealth. When the time comes and you get old, you loses the ability to support yourself. Then you really misses the times when you could “Spend ’til the End.”

Mitch
Mitch
11 years ago

“…it’s critical to not invest in your employer’s stock.” This is overstating it a bit, I think. It’s critical not to invest ONLY in your company’s stock (this is what sunk a lot of Enron employees, if I recall). Diversification and proper asset allocation are always the most important considerations for any individual investor. This is why it makes more sense to fund your 401k first. Still, the typical employee stock purchase program offers enough perks that it makes sense to participate on some level — it just shouldn’t be the primary focus of your portfolio. (I hope what I’m… Read more »

J.D.
J.D.
11 years ago

Mitch, I think you’re right. I think the authors would argue that the more you can diversify, the better. Since you’re already drawing your income from your employer, they would advise limiting your investment in the company as much as possible. They’re all about “diversifying economic resources”.

PersonalBudgetTraining
PersonalBudgetTraining
11 years ago

Dave Ramsey’s advice is to live like no one else, so you can live like no one else. Die Broke gives some good advice, especially pay with cash. But I think the point about dying broke is off the mark. The last step in the Ramsey method is to build wealth and give it away. You could leave a legacy to your favorite charity or organization. Again, Spend to the End offers some good advice, especially about firing your broker and gong with no-load index funds. But do not fixate on paying off the mortgage too soon in your financial… Read more »

Eden
Eden
11 years ago

Sounds like some bad advice to me, though perfectly in line with the American way of thinking these days. Borrow money if your standard of living is to low? Spend your money and don’t plan for retirement or an estate? Sounds like a good way to find yourself working at McDonald’s in your later years of life.

J.D.
J.D.
11 years ago

Hm. Sounds like I’ve missed the forest for the trees. I felt like I was getting something wrong as I was writing this review. Burns and Kolitikoff very much want people to worry about their retirement. However, they think it’s important not to sacrifice the present for the future. The “consumption smoothing” idea is key to their philosophy. They think that it’s a good thing to try to make your lifetime standard of living as smooth as possible. Like many of you, I’m not sure if I agree. In fact, I’m not even sure that Scott Burns agrees. In one… Read more »

libraripagan
libraripagan
11 years ago

My grandparents planned on all the things they would do when my grandfather retired. Then my grandmother got sick & died. My parents learned from that. They kept planning for retirement, but, they started taking more vacations. They’ve been all over Europe together. For their 35th anniversary, they took a transatlantic cruise.

Balance is key. I wouldn’t ever say “Die Broke” because you don’t know how long you’ll live or whether you’ll be able to work until you die.

Rhonda
Rhonda
11 years ago

Seems like people want to go to extremes. Most people are living up to their eyeballs in debt, and some are living like paupers so that they can save a million dollars. And even when they have a million dollars, they’ll still wash out their ziplock baggies. “Don’t retire” sounds good. That’s also a Dave Ramsey thing. However, that is not a reasonable thing to say. Maybe “don’t retire just because you turned 65”. Many people in our profession (ministry) say fervently that they will stay in the pulpit until their dying day, but thats not always possble. Illness and… Read more »

David
David
11 years ago

I think you have to save every penny you can and aim to find ways to enjoy life without spending money.

That is the key to being able to afford what you need to survive during difficult, economic times and in retirement. I am exploring this concept of free fun in a light-hearted way on a blog I started at http://whyspendmoney.blogspot.com

Please let me know what you think.

Andrea
Andrea
11 years ago

I will keep working but not for money. yes, I could keep working and make quite a bit of money at my current job- so what? If I enjoyed it, yes, but I don’t. I have seen too many people who stayed at a job they didn’t like to make more and more for a retirement that they were too ill to enjoy, had no plans to do anything in retirement or for the purpose of buying things to try and make themselves happy. I have a plan for a number of different volunteer jobs and for activities I could… Read more »

Steve
Steve
11 years ago

Consumption smoothing sounds like what the US government is supposed to do. Borrow during the lean years and save during the boom years. I suspect most individuals following this plan would end up implementing it about as well. I.e. borrow during the lean years, keep borrowing during the boom years, and when you hit more lean years you’re too used to the standard of living you’ve had, so you borrow ever more.

The Financial Philosopher
The Financial Philosopher
11 years ago

J.D: You hit on two key points (among others): 1) The paradox of saving and 2) The misplaced value of money over meaning. The paradox of saving is that we sacrifice now for some unforeseeable future — a destination that we may or may not reach. In the extreme, it is not unlike “killing ourselves now so that we may live later.” The unintended consequences revolve around the ignorance of our inability to predict our own happiness. We are “taught” and we convince ourselves that money will give us security and we pursue the acquisition of “financial freedom” with little… Read more »

Dave
Dave
11 years ago

Thank you for reviewing possibly two of the better books on finance. I read “Die Broke” when it first came out 10 years ago and it changed my entire way of looking at work, savings, etc. Mr. Pollan’s follow-up book “Live Rich” only cemented the concepts in “Die Broke.” At the time, I was a poorly paid journalist. I quit and took a job in cell phone sales and worked for the money because “it’s only a job.” There’s no rush like tripling your salary within a year. I paid off all debts (including my house) and stuffed money in… Read more »

Mary
Mary
11 years ago

I think we all have issues with the consumption smoothing. I think it’s silly to “borrow” funds to be able to continue to live like you believe you should. It really doesn’t make much sense. But I do agree with the overall concept. As my mother-in-law states.. “I’m spending my money, so there’s nothing left for you kids to fight over!” Now both sets of grandparents are always kind generous with gifts and assistance. My mother did a great job of saving for her retirement (and she retired for the job of stay home mom!). She is 65 and for… Read more »

Chris Johnson
Chris Johnson
11 years ago

The comments are hitting the main problem with this theory, along with the author’s own refusal to follow it: none of us knows when we’re going to die, or how much money we’ll need in our later years. If we did, of course we could calculate how much we’ll need and spend to zero, but there’s no way possible. The best one can do is have a defined benefit pension (like working for the government) or purchase a guaranteed annuity and hope the insurance company outlasts him/her. This worry about dying with “too much” wealth probably stems from people having… Read more »

Adam
Adam
11 years ago

“I agree that we shouldn’t deny ourselves just for the sake of having an estate to pass to children, but we should put aside enough to avoid having to move in with them.” I think this is an interesting topic. Perhaps in earlier times this was true. The parent would die and their young children could use the inheritance to help get a head start in life. With the average US life expectancy hovering near 80 years, the inheritance isn’t going to children. It is going to full grown adults. Hell, much of the time it is going to people… Read more »

Eric
Eric
11 years ago

It’s hard for a lot of young people today to plan for the future. I can see why advice targeted towards increasing today’s standard of living would resonate with that crowd. Both “Die Broke” and “Spend ’til the End” sound like thought provoking books, particularly for someone who’s more interested in having a great time today than forever waiting for the great time tomorrow.

I am often named the “king” of procrastination … having fun in life and creating a fulfilling life’s journey are two areas in which I never want to be accused of procrastinating.

Ed
Ed
11 years ago

I like some of the ideas listed. Especially living for today and tomorrow. I feel that some people (me included) get so focused on retirement and living frugally that you get in that mindset and have tunnel vision. I have been so focused on taking every scrap of extra work I can find, sometimes working 30-40 days in a row before having one day off. I FEAR that this shortage of professional workers will some day end and I won’t be able to work extra. Problem is that I have had this same FEAR since 1996 and haven’t slowed down… Read more »

Cathy
Cathy
11 years ago

This is pretty much the way I live. I have a hefty and growing nest egg, but I set aside enough money for me to enjoy my youth, beauty and energy. As long as it’s budgeted and the amount I save for retirement is more than what I spend on vacations, I don’t feel bad about it. I don’t want my first time going to Europe, Asia, Jamaica or Hawaii to be when I’m old. I wanted to learn to scuba dive when I’m young and healthy. In my family, it is expected that children will take care of their… Read more »

Sam
Sam
11 years ago

Wow Cathy thats very much the setup we have here in Philippines. We don’t like the idea of sending our old parents to Home for the Aged or any place where old people are taken care off. As a sign of gratitude, we the kids take care of them (actually we and some helper as we can afford to hire helpers here..yeah its common).

Honestly, I kinda disagree about forgetting estate planning. I don’t like the idea of living behind stuffs for my love ones disorganized.

Pieter Friedrich
Pieter Friedrich
11 years ago

Of course we shouldn’t live like paupers in order to create massive wealth. One main point of having the wealth is so you can enjoy life, but living like a pauper won’t allow you to enjoy life. However, “die broke” is really stupid idea. Sure, you can’t take it with me. But (speaking as an unmarried father of none) I WANT to leave an inheritance behind for my children. If you look at the strong, influential families in society, most of them come from historical wealth. While I want my family to be able to enjoy my wealth, I also… Read more »

LC
LC
11 years ago

What happens if you do run out of money and die with large amounts of debt? Are your heirs liable for that debt? I realize that it would be subtracted from your estate, or paid off with the sale of your house, but what if your net worth was negative when you died? It seems to me that they could not come after the children assuming they didn’t cosign any loans. Does this happen often?

Jen
Jen
11 years ago

The other problem with planning to work until you die is that employers have some say in that. Ageism in America is SO bad that I noticed some changing attitudes toward hiring me after I turned 30, for heaven’s sake. How bad will it be once I’m 50, let alone “retirement age”? That’s why I’m working to start my own business. It’s the only way I can control my working life at all, because gone are the days when showing up and doing a good job guaranteed you anything from an employer. I’d rather face the finicky market forces head… Read more »

Jack Payne
Jack Payne
11 years ago

Interesting article. I would say spend well so that you have no regrets later. But at the same time save and invest atleast 5%-10% of your income so that you dont regret spending it all at a later stage.

Donna
Donna
11 years ago

It might be a good idea to save some money for your burial. Funerals cost money, even if they bury you in a cardboard box.

Johnny
Johnny
11 years ago

Wow, if all the baby boomers read this book and take this advice about dieing broke, they’ll have successfully used up this planet AND left absolutely nothing for future generations (except maybe some photos of themselves windsurfing at age 65).

Cale
Cale
11 years ago

I’m posting some notes I took while reading Spend til The End on my blog at http://www.caleinthekeys.com. Like you, I enjoyed the economics-based approach to planning, although I, too, did not agree with everything. For those too busy to read the whole thing, here are my notes on the first part, FWIW: http://tinyurl.com/lexl9j

dying broke
dying broke
10 years ago

Dying Broke is a great philosophy for some while not understood by others. I do not care about “world humanity” or leaving my children money they did not earn. I care about “me”. I live my life for “me” and I will die alone and broke. People who talk about “sacrifice”,”humanity” and other bullshit are the people who are destroying the greatest country in the history of man. Capitalism is all about “me”. Greed is good. Looking out for “me” actually benefits everyone and I did not even intend for it to. I hope the future generations of Americans enjoy… Read more »

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