Our culture reveres wealth, but for some people its accumulation does not bring genuine happiness. Often, high earners try to achieve more and more materialistic goals instead of realizing their personal core values. I meet with people every day who say they’ll only be happy if they have more money.
What they fail to understand is that money is a tool and a reward. It is a tool used to enhance personal goals, and perhaps the goals of their children, relatives or favorite charities. It’s a reward for productive achievement, whether it’s money used to create a business, jobs or further financial gains for themselves.
Part of my philosophy lets me take my clients in a direction that will aid their estate planning as well as help them actualize their personal goals. I encourage them to slow down, observe and analyze their lives––reevaluate where they’re going and what they want to achieve. I persuade them to ask what they want their life to represent. How do they want to be remembered by those closest to them? These are all questions that will usually force them into a more realistic view of their financial goals.
When there isn’t enough life
Myron is a 57-year-old entrepreneur. He and his wife have three children and five grandchildren. Throughout his career, Myron’s business has taken him away from home. As a result, he’s missed T-ball games, dance recitals and swim meets. He also missed the birth of his son, now 25. He was in Japan at the time and made millions on that deal. He has a net worth of $50 million. He also has a strained relationship with his wife and almost no relationship with his children or grandchildren.
Arthur, 66, is a businessman. He and his wife have two children, six grandchildren and three great-grandchildren. In his son’s 10-year professional tennis career, Arthur was on hand for only three tournaments. He missed 99 percent of the joy of his son’s career successes. He missed 100 percent of the births of his children, grandchildren and great-grandchildren. That bothers him. But what is most upsetting to him is that they barely know him. Nor do they talk to him—except when they want something. Arthur’s net worth is close to $90 million, but he doesn’t have the memories or the relationships that would make him completely happy.
Both these men have amassed piles of assets––but what they’ve missed is priceless. Too late, they realize that as exciting as it is to make millions, it doesn’t compare to the thrill of watching your daughter’s team win the soccer finals or to have been there when your son received a standing ovation at Wimbledon.
Once gone, those opportunities never come again. Ironically, the opportunities to make another million will always be there.
How much money is enough?
If you build your assets carefully over the years, chances are you can reach financial independence—the point at which you won’t have to work for the rest of your life.
Paul Hynes is a senior vice president of investments with Smith Barney. A veteran of more than 20 years in the financial services industry, Hynes deals only with high net worth clients. But he doesn’t define his ideal clients in terms of dollars. “My ideal clients are open to new possibilities,” he explains. “They’re willing to open their minds, evolve their thinking and seek better solutions.”
When clients ask how they’ll know if they’re financially set for life, he begins the answer with a simple formula. “The first and most important component of this formula is a description of the client’s ideal life and perfect calendar. ‘If you could wave a magic wand and create the perfect calendar in which you could do all you want and nothing you don’t want to do, what would it look like?’” he asks them.
“I have them put that description in writing––then we estimate the annual cost. In other words, how much money would it take each year to finance their ideal life and perfect calendar?” Let’s use $600,000 as the basis of our example.
Now the client defines how much is enough to produce a high degree of confidence to generate an appropriate amount of after-tax income, adjusted for inflation. The answer is estimated using a payout assumption of––conservatively 3 percent annually, moderately at 4.5 percent annually and aggressively at 6 percent annually.
Assuming the client wants to keep, and not spend, the principal (or capital), the annual living costs are then divided by the payout assumption rate: $600,000 ÷ .03 = $20,000,000; $600,000 ÷ .045 = $13,333,000; $600,000 ÷ .06 = $10,000,000.
If someone needs $600,000 per year to live their ideal life and perfect calendar, they can do so with as little as $10 million. If they already have enough money, my friend asks, “Why aren’t you living your perfect calendar now?” All too often the answer is an uncomfortable silence.
Strategizing the use of money makes life worth living
I find most people have not done enough strategizing about the use and meaning of their wealth. What this whole issue boils down to is whether you really can take your attention away from making money and apply it to more meaningful, more life-enhancing endeavors. You have a formula, and you have some ideas about what to do. But the questions still linger: Are you set for life financially? Can you afford to start working less and living more?
My friend suggests this simple test: “When you wake up in the morning, ask yourself the following: Are all my present and future financial requirements met, whether I get out of bed or not? If the answer is yes, relax, roll over and start envisioning your ideal life and perfect calendar. After all, you’ve earned it.”
Stan Hutchinson is the principal attorney for Hutchinson & Associates, an Orange County, California, law firm specializing in estate planning and administration. Stan is also certified and licensed as a Macro Strategic Plan Provider. Macro Strategic Planning is a registered trademark of The Wright Company, Simi Valley, Calif. Bruce Wright is the founder and chairman of The Wright Company, www.thewrightco.com.
