Pensioners, beware the ‘die with zero’ trend. It could spell your financial ruin

This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here. Trying to die with no assets – to use up or give away what you’ve earned in your life while you’re still here – is a seductive notion. For one thing, it sounds like fun. And it’s also an idea that has been given a big push by this Government’s increases in inheritance taxation. If they bring in the mooted “death tax” funded by a new levy on people’s wealth to help fund social care for older people, it will become even more popular. But it’s a truly terrible idea – and here’s why. Back in 2020, a wealthy American hedge-fund manager, Bill Perkins, published Die With Zero: Getting All You Can from Your Money and Your Life. It became a bestseller. The idea was simple. As the publisher’s blurb put it: “It’s intended for those who place lifelong memorable experiences far ahead of simply making and accumulating money for one’s so-called ‘golden years.’ In short, Bill Perkins wants to rescue you from over-saving and under-living.” Wow. You see the power of the idea. It’s not a case of urging irresponsibility by spending all you have; you are actually being rescued and given an opportunity for lifelong experiences. There is, however, a problem. In fact, to be blunt, I can see at least five powerful reasons why this is nuts. Start with the most obvious. We do not know how long we will live, and thank heavens for that. But people generally underestimate their life expectancy. According to a survey last year, men are likely to live four years longer than they expect and women seven years. The good news is that the golden years will run on much longer than people reckon; the bad news is that they won’t be very golden if they have no money to enjoy them. Next, what about state support? Anyone making a decision about saving for their pension is in effect making a political judgement about the sort of government that will be in power in 40 or more years’ time. We do know, however, that our population is ageing and will almost certainly continue to do so. Simple maths tells us that there will be a lot of older people relying on a diminishing number of young workers, who may not be too keen on paying yet higher taxes to fund their pensions. The only sensible assumption is that state support will be limited to those that absolutely need it, and even then, it won’t be generous. Third, we don’t know how our family circumstances will develop. Will we be in a life partnership, or be on our own? Will we have to support other family members, beyond the current pressures on the Bank of Mum and Dad? Will we go on in our present line of employment, or will AI mean we have to work out something else to do? Will we change our minds about what we want to do in our latter years: retire earlier, not retire at all, move abroad to be nearer to children, or whatever? The more savings we have, the wider our options. Four, saving rather than spending in early life massively multiplies the overall resources that we will have in our lifetimes. This is simply the function of compound interest. Over any long period money invested in global equities increases in real value by around 5 per cent a year. Simple interest doubles the money every 20 years. Compound interest, where any return is reinvested, means that money doubles in 14 years. Add in what you have to pay in income and other taxes and a penny saved is worth much more than a penny earned. Finally, what works for the very rich does not work for the rest of us. Bill Perkins has an estimated net worth of at least $100m, with some sources putting it at $500m. At that sort of level you can indeed give away or spend most of your wealth and still have enough left to make sure you are secure. But if you’re a normal British family you’re in a totally different position. The less you set aside, the narrower your ability to find security later on. This isn’t a call for hair-shirt austerity. You don’t want to miss once-in-a-lifetime experiences because the upfront fee seemed a bit steep at the time. It is, however, an argument for a common-sense approach not just to saving and spending but to life more generally. Some of the greatest experiences, the ones which make lifelong memories, come free. Yesterday’s near total solar eclipse is surely one of those. And if you really, really resent leaving any money at all to be taken by the government when you die, there is a simple device. Write a will that leaves it all – or at least the balance over the inheritance tax cap – to a charity. If it is a decent one you will have done your bit for society too. Need to know We all have regrets about money, and indeed about everything else, but my own perceptions have been shaped by the story of Tony O’Reilly, who among other interests owned The Independent newspaper. He ran into financial difficulties, largely because of an ill-fated effort to save the glassware and ceramics group Waterford Wedgewood, and his family had just lost control of the paper a few months before we founded what started as a cut-down version of The Independent, The i Paper, in 2010. (It is now totally separate, and in my view works much better as a result.) He came to fame as an Irish rugby star. I was brought up near Dublin and was taken by my father to see him play at Lansdowne Road, and wondered how his life would develop. It’s a long story and a sad one, because he became Ireland’s richest person – yet was eventually made bankrupt. But he was hugely generous to many charitable causes, and most of us would agree an outstanding owner of the newspaper. I got to know him both in the glory days, in as far as a journalist ever really knows a proprietor, and in the darker moment just before he lost control. I became very fond of him. He talked a lot about his own family life in Dublin, the problems he had faced and so on. But I also know that his final years were deeply distressing. He did indeed die with zero. But here’s his comment on that: “You win and you lose, and if you don’t know how to lose you don’t know how to live.” I just wish he hadn’t learnt that in quite such a brutal way.