How much is Enough [9 pages]

An excerpt from

Aji Notes, Volume 1, written by Toby Hecht.

Aji Notes, Volume 1

(pages 201-210)

Building the Frame

Some goods and services are non-discretionary, according to economists, doctors and scientists, which means people have no choice but to buy them or they and their spouse will die.

If you reflect, you’ll see that the entire global marketplace is organized around taking care of these fundamental human concerns.

The four categories of non-discretionary goods and services everyone must be able to afford to a satisfactory standard every day of their life are:

Earning and saving enough money to afford non-discretionary goods and services is part of the frame in IR#4 because businesspeople who do not have pensions now expect to live 25+ years with their spouse after they retire.

Businesspeople must save enough money during their career to afford those goods and services to survive, adapt and live a good life, including old age.

In other words, anything businesspeople are thinking, speaking about, committing to or acting to produce that is inconsistent with making “enough money” to afford those goods and services with their spouse until they are at least 90 years old,

… makes no sense,

… and is counterproductive because it will cause suffering, despair and bad health, rather than support businesspeople’s intentions to live a good life.

The four categories of goods and services, or human concerns, are non-discretionary because human beings need them available 24/7 to:

1. Survive day to day

2. Adapt over time as their bodies and circumstances change

3. Live a good life with their spouse and children until they are at least 90 years old

Most businesspeople say they need annual incomes well above $100k to afford a satisfactory amount of good quality non-discretionary goods and services.

Since the maximum amount people can withdraw from their savings without running out of it before they die, if it is invested passively, is 4%, they must have $2.5m saved to produce $100k annually today.

Because of 3% average inflation, that amount becomes $3.75m for 46-year-olds and $5m for 36-year-olds.

When businesspeople run out of money with their spouse during old age, it triggers chronic financial stress, which is unhealthy, makes living a good life impossible and shortens people’s lifespans by as much as 20 years.

The stress comes from being unable to afford sufficient food, housing, medical care and transportation to take care of people’s biological concerns for their body.

The stress is “chronic” because it is unrelenting and cannot be fixed. People live in it 24/7 and can’t escape it.

It is characterized by psychologists, economists and philosophers as increasing and unstoppable hardships, desperation, despair, suffering and pain as people age. It makes people ill and shortens their lifespans.

When businesspeople love their spouse, running out of money and being unable to take care of their spouse’s most important, practical and fundamental human concerns can trigger existential despair as they age, or the sense that their life had no meaning.

When businesspeople love their children, running out of money makes them a “parent tax”, or financial burden, that ruins their children’s chances of earning and saving enough money to live a good life with their spouse and children.

This situation can also trigger existential despair.

Consequently, it is important for businesspeople and their spouses to know how much money they really need to earn and save to afford the goods and services they are certain to need until they are at least 90 years old.

It helps when businesspeople and their spouses remember their vows.

Does fulfilling their vows include being ignorant, passive, apathetic or disinterested in earning and saving enough money to avoid running out of it so their spouse has to go without food, housing, medical care or transportation, before they are at least 90 years old?

It helps if both spouses are clear about their parenting commitments, too.

Do they intend to raise their children so they can earn a living with their computers and the internet?

If so, they need to learn how to do it themselves first.

Do they intend to avoid becoming a “parent tax”, or financial burden, on their children, in-laws and grandchildren?

If so, how much money do they need to earn and save to accomplish this?

About the financial and psychological shock…

The huge amounts of money businesspeople really need to earn and save in IR#4 to live a good life with their spouse and children is often a shock.

In IR#3, businesspeople’s biggest assets were their car and house.

In IR#4, businesspeople’s savings for old age dwarf the value of their car and home.

It takes most businesspeople and their spouses a few weeks to adjust to how much they really need to increase their productivity, value and incomes to save enough money to afford 25+ years of old age together.

Then, they use Aji to deal with the situation to produce a life that is deeply meaningful, satisfying, worthwhile and enjoyable from their point of view,

… instead of one dominated by increasing hardships, chronic financial stresses and suffering.

“How Much Money Is Enough?” Calculation

#1 – Write down your annual income minus annual savings

Income $220k, Savings $20k

Income after savings $200k = Current standard of living

Distinctions:

Earn

Survive

Adapt to biological and external changes

Live a good life without compromise

#2 – Multiply #1 by 25 (4% Rule)

$200k x 25 = $5m = Capital-at-Work (CAW) required to maintain standard of living for 25+ years of old age

Distinctions:

Capital-at-work

Net worth

Fiduciary responsibility

Monte Carlo calculations

#3 – If your age is closer to…

48, multiply #2 by 1.5 – Inflation adjusted

38, multiply by 2

28, multiply by 2.75

Distinctions:

Inflation

#4 – Subtract #3 from your current capital-at-work

Current capital-at-work = $500k

10m – $500k = $9.5m = CAW gap

#5 – Subtract your age from 60 – calculate space for producing income

60 – 44 = 16 years = Time available to bridge any financial gap

#6 – Divide #4 by #5 – calculate annual CAW gap

$9.5m 16 years = $679k = Annual CAW gap

#7 – Multiply #6 by 2 – include taxes

2 x $679k = $1.4m = Annual income required to bridge gap

Background facts:

250 working days per year

365 days – 104 weekend days and 11 holidays

2,000 working hours per year

250 days x 8 hours