By: Paul Morrone
Whether we’re willing to accept it or not, time is the only thing that affects us all the same. Some have more resources to manage it, but we all have a finite life on this earth. At the most extreme ends of wealth, you can see the 0.01% do everything they can to obtain more time. That can mean hiring housekeeping staff, a private chef, personal assistant or even having a private plane. While convenience is undoubtedly a byproduct here – the real concept is having more of their time to spend on their terms. That means not sitting in traffic driving to JFK to arrive at the airport 3 hours before a flight. But, instead, getting chauffeured to Teterboro to hop on a jet 15 minutes before wheels up. Sure, it costs a pretty penny, but they got 4 hours of their life back – and the flight time is on their schedule – as compared to us mere mortals who are at the mercy of Delta or United when planning a trip. The time in the air will likely be more productive, or at least enjoyable, as well. The point is, if we recognize the value of time in our personal life, how are we going to use our resources to give us more of it as our net worth grows?
To make the analogy relevant to the mere mortals who may be reading this, think about a country club membership. Why do you belong? Sure, part of it is the people, the quality of the course, the facilities and atmosphere. But I’d bet a large reason why most people join a country club in the first place is out of convenience and to save time. Rather than spending 6 hours at the local municipal course on a Saturday morning and missing your kid’s baseball game, you can be in and out in 3 hours for a round of 18. You play when you want. Your clubs are stored at the course, cleaned and ready for you on a cart at your beck and call. The bartender knows your favorite drink and the servers know your member number by heart. You don’t have to sign a receipt at the end of lunch. Many of these yield incremental time savings, but it helps to justify the cost.
When planning for the future, these luxuries are all line items in an annual budget. Those with the discretion to be able to spend freely and fund a lifestyle with these conveniences likely did so by setting meaningful goals with respect to their savings and investment. The reality is that maintaining this kind of lifestyle is not cheap, and the more your budget is skewed toward discretionary spending, the more you’ll need to fund it.
If your retirement account is your only asset, the cost of time becomes even higher. For those in the Northeast who may be looking at tax rates north of 30%, it takes a lot more dollars to buy the convenience of time when you factor in the tax cost. In many cases, being a mere 401k millionaire (unless you have a mega IRA), likely won’t be enough to get you there. That membership that costs $30k/year requires you to withdraw far more from your IRA to cover the cost, because Uncle Sam and your state will get their piece off the top. And that is just for golf. Factor in the rest of life, and retirement plan withdrawals will quickly eclipse 6 figures and run into the hundreds of thousands pretty quickly. This means, then, that the annual cost of that $30k membership is really closer to $45k when you consider the tax bite. The time to value ratio becomes distorted and harder to justify if adequate resources aren’t available.
The good news is that you can plan for it. Knowing what it will take to build a sustainable nest egg to cover decades of discretionary costs helps frame what the future could look like. It will take time to get there, but when time is also your biggest asset, starting sooner will always pay the most dividends. More importantly, building wealth with intention, diversifying not just your investments, but your income streams, and balance sheet will maybe make your time a little less expensive when you have less of it in front of you. There is no silver bullet to eliminate taxes from your future plans (death and taxes, as they say), but there are many ways to mitigate the impact of them. You can’t change things overnight, but with the right planning at the right times you’ll be able to more easily quantify and reduce the cost of your time when you are relying on your portfolio to fund your golden years.
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