He Who Knows He Has Enough

According to the ancient Chinese philosopher Lao Tzu, “He who knows he has enough is rich”. But in Canada’s financial services industry, the focus is almost always on how to get more, even in cases where the individual already has enough. Rarely is the focus on how to wisely use and enjoy what someone has already accumulated.

It makes sense to consider your capital in two ways. There is our “essential capital”, i.e., the amount necessary to achieve all of our goals (including leaving a certain amount to our heirs), and there is “surplus capital”, i.e., the amount that could be spent or given to family or charity, because it is unnecessary to achieve our goals and it may be wasted if it’s not used while you are still in control.

The reality is that, whether rich or poor, we have a limited number of years on earth, and many retirees lose an opportunity for greater happiness because, instead of using their surplus wealth, they let themselves be persuaded to continue to increase their wealth. Some of the reasons include the following:

They’re not clear on their goals.
They don’t have a purpose that keeps them interested and motivated.
They find it difficult to shift gears and focus on decumulation after spending 40 years focused on accumulating enough for retirement.
They don’t understand the relationship between money and happiness, and they just assume (incorrectly) that greater wealth and a larger inheritance will increase happiness for their heirs.
They have an unreasonable fear of running out of money because they don’t have an updated financial plan, based on very conservative assumptions, that shows that they have enough.
They want to be safe from all risks, and they assume (incorrectly) that greater wealth will protect them from all potential problems and challenges.
They’ve not considered the hidden costs of letting their capital grow when they already have more than enough.

Some of the hidden costs of accumulating an even larger surplus include the following:

Paying more in income tax, probate fees and investment management fees.
Losing the opportunity for a better lifestyle, i.e., travelling business class and drinking better wine.
Wasting time. It’s well established that on your deathbed, the regrets are usually for things not done, experiences not enjoyed, and missed opportunities to help friends, family and community.
By choosing to increase their wealth, they don’t use it to travel and take the time to make new friends, to enjoy family and old friends, or to develop new interests and enjoy leisure activities.
Not experiencing the joy of helping family or friends when they can most use the help.
Not experiencing the joy that comes from supporting a charity or giving back to their community.
Increasing the odds that the heirs will quarrel over the larger estate and the family will then be torn apart.

How much is enough? Well, it depends on what you believe will make you happy. For some, it’s being able to maintain a comfortable lifestyle both now and in retirement and knowing they can afford nursing care in their old age and being able to help friends and family when they most need help.

Others believe they need a lot more. In his book, Your Money and Your Brain, Jason Zweig reports that in a survey of 800 people with a net worth of $500,000 or higher, on average, 19% agreed with the statement “having enough money is a constant worry”. Interestingly, for those with more than $10 million, 33% agreed with this statement. In this study, it seems that the greater the wealth, the greater the worry.

And in a Boston College survey of 165 wealthy households (the lowest net worth was $25 million, and the average net worth was $78 million), the average household believed they needed 25% more than they had to be financially secure. This study makes Arthur Schopenhauer’s comment seem quite true. He said, “Wealth is like seawater … the more you drink, the thirstier you become.”

When retirees already have more than enough to achieve their goals, they should ask themselves: what will they do with an even larger surplus?

There are only three options:

1. Do nothing and leave an even larger estate,
2. Spend more on a lavish lifestyle (Johnny Depp reportedly spends $20,000 per month on wine), or
3. Have some fun giving it away to family, friends or charity.

One thing is certain—we don’t take anything with us when we go. Wealthy individuals who plan to leave a large estate should know that, in many cases, a large inheritance is a potential source of conflict and may cause more grief than happiness for their heirs.

If you want to be happy, and we all do, it’s important to understand the relationship between money and happiness. The Dalai Lama said, “The purpose of life is happiness”. And Aristotle said, “Happiness is the meaning and purpose of life and the whole aim of human existence”. Happiness is the goal; not a larger surplus, and therefore a sensible strategy is to find ways to use one’s existing surplus to increase happiness.

Abraham Maslow came up with his “Hierarchy of Needs” in which money is required for the first two levels (physiological and safety needs). However, for the three higher levels (love and belonging, esteem, and self - actualization), money doesn’t help, and to the extent that it means you wasted time and delayed getting to work on the more important things, it may have reduced the happiness that you could have experienced if you had used your surplus wisely.

Who do you think is happier? An individual with a $50 million portfolio who believes he doesn’t have enough to be financially secure, and he’s focused on getting more, or an individual with a small portfolio who knows he has enough and is therefore focused on the other things that can lead to happiness? This is one reason why it’s important for people to quickly and easily be able to calculate their “essential” capital and their “surplus” capital.

There are three groups of retirees.

1. Those who do not have enough. They need a financial plan that shows how to solve this problem.
2. Those who clearly have more than enough. They need to clarify their goals and decide on the best way to use their surplus funds.
3. Those who don’t know whether they have enough. They need an “Essential Capital/ Surplus Capital” financial plan which will show their surplus or deficit.

Retirees should remember that if they’ve had enough to eat, and they eat more—it leads to obesity. If they’ve had enough wine and they regularly drink more than enough, it may lead to addiction problems, and in a similar way, if they already have enough wealth and they don’t question the wisdom of focusing on getting more than enough, they may lose an opportunity for greater happiness.

Here is the process for retirees who want to avoid spending more time than necessary to manage their wealth and who want to use their money to maximize their happiness.

1. Clarify your goals and make a plan to work toward achieving them.
2. Accept the idea that if you already have enough to achieve all your goals, it may make sense to focus primarily on things that may help increase your happiness rather than increase your wealth.
3. Have an “Essential Capital/Surplus Capital” financial plan that shows how much of your capital is essential to achieve all your goals and how much surplus you can spend or give away.

The biggest cost of trying to get more than enough may be losing precious time, which could be used to increase your happiness. We have limited time to spend doing things we really want to do, enjoying life, travelling, spending time with family and friends and pursuing a purpose which is important to us. If we know we already have more than enough to achieve our goals, why not spend more time pursuing happiness which is the real goal of life?

Warren MacKenzie, B Ed, CPA, CA, CIM, CIMA – Head of Financial Planning at https://optimize.ca