The book “Die With Zero” by Bill Perkins is fast becoming a FIRE classic – for a good reason.
Many in the community have adopted a Die With Zero mindset, which goes against many of the core pillars of the standard approach to Financial Independence like delayed gratification and frugality.
Instead, Die With Zero is all about getting the most out of our money and investing in experiences (which, in turn, create memory dividends for us). The book emphasises that time is a lot more valuable than money because we can always earn more money (which is not the case for time, obviously).
Bill Perkins advocated saving “enough” for retirement but not a cent more. Ideally, he wants us to “die with zero”, because having money left over means that we’ve worked for free and wasted valuable time at work that we could have spent doing things we enjoy more.
Long-term readers of the blog probably know that I’m a fan of the book – it’s very aligned with the messages about FI, money and life I try to spread in my little corner of the internet. My copy of Die With Zero lives on my desk (along with a few other classics) and I’ve re-read it several times. I regularly recommend it to readers, friends and clients who struggle to get over their ultra-strong accumulation mindset.
However, one thing I’m not so convinced about is the formula Bill suggests we use to calculate what “enough” means in monetary terms.
In this article, we’ll explore the math behind the book and discuss how to actually die with zero.
I’ll also share a little Die With Zero calculator I’ve created to explore how we could adjust our FIRE plan if we decided to go down the “die with zero” path (something we are actively considering).
Let’s get started!
The Die With Zero Formula
In the book, Bill offers a basic formula that calculates what he calls the “survival threshold”. This number is how much he believes we need to save “as a bare minimum”. Here is the formula:
Survival threshold = 0.7 x (cost to live one year) x (years left to live)
Hmmm… Ok, let’s look at an example.
Lucy is 45. She is hoping to live to age 100, so she has 55 years of life left. Lucy spends $70,000 per year.
Lucy’s survival threshold: 0.7 x $70,000 x 55 = $2,695,000
Wow.
That’s quite a high number considering this is supposed to be Lucy’s bare-basics “survival threshold”.
Die With Zero vs FIRE
So, how does the Die With Zero formula compare to some basic FIRE math?
Withdrawing $70,000 per year from her $2,695,000 nest egg actually equates to a 2.6% withdrawal rate – much lower than the withdrawal rates commonly used by members of the FIRE community.
If Lucy opted for the standard FIRE method instead and used a plain-vanilla 4% withdrawal rate, the math would look like this:
Lucy’s FIRE number: $70,000 x 25 = $1,750,000
Almost $1,000,000 lower than the Die With Zero survival threshold number!
So, where does that leave us?
Is the Die With Zero Formula Wrong?
Is the Die With Zero Formula wrong? I don’t know. No one knows. Bill makes it clear in the book that he just wanted to come up with a “nice, simple number”.
All projections we make about how much we need to live, how long we’ll be alive, how high inflation will be over the long term, and how much our investments will return each year are really just educated guesses (somewhat backed by history, but still…). This applies to Die With Zero, FIRE and standard retirement withdrawal plans alike.
We can all just make assumptions we feel comfortable with, stay flexible (this one is important!), and hope for the best.
So no, I don’t think the Die With Zero Formula is wrong. But it’s conservative. Especially compared to the kind of math commonly used in FIRE circles.
Die With Zero = Adding a Little YOLO to Our Lives
In the FIRE Community, we usually make the assumption that by reaching our FI number, we are set for life. We assume that we’ve built a nest egg that will be able to cover our living expenses for the rest of our lives and beyond.
Usually, the plan is to leave our investments to our kids when we die. While you can argue about whether the math behind the 4% rule was designed for very long retirements or not, this is how most of us approach things.
The premise of Die With Zero is that we should only save enough to cover our costs until we die, ideally leaving no money behind.
So it is a little ironic that the actual math behind the Die With Zero philosophy is more conservative than standard FIRE math.
Most Die With Zero fans in the FI community like the concept because they assume that dying with zero means that they’ll have to save less and get to spend more, sooner – not the opposite.
How to Die With Zero
Lately, I’ve been exploring what a Die With Zero plan could look like for my family and how it would change our FIRE path.
I wanted to figure out how much we actually need to die with zero – as in having no money left when we die (hopefully at the ripe old age of 100).
One simple way to figure out how much you need to have $0 when you die (well, if you die when you think you’ll die…) is to use a standard retirement drawdown calculator – like this excellent one on Noel Whittaker’s website.
However, I wanted to go a bit deeper. I also wanted to know how different lifestyles along the journey impact the Die With Zero equation:
- Future contributions to our FIRE portfolio
- Coasting periods (basically semi-retirement without withdrawals from the nest egg)
- Barista FI (semi-retirement with partial withdrawals)
I ended up building a Die With Zero calculator/spreadsheet that allows us to test withdrawal strategies and different contribution/withdrawal models against our assumptions (life expectancy, investment returns, etc.).
If you are also exploring what a Die With Zero plan could look like for you and would like a copy of my spreadsheet, just enter your details in the form at the bottom of the article.
Now let’s put some more (realistic) numbers around the Die With Zero concept. To do this, we’ll explore some scenarios for our friend Lucy from the example above.
Four Possible “Die With Zero” Scenarios
In addition to the basic data discussed above, we’ll also assume the following about Lucy’s situation:
Lucy has an $800,000 investment portfolio and expects 5% inflation-adjusted returns over the long term. She currently works full-time and adds $50,000 per year to her investments.
This is the data I entered in the input fields of my “Die with Zero” calculator:
Please note that all numbers in these calculations and the spreadsheet are inflation-adjusted (investment returns and annual spending). This allows us to use 2023 numbers for simplicity.
Scenario 1: Immediate Retirement
In this scenario, Lucy decides to “retire” immediately and starts withdrawing $70,000 per year from her portfolio.
This is what this looks like in action (based on Lucy’s assumptions):
In this scenario, Lucy runs out of money pretty quickly – by age 60 to be exact. Fail!
Scenario 2: Five More Years
Lucy decides to keep working and adding the $50,000 per year to her portfolio. She then retires at age 50 and starts withdrawing $70,000 per year.
Isn’t it amazing what a difference five years can make? In this scenario, Lucy runs out of money at age 94. Her five years of extra work and contributions have afforded her almost 25 extra years of retirement. Crazy!
Scenario 3: Semi-Retirement (Coast FI)
In the next scenario, Lucy decides to semi-retire immediately and coast for a while so her nest egg has time to compound. She moves to part-time work, stops investing and takes it easy for 10 years. At age 55, she retires and starts withdrawing $70,000 per year from her portfolio.
With this option, Lucy doesn’t run out of money until age 98 – not too bad at all!
Scenario 4: Semi-Retirment (Barista FI)
In this final scenario, Lucy decides to semi-retire and cover some of her expenses by making withdrawals from her portfolio. From age 45 to 65, she withdraws $25,000 per year and then increases the withdrawals to the full $70,000 from age 65.
In this scenario, Lucy doesn’t run out of money and would leave a small inheritance behind.
Scenarios 5 – ∞
As you can see, the scenarios we could explore are endless. I could spend all day updating the spreadsheet with new strategies.
Plus, we have not even explored how changing some of the basic assumptions (investment return rates, life expectancy and annual withdrawals) would change the outcomes.
And then there is one of the magic tools in the FI toolkit: flexibility. Adding some flex to a Die With Zero plan would no doubt make things even more appealing.
Reflection
Dying with zero isn’t an exact science. But if we work with assumptions that we are comfortable with (similar to the way we pick assumptions for our FI calculations), we can come up with a plan that allows us to…
- stop saving earlier
- make withdrawals from our investments sooner
- withdraw higher annual amounts from our portfolio
… than with the classic FIRE method – if we are willing to die with zero dollars in our pockets.
It turns out that little things like a few extra contributions can make a massive difference in the long run. As do higher or lower investment returns, obviously.
Whether the math actually works over the very long term is a different question. I’ve always held the belief that no plan is risk-free and that even methods like FIRE aren’t as simple and binary as they seem at first.
The “Die With Zero” mindset is all about adding a little YOLO to our lives, making memories and opting for “just enough” vs ” as bulletproof as possible”. What is right for you and what suits your psychological makeup and risk appetite is, of course, a 100% personal decision. I don’t think there is a right or wrong answer to this.
Personally, I find the option to switch over to a strategy that would see us spend much more money on experiences in semi-retirement and later on in full retirement quite tempting. Even if it means that we’ll die with zero (or, more realistically, a modest portfolio balance and a paid-off house).
We live deep in the “green zone” these days, and feel comfortable with the investments we’ve accumulated. It is also looking less and less likely we’ll actually retire anytime soon as we love working. We are seriously considering switching to a Die With Zero type plan. Mr. Flamingo and I are both very aware of the biggest risk of all – running out of time – and want to get the most out of life and the wealth we’ve created for our family.
Like Bill says in the book – we can always make more money…
Have you considered a “Die With Zero” type plan? I’d love to hear your thoughts!
You have no idea how much I needed an article like this today. Thank you!! Will spend the next 3 hours at work trying out the Die With Zero calculator!!
Glad to hear, have fun! 🙂
Solid read as always. I stumbled when I read his formula in the book as well so really appreciate this post and the spreadsheet. Cheers!
Glad you find it useful, Mark!
This is a game changer for me. Thank you so much, I’m gonna spend hours playing with the different scenarios
Cheers 🙂
Thanks Dermot, enjoy playing with the spreadsheet!
I had to re-read Die With Zero book a few times before I understood the survival threshold but I believe Perkins differentiated between “thriving” and “surviving”. So the “cost of living” is the bare necessities to survive. Plus, he advocates using a realistic age to model too and ultimately to die with zero, no assets. So this would change your the Lucy example three ways:
#1.
So in your example, Lucy would not have a survival expenses of $70k but say $50k which would look like (20k would be thriving/optionality spending):
Lucy’s survival threshold: 0.7 x $50,000 x 55 = $1,925,000
#2.
He also would suggest Lucy to get a realistic appraisal of her longevity. 100 seems optimistic, AIHW have around 85 years old for a woman in Australia.
Lucy’s survival threshold: 0.7 x $50,000 x 40 = $1,400,000
#3.
In addition, Perkins includes ones house in the portfolio (which is not included in the 4% rule) as we are dieing with zero not just a empty investment portfolio.
So in this example if Lucy has a (paid off) house worth 700k she only needs a 700k investment portfolio.
https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy
Sorry 800k investment portfolio.
Which oddly enough is the same as the Coast example you provide but without the work BUT also without the luxuries.
Some great discussion points!
#1 Can you point me to where in the book he talks about the “survival expenses”? I can only find references to the “cost to live one year”. I suppose this would then align more with a “Lean FI” approach.
#2 Fair point. I guess this is something everyone has to decide for themselves. Longevity increases all the time for people in all age groups. I agree that 100 is pretty optimistic.
#3 I know he includes PPOR equity and says that you could downsize to free up cash. That’s true, but again, this is a very personal decision and you definitely would not be able to include 100% of your equity unless you want to live in a tent. I do think that most people want a modest, paid-off house in “retirement”. I guess a reverse mortgage could be an interesting option if the portfolio is depleted.
With the adjustments you made her “survival threshold” is not too far off her FI number based on the 4% rule.
I would also really like to know what the 0.7x multiplier is based on. Personally I feel more confident making my own assumptions an mapping things out over the course of my expected life timeline.
I just though of something else – Lucy is already 45. If a 30-year-old who expects to live to 85 does the same math, she would get the result from my example – a “survival threshold” much higher than their FI number.
#1: I think the idea of “survival” is baked in the term of minimal expenses. He gives an example of 12k of annual expenses – suggest you expenses are “cost of living”, which I think is commonly regarded as a basic but comfortable lifestyle including housing, food, transport.
Quote Perkins: “survival threshold is based on both your annual cost of living and the number of years you expect to live from the present day.”
#2: Working with probabilities is what Perkins is about, so modelling out longevity to a century is highly improbable.
Perkins: “If you don’t have any idea when you’ll die, you won’t be able to make decisions that are anywhere close to optimal”. By being optimal he is suggesting you reduce “waste” of your time (see quote below).
#3: Sure – in the end its a personal decision but to be fair he called his book “Die with zero” not “Die with a fully paid off house”. For almost everyone Perkins ideas are extreme, and I think Perkins acknowledges that, and suggests that everyone define their “risk tolerance”:
“suppose your life expectancy is 85, but you want to allow for an error of 5 to 6 percent. If so, you might decide to save for a few extra years—in this case, enough to last you until you’re 90. But if you don’t want to have wasted five years’ worth of savings in case you do die as expected at 85, you can eliminate that waste (and live a little better between now and then) by saving a little less—as long as you’re okay with the risk.”
Anyway – love your blog and appreciate all your effort that goes into it.
#1 Fair point. I guess this one is a little up for interpretation. I’d argue that most people’s FI number are somewhat modelled around their “cost of living” (except in the case of Fat FI maybe).
#3 I find this one the hardest to wrap my head around. I suppose there are probably different level of what dying with zero actually means. I highly doubt that Bill Perkins himself will ever truly die with literally zero dollars. Anyways, that’s why I think we can use the die with zero line of thinking to make our own “version” with assumptions that we are comfortable with.
Thanks for the comments, lots of food for thought. And glad to hear you are enjoying the blog! 🙂
Do I need to manually adjust the drawdown amount for inflation?
No, all the numbers in the calculations are inflation-adjusted for simplicity. As long as you use inflation-adjusted return rates you can use today’s numbers for your expenses.
Can I confirm, does this mean if I want to withdraw 100k pa in todays dollars, I use 100k for the remaining term (if I wish to have a consistent withdrawal?) that takes into consideration inflation, so I would be drawing down more in future years essentially? Hope that makes sense.
I’ve always used the 4% rule for drawdown, so to achieve an example annual drawdown of $80k per year my FI number would be $2million. But while $80k per year will fulfil all my initial retirement years expectations, I’m guessing I will not need as much in my later years (80’s and perhaps even 90’s) So I am going to spend the next few hours plugging in different draw down scenarios as I approach these later years and see what it does to my required FI number.
Thanks for the new perspective, it may save me a few years of working for free !!
I find this is a tricky one – I speak to people about this a lot and about 50% assume they will need much less (no travel, luxuries, eating out…) in old age, while the other 50% believe they will need much more (nursing home, healthcare costs, help around the home…).
Thank you so much, I have been hunting for exactly this : a method to draw down and when we could potentially stop investing and still be OK.
You are welcome, glad you find it helpful! 🙂
I think the assumption we spend the same amount to the day we die in old age is way off.
My mum just passed at almost 80 and in the final few years once she become almost housebound and immobile, she hardly spent a thing apart from heating and food… She passed with a bigger nest egg (which wasn’t large anyway) than when she started retirement and she didn’t even invest (Very old school thinking it was all a gamble) and had her money in bank accounts earning less than a percent in the last 10 years or so, just living off a Uk pension and a small pension my dad left when he passed.
The one thing she didn’t carry into retirement was any debt and had a fully paid off PPOR
See my comment to Paul above. This is such a polarising topic. I have not figured this one out for myself yet, 50% of people say they will spend much much less, the other 50% say the opposite. I have an 84-year-old grandmother in a nursing home currently using up all of her life savings and now slowly using up the proceeds of her house sale. Her cost of living is arguably at least 3x what it was before she had to go into the nursing home – and there is a risk the money will run out at some point. Not sure where I stand on this one.
Well Tina, once again you have blown my mind with this. Your Die With Zero Calculator is fantastic. The fact that I was able to adjust my withdraw amounts each year makes perfect sense. We get a generous State Pension here in Ireland, which for the first time has been factored into my FIRE number. Turns out my FI Number can be far lower if I wait long enough and the best part is, this can be adjusted each year with inflation to make sure a person stays on track.
Another master piece and a game changer in the FIRE community.
Thank you for the kind words, Michael! 🙂 So glad you found the calculator useful. Is the state pension in Ireland means tested at all? We expect a (very small) pension from our time working in Europe, so I might plug that into our copy of the spreadsheet too.
Hi Tina. Not means tested and currently paying 265 euro per week per person, provided you qualify by working at least 10 years. It is a considerable factor here that is often overlooked.
So the PPOR was left intact for the heirs to ‘splash the cash’ and she lived her last years in modern day poverty….what an injustice on her life. A reverse mortgage would have been a kinder ending for her life.
When I plug my same numbers into your spreadsheet and the Noel Whittaker calculator you mention above, I get pretty different numbers based on the “Indexation Rate” he requires. What Indexation Rate are you using in your spreadsheet? (And is that the same as inflation rate?)
I actually cross-checked my spreadsheet with Noel’s calculator – the math is the same. 🙂
The spreadsheet uses a 0% indexation rate as we work with inflation-adjusted numbers. Indexation in this case is not inflation – it is the extra spending (lifestyle inflation) you want to build into your plan over and above inflation.
Noel’s calculator also calculates the ROI before the current annual withdrawal is taken out, mine works off the total after the withdrawal.
If you wanted to build in extra spending above inflation you’d have to add that in manually.
This is helpful, thank you!
Tina, you absolute legend!
Fantastic article and what a fantastic calculator sheet – I can see so many ways I’ll be using this spreadsheet, not just for the DWZ calculations. Thank you and keep doing what you are doing!!
Aww thanks Sammy! 🙂
Not being a Maths person in the slightest, the different results on the tables blew my mind!
It makes me feel that working full-time for term 1, even though I’m retired, was a good move.
I have to say that seeing the impact shocked me a little as well. Really shows that a dollar invested now is much more powerful than a dollar invested 10 years down the track.
Love the spreadsheet. Thank you!
You are welcome, glad you like the spreadsheet!
I don’t think lucy is going to live to 100.
Probably not – but that’s exactly the point of the spreadsheet: everyone can make their own assumptions based on what they are comfortable with.
Love this, super thought provoking! By plugging in my current numbers, your DWZ calculator says I’ll die with double my nest egg at retirement lol. So if I don’t want to overshoot by that much, I would essentially need to retire with a smaller nest egg and plan to withdraw more than 4% (because my annual living expense number hasn’t changed), is that correct? Obviously comfort level/risk tolerance comes into play, I just want to make sure I’m understanding the math because this is definitely making me rethink my target nest egg number.
That’s the tricky part behind all the FIRE math – if things go smoothly we’ll end up with much much more than our initial nest egg, if things don’t go smoothly we can run out of money. That’s the reason we have the 4% rule. So yes, it’s all about risk tolerance. Not sure what assumptions you used, but keep in mind that there could also be long stretches of down years. But essentially what you are saying is correct. Based on stable long-term returns it makes sense to spend more and draw down the nest egg at rates higher than 4%.
Fabulous discussion. Thanks much. Given that inflation is at or above 7% and may remain that way for years….how would the spreadsheet results be affected? Dianna G
Well you can just run the math with your inflation-adjusted ROI assumption. That’s the beauty of a spreadsheet like this – you can enter whatever you assume your returns (and inflation) will be. Personally I use long-term inflation averages.
We’re on more of a “Slow FI” path although we have reached Flamingo FI and are pretty much semi FI’d. We cut our hours but still do some minor ETF investing to speed things along. Your spreadsheet has finally allowed me to factor all of this in, turns out we could go even slower and still get there, even without drawing down too much in the later years. Awesome work Mrs F!
Thanks, glad you find the calculator helpful! 🙂 Yes, taking a slower approach can work really well, especially if you have a longer time horizon.
Does the calculator account for/include US Social Security Benefits?
It does! Just subtract the amount you will receive in a pension from your withdrawals to account for this.
What Michael said! 🙂
The calculator isn’t designed for any country-specific system or pension, so you can enter whatever numbers apply to you.
Thanks so much for this article. My husband and I just finished reading Die With Zero and this morning, I went back to the “Know Your Peak” chapter because I was confused by the number. Using his formula vs. plugging our numbers into a present value of annuity calculator yielded significantly different results – according to the PV of annuity calculator, we are hovering right around our peak, which is what I anticipated, but his formula has us needing an additional 1.3 million… yikes!
Will be playing around with your spreadsheet this morning, thank you! The simplified equation Bill provides must just get less and less accurate the younger you are, aka the higher your years left to live.
Thank you for another amazing calculator.
I adjusted the withdrawal amount to my living expenses + $5000 extra per year and hadn’t entered any contributions and noticed…wow, I will have way too much money leftover at the age of 100!
Admittedly, my expenses are way less than $70k per year.
I am 53 and I made a decision a couple years ago to take a job I knew I would I love (and I do) but in doing so took about a 30% cut in pay. Even though I have invested heavily in my 401K since I was 25 and that is looking decent, have no kids to worry about paying for school, lately been feeling a little down, like did I make the right long term decision. Another variable is that my wife is unable to work, so I HAVE to have insurance. Anyway, your article gives me hope, like we are OK, and that maybe we can afford to get back to the experiences we lived when younger. So thanks!
Question: In your scenarios I don’t see any mention of the impacts of early withdrawals and tax liabilities on your withdrawal strategies. How should we be thinking about that in our planning?
Thanks!
How are future income taxes considered in the spreadsheet?
They aren’t (like with all other FI maths). The assumption is that the numbers you use are after tax. Everyone has different tax rates, family setups, so this makes the most sense.
Thank you for the blog post and the ideas and concepts you have shared.
While I agree with your ideas and about implementing a plan to die with zero, I must confess I am aghast at your calculations.
You are modeling constant positive returns, something that will never happen in real life. You really do need to use some version of a fire calculator, with Montecarlo simulations or backtesting with historical data and running simulations for whatever window you wish to model over all the past years.
The “success” outcomes, however you define it, will then give a much more realistic indication. For example, in your scenario 2, if I model using FIRECalc, and if For our purposes, failure means the portfolio was depleted before the end of the 50 years. FIRECalc found that 60 cycles failed, for a success rate of 41.7%. Almost 25% of the time you don’t even make it to 30 years before the portfolio is depleted.
I hope that is intuitive – if the markets are down, and you carry on your merry way withdrawing $70K then you will very quickly run out of money. So I’d urge you to call out that these simple drawdown spreadsheets are not realistic enough to be trusted, and present a false and higher chance of success versus reality.
Thanks for your comment, Prashant.
Remember, this is a drawdown calculator and you can use your own assumptions based on your risk appetite and investment mix. It’s non-prescriptive. The scenarios above are based on hypothetical assumptions and there are no details on what’s in the portfolio. It’s just an example.
From memory FIRECalc uses something like a 75% stock / 25% bond portfolio and is US-based. So the historical returns used might be largely irrelevant for many people reading this blog.
The beauty is also that you can change your strategy if markets are down and your portfolio is not performing. I don’t think anyone in their right mind would just continue withdrawing the same amount in these circumstances. I am a big fan of flexibility and the “flex rate” principle – I’ve written about this here: https://www.moneyflamingo.com/flexibility-in-semi-retirement/
I agree 100% Tina. This is just a real time FIRE calculator as far as I see it. It will adapt in real time on a monthly / yearly basis. Returns will never be consistent, but if someone is to forecast a 4-5% after inflation return, it is so conservative, that one great year within a 5-10 year period will likely give enough income for the entire period.
I’ve seen this in my own portfolio over the last 18 months. Things were well down in 2022, but up in 2023.
There is always the option to return to work here and there too, or produce a side hustle income if needed. Why work longer than you need to, when the option to hustle will always be there – no matter your age!