For many, the idea of accumulating wealth is to leave a legacy for their loved ones. But what if you could strike a balance between enjoying your life to the fullest and ensuring financial stability?
Enter the “Die With Zero” concept.
Die With Zero Calculator
Use this calculator to determine how big your portfolio should be and how much money you should withdraw from it in your retirement to end up with zero at the end of your life.
Please hit Calculate to proceed.
Here’s a quick guide to using the calculator and what each input needs.
There are two tabs – Simple and Advanced. As the names suggest, you get a simplified or the full blown version of the calculator. More details below.
On this tab, you just need to enter in a few quick numbers to calculate how much money you should withdraw from your portfolio. This is best suited for those who already know what the size of the portfolio will be upon retirement.
- Retirement Age: The age at which you retire and start withdrawing money from your portfolio
- Target 0-Age: A nice way of saying what is the age at which you expect to die. This is the age at which your portfolio goes to 0.
- Portfolio Value at Retirement: The expected value of your total portfolio when you start your retirement.
- Portfolio Return (%): The average expected return from your portfolio until you die. A reasonable number to use is 6% to 8%, which corresponds to a balanced portfolio.
- Inflation Rate (%): A long-term average expected rate of inflation. Typically 2% is a good choice here.
This tab is more full-featured and is geared towards someone who is still currently building up their portfolio. It helps you to model up your portfolio growth rate during the accumulation years.
Once you switch to the retirement phase, it also models in the decumulation from your portfolio to drive it down to 0 value by the time of your expected death.
Here are the input fields on this tab:
- Current Age: Your age now (in years).
- Retirement Age: The age at which you expect to retire
- Target 0-Age: The age at which your portfolio goes to 0, meaning this is the age at which you expect to die.
- Current Portfolio Value: Your total investable assets now
- Annual Contribution: How much you expect to contribute to your portfolio each year until the Stop Contribution Age. This amount is indexed to inflation.
- Stop Contribution Age: The age at which you wish to stop contributing to your portfolio. This number should be between your Current Age and your Retirement Age. Use this to model a Coast FIRE type scenario where you don’t have to contribute savings all the way up to your retirement.
- Initial Return (%): This is the rate of return your portfolio will deliver in your working years. Typically younger people can use a more aggressive asset allocation so you can expect a return of anywhere from 7-10% over a long period of time.
- Retirement Return (%): Assuming you shift to a more conservative asset allocation, your expected return in retirement will be lower. A figure anywhere from 6-8% is reasonable here.
- Inflation Rate (%): The long-term expected inflation. 2% is a good default figure.
- Expected Average Income Tax Rate (%): The income tax you expect to pay on your portfolio returns. This will reduce the amount of actual money you have to use.
The calculator presents the results in 4 different ways:
- Descriptive: This section just provides a simple text based summary with the basic numbers on how much money you should withdraw from your portfolio in the first year of retirement. This figure is presented in today’s currency terms and also in the future inflation-indexed terms.
- Chart 1 – Portfolio Value & Annual Investment Income: The black line shows how your portfolio value (left y-axis) will behave over time. The vertical bars show the annual investment income generated by your portfolio. Note that this income will be a combination of capital gains (share prices going up) and dividends.
- Chart 2 – Annual Cash Flows & Returns: This chart shows the cash added to the portfolio during initial years and the cash withdrawn from the portfolio in the retirement years. These are in orange. The blue bars show the annual investment income from the portfolio.
- Table: If you select “Yes” in the dropdown box, the results will be shown in a tabular format for each year.
There’s a convenient button to Share your results too. You can save the link and come back to the calculator to reuse the inputs that you previously entered as well.
If you find that you want more control over modeling the amount of money you withdraw from the fund, try using our Retirement Calculator. Its interface will be familiar to users of this Die With Zero Calculator, but it lets you customize how much money you draw from the portfolio.
What is Die With Zero?
“Die With Zero” is a financial philosophy popularized by Bill Perkins in his book of the same name. The core idea is simple: plan your finances so that you spend most or all of your money by a certain “target age” (often your expected age of death).
Instead of leaving behind a large sum, you aim to experience life’s pleasures and opportunities when they matter most. Of course it’s a deeply personal decision and there are many factors involved in deciding whether it’s right for you and your loved ones.
There are a few key financial aspects that I want to point out up front with the Die With Zero concept that one should note:
- Experential: This part focuses on enjoying life in the here-and-now rather than saving it all up for later.
- Lower Savings Rate: Naturally, spending more now means you will be saving less. Similarly, by not needing an overly large portfolio in your retirement, your needed savings rate will also decline.
- Higher Portfolio Withdrawal Rate: In retirement, we typically aim for a safe withdrawal rate to ensure the portfolio’s longevity and allow for safety buffers. In Die With Zero, you lose some of those buffers.
Let’s look at these points in greater detail.
Why is Die With Zero a good idea?
There are many reasons to positively consider the concept. Some people may not want to save large amounts of money at the expense of their enjoyment, while others may simply not wish to leave too much money to their heirs.
Whatever your reasons, it is a concept that all must look at as it does challenge the conventional wisdom of sacrifice now to enjoy later. There is such a thing as saving too much and there is also such a thing as not being able to spend freely even when you have the money!
Additional points that proponents of the concept like to highlight include:
- Maximized Life Experiences: Money can be thought of as a tool to enhance life experiences. By spending on experiences when you’re younger and healthier, you can enjoy life’s adventures to the fullest. Of course this runs counter to the FIRE philosophy, but in no way is it wrong.
- Efficient Resource Utilization: Money earning interest in a bank doesn’t always bring happiness or fulfillment. Using it purposefully and in a sustainable manner can lead to a richer quality of life.
- Reduced Regrets: Many people regret not doing things when they had the chance. This approach minimizes those regrets by prioritizing experiences over accumulation of cold hard cash.
- Age: Aging is not a kind process and it does take away the ability to fully enjoy life’s experiences. I have seen this with my parents whose reduced mobility due to aging (mainly knee and other joint problems) and reduced energy levels means that even though they have the time and money, they’re not able to travel as freely as they would have liked.
Even the mighty Warren Buffet shared a thought or two about this in a speech with students back in 2001:
I was up at Harvard a while back, and a very nice young guy, he picked me up at the airport, a Harvard Business School attendee. And he said, “Look. I went to undergrad here, and then I worked for X and Y and Z, and now I’ve come here.”
And he said, “I thought it would really round out my résumé perfectly if I went to work now for a big management consulting firm.” And I said, “Well, is that what you want to do?”
And he said, “No,” but he said, “That’s the perfect résumé.”
And I said, “Well when are you going to start doing what you like?” And he said, “Well I’ll get to that someday.” And I said, “Well you know, your plan sounds to me a lot like saving up sex for your old age. It just doesn’t make a lot of sense.”-Warren Buffet
You can see the original video here.
Why is Die With Zero a bad idea?
Die With Zero is certainly not for the faint-hearted as it knowingly involves driving down your portfolio to a value of zero by your expected death age.
There are many assumptions involved here and even just one unexpected turn of events can mean that you are left in the lurch with little money left in the latter stages of your life. Not a fun position to be in! And you know the old sayings about assumptions? Assumptions: They make an ass out of u and me!
The goal is to die with zero, not die after zero!
Some things to watch out for include:
- Unpredictable Future: Life is uncertain. Health issues, economic downturns, or personal crises can derail plans. If you’ve spent most of your money or have a tight income vs expense balance, you might find yourself in a tight spot during emergencies.
- No Safety Buffer: Unless you explicitly build in a safety buffer in to your calculations, using a tight band of assumptions with no error margins can mean you can get in to trouble very quickly!
- Market Volatility: A slightly similar theme, but market volatility can really impact your portfolio value and the income it can generate. A couple of years of bad returns can seriously harm your income generation.
- Legacy Concerns: Some people derive satisfaction from leaving a financial legacy for their children or charitable causes. This approach might not align with those goals.
- Psychological Impact: Watching your savings decrease can be stressful, especially if you’ve been conditioned to equate security with wealth accumulation.
The last bullet point is important. Watching your portfolio’s value start to decline because your withdrawals exceed your returns can be worrying. Of course it depends at what stage of your life this happens in. Seeing this in your 70s could be terrifying, but in your 90s might not be so bad.
Before your commit to this path, ask yourself if you’re comfortable seeing a chart that looks like the one below where your portfolio is cashflow negative for 25+ years!
This portfolio theoretically runs out at 100 years of age but is cashflow negative from the early 70s. But what happens if this is overlayed with negative market returns or sudden emergency expenses?
How do you calculate Die With Zero?
The easiest way to go about it is to use a calculator, such as the one on this page, or set up a custom spreadsheet.
I say this because the calculation depends on the size of your portfolio, your expected lifespan and the number of years you wish to draw on your portfolio, the returns generated, the inflation, etc.
Even Einstein would struggle to calculate all this in his head! Mere mortals like us would struggle to do it even with a paper, pencil, and a regular calculator!
What is the withdrawal rate for Die With Zero?
We’ve discussed the concept of a safe withdrawal rate earlier. However the difference here is that if you intentionally want to drawdown your portfolio to zero, whereas the SWR allows your portfolio to survive indefinitely.
As a baseline it therefore means that your withdrawal rate has to exceed your portfolio’s safe withdrawal rate. However go too high and your risk the portfolio running out well before you die.
Our calculator will help you figure out what amount you can reasonably draw on from your portfolio. The rate specifically will change each year as the portfolio value changes. Open up the table in the results (select Yes in the dropdown menu above right under the question “Show results in a table?”) and you can see what is the withdrawal rate in % terms in each year.
Before You Go…
Hopefully you found this information useful. Please do let me know in the comments if you have any feedback, comments, or questions!
Our whole blog is dedicated to help you get on the path of financial freedom. Feel free to browse around and read through the articles.
In a nutshell, the fastest way to achieving FIRE is to cut your debt, minimize unnecessary expenses, so you can save and invest your money! Do check out our guide to vested balances and 401Ks, should you choose to go that route!
by Andrew Garcia
Andrew, an alumnus of South Florida State College, loves finance, fintech, and coding. When he’s not crunching numbers at the bank, he’s passionately writing about personal finance and building calculators for PFF. See more.