Die Rich or Die Happy?

March 9th, 2010

Economist Steven Landsburg noted that policy wonks want people to die rich while economists want them to die happy. Is it better to die rich or die happy?

 “Why die at all?” will be the reaction of some. Science has not advanced quite far enough to make this attitude practical, although that may change shortly after we die. Others will find it impossible to separate the two outcomes, let alone treat them as mutually exclusive. How could one die happy without dying rich? Then there are those of us who would cheerfully settle for either outcome.

 The reason for pondering the question is that there are probably more tradeoffs involved in it than we realize.

 The Retirement Investment Perspective

The popular literature on investment, ranging from self-help books to monthly magazines to The Wall Street Journal, is geared almost exclusively to helping you die rich. In fact, these sources practically demand that you die rich; to fall short would be dereliction of duty. They are Teutonic in their devotion to saving. “Pay yourself first” is the personal-finance equivalent of “go for the burn” or “use other people’s money” or “surrender to the Force.”

 Saving is a good thing. But it’s not the only thing. It’s not even close. Economics is the theory of human choice, the optimal selection of means for the attainment of ends. Consumption is the end-in-view behind all economic activity. Saving is consumption – future consumption. That’s the good part of saving. The bad part is that saving requires the sacrifice of current consumption.

 Economists shrug their shoulders and ask, “How much current consumption are people willing to give up for future consumption?” Since there is no universal, objective answer to that question, the sensible approach is to let each individual decide personally. The typical retirement-investment source, however, sounds like Ben Franklin’s evil twin – preaching the virtue of saving and the evil of consumption, constantly upping the ante on how much money it will take to support your retirement, issuing dire warnings about the unreliability of Social Security and the unpredictability of the economy.

 The retirement-investment perspective is really a form of disguised moralism. Its chief virtue is its motivational power. It uses guilt and fear to browbeat people into doing what they are presumed to want – but be otherwise unable – to do. This is another variation on themes struck by Social Security (which uses coercion) and whole-life insurance (which uses contract).

 Amplifying the Economic Perspective

It is not inherently wrong to scrimp and save in order to build a huge nest egg for retirement. In fact, this life plan has more to commend it now than ever before, which may explain the popularity of the retirement-investment approach. Life expectancies are lengthening, and a longer life requires more resources to fund it. It also affords a longer time span for consumption.

 Still, the best time for consumption is during youth. Many consumption activities are linked to physical vigor, which reaches its zenith in youth. You can ski for just so long, and during the last act of your life the advanced slopes will be barred to you. Travel, ostensibly a prime retirement activity, actually becomes increasingly burdensome with age. In fact, a sensible plan would be to cultivate mental pursuits – bridge, movies, reading, writing – that can be enjoyed well into old age.

 The Satisfaction Bank

One seldom-noticed advantage of a high-consumption lifestyle is that it is money in the bank from the standpoint of life satisfaction. Somebody born in 1944 might have worked their head off, saved and sacrificed to accumulate $500,000 or $1,000,000 for retirement – only to see their savings blasted to smithereens by the financial crisis of 2008, just as they were ready to settle into retirement mode. The wastrel who lives high on the hog deposits his most intense joys and biggest achievements in the pleasure bank before retirement. Whatever happens from then on is icing on the cake.

 Sure, the best solution would be to have your cake and eat it, too – die rich and happy. Malcolm Forbes’ children inscribed on his tombstone: “While alive, he lived.” Unfortunately, most people can’t do that. It takes too much effort and sacrifice to get rich – too much saving, too many 70-hour workweeks and missing out on children’s school plays and skipped vacations.

 In The Man in the Grey Flannel Suit, middle-manager Gregory Peck admits that he is just one of those nine-to-five men who sets his job aside at day’s end and races home to wife and family. His boss, workaholic CEO Fredric March, reassures him that it takes both kinds to make a company and a world. March is ruefully aware of the opportunity costs incurred by entrepreneurs and high-level executives.

 A Calvinist approach to life would identify its purpose as work. Saving is a moral duty even more than a prudential act. Dying on retirement day would be less than a grand tragedy because life’s principal purpose would already have been fulfilled. A hedonist would prefer to experience life’s pleasures constantly, fully and intensely. An economist respects both philosophies and roots for each to succeed.

 The Dark Side of the Welfare State

A fashionable objection to this laissez-faire attitude is that the wastrel and hedonist will come to no good in the end. They will end up broke. The taxpayers will have to foot the bill for their retirement through welfare and Medicaid payments. According to some taxpayers, this gives them the right to insist that the wastrel and hedonist be forced to mend their ways – pay into Social Security or buy a life annuity, buy health insurance whether they want it or not, wear seat belts, and in general live the life that the taxpayer wants them to live.

 This is one of the most insidious effects of the welfare state. By requiring taxpayers to foot the bill for everything, it gives government a pretext for paternalism and private citizens the license to indulge their worst busybody instincts.

 Economists have it right. Our ultimate goal is to die happy. Everybody should have the right to pursue this goal in their own way; that is the meaning of “life, liberty, and the pursuit of happiness”. This should encompass the opportunity – but not the obligation – to die rich.

Category: Annuities, Economic Analysis, Retirement Planning | Tags: , , , ,

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