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Guest columnist
Lee Eisenberg   Expert: Author Lee Eisenberg
Facing nasty questions
Why are people reluctant to talk about their Numbers?
Guest columnist

Number anxiety
Page | 1 | 2 | 3 |
 

He cites the person who sells a business, then seeks a portfolio designed to yield the same living standard enjoyed while he was still in the saddle. The investment portfolio he seeks must replace not only his salary but also many justifiable and perfectly legal expenses partly or entirely written off by the firm, including, for example, a chunk of travel and entertainment and certain tax prep and financial planning fees.

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The adviser does a quick mental calculation on this question.

"Think of it this way. Say a person has $50,000 worth of business-covered expenses every year, which is conservative for many business owners. And say that after he sells his business he wants to live his life exactly as before, which is only reasonable. Well, using very conservative investment assumptions, he'll need to add $1 million of liquid assets to his Number just to generate the $50,000 needed to keep his lifestyle at the level it was."

And so it goes with the Number: One man's million-dollar fortune is another man's club dues.

The importance of relevance
A different money manager tells about a potential client who's on the brink of retirement. The client comes to see him about setting up a postcareer investment portfolio. He says he wants a plan he can count on so he doesn't have to worry about Lifestyle Relapse. The man's Number has reached $2 million, which should be enough, you'd think, assuming a reasonable level of prudence. The man seems intelligent, possessed of good judgment.

Then he lays out his conditions. He tells the money manager his $2 million has to be orchestrated to yield $125,000 a year to support his current lifestyle. The adviser says it will be impossible to assure this kind of return for any length of time. "But it's what I need," he persists. Then he adds that no investment plan can be initiated until an additional $200,000 is pulled off the table. Incredulous, the financial adviser asks why. "I need $80,000 for a new Mercedes, another $80 for a small boat. The rest I need so that I can pay the rent on my girlfriend's apartment."

Lifestyle Relapse is again the topic of the day when I have lunch in Madison with the CEO of a regional financial services firm. Over Cobb salads at his hushed downtown club, he echoes how executives don't fully appreciate the degree to which legitimate expense-account living adds to the perceived quality of their lifestyle. But there's another aspect of Lifestyle Relapse he thinks about a great deal, and that's community standing.

"Money buys relevance," he says. "If you hold down an important position you're in demand. You're invited to parties, sit on the boards of local associations, and get tickets to sold-out basketball games. Once you leave the job, you'll still get some of that stuff, assuming you have the bucks and give some to the people throwing the parties. But if you don't think invitations matter, if you don't think feeling relevant matters, you're kidding yourself."

Bankrate.com's corrections policy -- Posted: Oct. 1, 2007
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