$40 Million Ain't Gonna Cut It


There was a very (unintentionally) funny exchange on the show Billions last night between the main character Bobby Axelrod and (perhaps now) recurring character Michael Pinay (not sure the spelling). Pinay has/had a struggling hedge fund that was going to shutter. Axe asked him how much he was walking away with and Pinay said 40 as in $40 million and he thought he "could live on that."

It took Axe two sentences to crush that hope noting that with the city apartment, the Hamptons place, Beaver Creek, private school, his daughter's horse, charity and he threw in the expense of starting a family office; he wouldn't be able to do it for $2 million a year creating the fear that he'd burn through the $40 million pretty quickly. Not only that but Pinay would be flying commercial pretty soon. It was clear that Pinay felt trapped, despite what sounds like a pile of money.

While the numbers are of course ridiculous the concept is very tangible. People very quickly get to the point where they are living beyond their means or even at their means but with no margin for error for their incomes or their retirements.

One of the flaws in the planning process is a couple bringing home X, say $10,000 per month after taxes and everything else create a lifestyle commensurate with that take home pay. Maybe they don't spend every nickel every month, maybe some of it goes to a vacation or two. Between a $3500 mortgage, $1200 worth of car payments, how much is private school these days? Add on top of that, the expenses that can't be budgets like home repairs, car repairs, vet bills and so on.

Then throw in lifestyle creep which is the phenomenon where as income goes up incrementally so too do living expenses. People might think they need to eat out three times a week. I've heard plenty of things that people truly believe the need to do, coming to the conclusion that they need $10,000/month in retirement.

Obviously if you have or are on a path to have several million accumulated then $10,000/mo won't be too much of a hardship but having several million is not a path that most people are on. The number of articles citing different surveys showing that the majority of Americans have nothing saved is dizzying. Who knows how precisely correct those studies are but it makes sense that at the very least, collectively, we are woefully undersaved.

I've written countless posts on things like downsizing, living in other countries, working in some sort of post-retirement career, the extent to which you can catch up even if you start saving very late but connected to all of those ideas are removing the financial obstacles that could come to stand in the way of your (and Michael Pinay) riding off into the retirement sunset.

No matter your monthly expenses now, how much less would they be without a mortgage or car payments? Driving a car for 20 years is very plausible and can mean 15 years without car payments and having retirement coincide with the final mortgage payment is just a matter of simple planning (most of the time). I cringe when I get word of someone who is retirement age taking out a mortgage in a non-emergency situation.

I admit though I have a very conservative bias with this sort of thing. Making your expenses as low as possible creates so many more options/flexibility that is puzzles me when people jam themselves up living on their financial edge but again, it is a bias of mine and that's what biases are.