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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.
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."
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