Money Should Flow
Is your financial life a stagnant pond or a flowing river?
The holiday season has me thinking about giving, gratitude, and, as always, money.
Over the years, I’ve met with several retirees who have more than enough financial resources to fund their retirement. And, by more than enough, I mean they have millions more than they need for their lifetime spending goals and overall financial security. As problems go, this is a great one to have.
Using some back-of-the-envelope math, each extra $1 million in investable savings offers roughly $40,000-$55,000 in annual pre-tax cash flow.1 However, in some cases, the individuals I met with didn’t have any plans to use these excess funds. And, because they were spending much less than they could, their respective portfolios would be expected to continue to grow and compound if invested wisely.
And you might think, “Great. Underspending is wise and good.”
And I largely agree with you. Spending less than your means and saving money is a great way to grow wealth. But what if that money has no purpose? What’s the point of all that growing?
Unfortunately, it’s not just money that compounds. Indecision and lack of planning also serve to compound matters you may not want to confront.
In this case, the individuals hadn’t wrapped their heads around how much extra money they actually had relative to their spending needs. Just as importantly, if they didn’t confront that issue head-on the scale of the issue would only grow assuming even middling market returns.
PSA: Everything Compounds.
I should note that though most of the individuals I met with were charitably inclined, their existing charitable goals were unlikely to make a dent in their excess funds. Additionally, though each wanted to leave something of a legacy to their kids, it wasn’t of primary importance, nor was there any specific lens as to how that might work. Worse, they had never talked to their kids about how much they might inherit.
What was of primary importance? That’s a good question.
They weren’t sure.
And the couples who chose not to become clients chose not to engage in the hard and consultative work to find out.
Be Ye Pond or Be Ye River?
Years ago, I overheard an individual say this to a good friend of mine:
“Look, you can be a stagnant pond, full of muck and mud, or you can be a flowing river. Which do you choose?”
Money is no different. It becomes stagnant when we dam it through indecision, worry, or clinginess. We become stagnant. Like a pond.
Money is a magnifier of our energy. If you feel grateful, you express that with money, even if it’s your last 2 cents in the alms bowl. Ingratitude often works in reverse, compelling us to cling to our stash of funds, however large or small it may be.
For example, If you feel rich or abundant (a good thing!), you express that with money. You give more, spend more, and invest in your community. If money goes out the door, you know it will eventually come back in, or some other good thing or experience will take its place.
In contrast, if you feel poor, you express that with money, too. Like everything else in your life, money becomes a rare resource to be clung to and hoarded. You live in scarcity.
And, when we build a man-made pond that siphons off and hordes more than our fair share of water, the water goes bad. The stream suffers. The salmon can’t spawn. The currents of financial energy, aching to reach the mighty ocean, slow to a trickle.
It was supposed to move. The money was supposed to move.
Spend, Donate, or Give the Damn Money
Here’s the deal: these situations bother me.
Don’t we know the good that money can do in our own lives and the lives of our loved ones if we just spend the damn money?
Don’t we know the immeasurable good that money can offer the causes we care about if we just donate the damn money?
Don’t we know that money, like love, can flow through generations if we just give the damn money?
…no. we don’t.
But we should learn.
Spending and Estate Plans
With a family who did decide to work with us, here’s what we did.
We are processing massive Roth Conversions to offset a large charitable carryforward from a donor-advised fund (DAF) contribution. The Roth IRA, which will be quite large when it’s all said and done, will likely pass to their kids or grandkids either directly or via trust. That’s going to be a whole lot of tax-free wealth.
We are setting up a trust for their lake cabin and seeding it with some extra resources so the cabin can stay in the family without financial conflict. And we are setting up an irrevocable trust to be distributed to all seven grandchildren as they mature into adulthood. There is about $1 million in a DAF that will be distributed over the years, and I suspect more will be added to that account in the future.
Importantly, all assets that are dedicated to future generations or future giving, are invested in stocks to take advantage of the market’s incredible compounding power and enabling them to maximize their lifetime giving.
Last, and this is my favorite part, on top of social security and a small pension, they are taking out $7,000/month, and they must either spend it or give it, but they absolutely, positively, definitely cannot, under any circumstances, save it. I happen to know that a cruise amongst the Norwegian fjords is in their future.
Their money, now, has a purpose and a direction. And it’s flowing again to benefit others, current and future generations alike, with its giving touch.
The stagnant pond, as you see, becomes the rushing river.
The heart of every good estate plan is ensuring that money flows when it remains. This should be done with love. In my client’s case, I’m confident it was.
Is Your Money a Stagnant Pond or a Flowing River?
Which do you choose? Pond or river?
Many retirement withdrawal methodologies end up guiding retirees toward underspending in all but the most dire market scenarios. Is this the goal? Should it be? Financial security matters and certain risks must be self-insured in many cases, but wouldn’t it be nice to enjoy a bit more spending during your best years?
And wouldn’t it be glorious to see the impact of your giving on the people you love and the causes you care most about while you’re still living?
Wouldn’t that be good for the world? To watch the money flow? Wouldn’t that be good for you, your family, and your community?
The answers, I suspect, are incredibly personal. But they should be made with intention rather than simply planning to not plan.
Carl Richards knows what I’m talking about:
Stop Damming the Money, Damnit
There are too many dammed rivers out there, aching to be freed. What would it look like if the money moved?
As they say, you can’t take it with you.
Great message, Morgan, and very timely as we're about to enter a new year!