Starting at age 45 in 2022, I consciously started focusing on decumulating wealth. I realized that my life was likely half over, and I needed to start spending more to prevent dying with too much money. If I died with too much money, it would mean that I had wasted a lot of time and effort trying to make money during my younger years.
With increasing talk about money dysmorphia, it’s important to practice decumulating if you’ve been fortunate enough to save and invest for a couple of decades or longer. Don’t waste the sacrifices you made during your younger years; otherwise, you’ll end up living a life of unnecessary deprivation.
The Accumulator’s Plight
Here’s a comment I got from Dave from Sacramento, which I think typifies the accumulator’s plight. If left unchecked, Dave will likely build more wealth than he needs and deprive himself of a better life while young.
I have one child and am planning on a second soon. We are in our mid-30s with a net worth of about $1.8 million, which includes two homes (one we live in and one rental). We have no debt and two six-figure incomes in a modest cost-of-living area (Sacramento).
However, I am still incredibly stingy. I never want to spend on myself for anything and still drive a 12-year-old vehicle. I don’t even buy myself new clothes, continuing to wear socks and underwear that are torn and have holes.
I clearly have enough to buy new socks, but I just keep trying to be extremely frugal to stack those investments. I think my wife now feels guilty for buying things for herself because she knows how frugal I am.
The Best Ways to Decumulate Wealth
There are two main ways to decumulate wealth. The first is by spending more money than your normal amount. The second is to intentionally earn less money. Both ways serve to reduce your saving rate.
1. Retire Early
If you want an effective way to decumulate your wealth, stop working for money. Retiring from your day job is the ultimate admission that you think you have enough to be comfortable.
It hit me that I haven’t just been trying to decumulate wealth since 2022; I’ve actually been trying to decumulate wealth since 2012, when I retired from banking. In 2012, I chose happiness and freedom over the desire to earn a $250,000 base salary plus any discretionary bonus.
If I had stayed at my job, I could have easily saved $100,000 or more a year. Therefore, by deciding to no longer work, it’s equivalent to me decumulating my wealth by $100,000 or more a year. My saving rate went from 70%+ to 0% temporarily as I spent all the passive income that I had.
If you’ve stopped working for money, don’t let anybody tell you that you’ve lived a life of deprivation to get to where you are. Given time is the most valuable asset, the people criticizing you who are still working are the ones wasting their biggest resource.
2. Spending Money on Your Children’s Extracurricular Activities
If you have children, you will love your children more than anything else in the world. As a result, you will be more willing to spend money to see them enriched and happy than you will on yourself.
The key is to find extracurricular activities they enjoy and spend purposefully on them. The joy you will see on their faces is priceless, as is the satisfaction that they are improving on a particular skill that teaches them the importance of practice and perseverance.
I used to think spending $120/hour on a private pickleball lesson or $60/half-hour on swim lessons was ridiculous. Instead of paying the money, I decided to teach them how myself. But now I see the value in getting taught the right way by an expert instructor, especially in an activity in which you have no expertise.
If you have excess wealth, spend the money on art, music, language, sports, acting, singing, and any other type of activity your child likes. These lesson fees don’t last forever.
3. Spending Money on Your Children’s Education
It’s easy to spend a fortune on private grade school, college, and graduate school education for your children. The money spent won’t feel as rewarding as spending on your children’s extracurricular activities since there’s a free grade school option and a much cheaper public college option.
However, given the sheer cost of private grade school and college education, you can easily end up spending over $500,000 on each child. In cities like New York and San Francisco, starting today, thirteen years of private grade school pre-K through 12 alone can cost over $600,000. Then you can easily pay over $800,000 for four years at a private university 18 years from now for a total of $1,400,000 per kid.
You can decumulate your wealth further by paying full tuition at a non-top 50 ranked private university. If you do, your kid may not be able to get a high-enough paying job to live independently. This will result in you getting to decumulate more of your wealth by paying for their adult living expenses.
After a couple of years of working low-paying jobs, your kid might decide to get an expensive graduate degree for which you can pay too. The more children you have, the easier it will be to spend down your fortune.
4. A Nice House You Don’t Need
After the pandemic, it became clear that nice houses increased in value given we spent so much more time at home. However, nobody needs to live in a place larger than a studio. A studio can even be shared with another person, like I did for two years after college in Manhattan.
But your goal is to spend down your fortune, so you can do so by pushing the limits on your primary residence. Instead of coming up with a 20% down payment, you can reduce your down payment to 10% or even 5% to take on more debt. This way, you’ll get to pay more in mortgage interest expenses to help spend more of your cash flow.
Alternatively, you can aim to spend five times your household gross income or more on a house. Everything from your property taxes, insurance costs, water bill, landscaping costs, and general maintenance costs will go way up, assuming you purchase a larger house with more land. Just don’t spend so much that it puts your finances at risk.
The “problem” with buying a nicer, larger house you don’t need is that there’s a greater than 50% chance it will appreciate in value over time. And if your house does appreciate in value, then the increased cost of maintaining it probably won’t be enough to cause your net worth to go down.
Hence, to really decumulate wealth, you’d have to be the winning bidder in a bidding war right before the housing market turns south. You’ll decumulate a lot of wealth this way, but unfortunately, you’ll feel bad in the process.
Buying Your Kid a Home
The extension of buying a nice primary residence you don’t need is buying each of your kids a home after college. To not completely spoil the kids, you can just come up with the 20% down payment and have them pay the monthly mortgage instead.
30%+ of first-time home buyers get financial assistance from their parents. The great thing about buying a home for each kid is that it’s simply a way to diversify your assets and have a responsible tenant you love take care of it.
5. Letting Your Spouse No Longer Have to Work
You not working is a great way to decumulate wealth. But take it a step further by letting your wife, husband, or partner not have to work either. This way, you’ll more rapidly drain your finances.
Letting your partner stop working is one of the greatest gifts of love. If you’re forcing them to keep working, then you either don’t really want to decumulate wealth or you don’t truly love them. Remember, you’re not financially independent if nothing changes.
It makes no sense for one partner to be retired and the other partner to be working for money at a job they don’t love. Your partner can tell themselves all they want how their job in pharmacy, marketing, tech, finance, law, or any other field brings them so much joy while you are retired. But they are likely fooling themselves.
With two non-working partners, you’ll have to pay for health care insurance, which can easily cost you over $24,000 a year in premiums alone. The household will no longer have any retirement benefits either, like a 401(k) matching plan and profit sharing.
Depending on how much the working partner makes before they stop working, your household could double the pace of decumulation with a dual no-income household.
6. Quit Your Job Instead of Negotiating a Severance Package
Another great way to decumulate wealth is to quit your job with nothing instead of negotiating a severance package. If you quit your job, you won’t be eligible for unemployment benefits, subsidized healthcare benefits, receiving any deferred cash or stock compensation, or a severance check.
The longer you are at one company and quit instead of negotiating a severance package, the more money you’re leaving behind. Quitting your job is like willingly walk past a chest full of gold.
I know one person who quit their job after eight years and the very next week, his colleague got laid off in a mass round, with a $180,000 severance package. Being unstrategic when leaving your job is a great way to decumulate wealth!
7. A New Luxury Automobile Or Two
Buying a new car is a great way to waste money given new cars depreciate instantly once you drive them off the lot. The depreciation curve is steepest in the first three years of a car’s life.
The average new car price hovers around $49,000, and median-income households regularly buy new cars to their detriment. But given you’ve got too much money, you might as well buy a new car that’s at least double the average new car price.
Luxury new car prices are easily $120,000 and up nowadays. The great thing about spending a lot of money on a new luxury car is that it will have the latest safety features. If you have a family, then nothing is more important than keeping them safe.
8. The Tastiest Food Money Can Buy
Personally, I love eating dry-aged steak, jamón ibérico, beluga caviar, Hawaiian and Indian mangoes, shabu shabu, and toro sashimi. Then I love to pair these fine foods with some great wine. Thanks to the internet, you can order any of these items online and get them delivered to you!
The only downside to spending so much money on yummy foods is that eating too much won’t be good for you. Great-tasting foods have higher fat and salt content. Cured meats are known to be carcinogenic. Meanwhile, eating too many mangoes will spike your fructose intake.
Hence, you can’t spend too much money on the tastiest foods if you want to protect your health. But what you can do is go for more regular date nights to expensive restaurants.
It might feel wasteful in the beginning to spend more than $100 per person when a $5 cheeseburger at In-N-Out tastes amazing. However, you will hopefully have a good time along with the goal of spending down your wealth.
9. First Class Airline Tickets
The difference between economy class and first-class airline tickets is astronomical, especially for international flights. People really are willing to pay 5-10X more for lay-flat beds on flights over five hours long.
Hence, a great way to decumulate wealth is to buy first-class airline tickets for all your family members to Asia, Europe, South America, or Africa. If you don’t want to fly internationally, you can fly first-class on the longest flights domestically from coast to coast or from the East Coast to Hawaii. A first-class ticket will be about three times more expensive than an economy class ticket.
I still have not been able to pay for first-class tickets for myself. But I did take a step up this summer and pay for four Economy Plus tickets to Honolulu, baby! I figure, economy class seats are like first-class seats to our 4 and 7-year-old kids. In addition, one adult sitting with two small kids in a row of three seats is quite luxurious for the adult as well.
If you really want to splurge, you can always fly private. The cost will be somewhere around $6,000 – $15,000 an hour.
10. Donating to Local Charities Immediately
Finally, one of the best ways to decumulate wealth is to donate money while you’re still alive rather than after you are dead. Help is needed everywhere you look in the world. To hoard millions, let alone billions of wealth while there is so much suffering in your very city is a damn shame.
After modeling out your financials with precision so you will have enough to live, it’s time to carve out some of your wealth to regularly donate to charity. It’s hard to change the world as an individual; however, you can make a larger impact by donating to local non-profit organizations that are helping your community. Even better if you are also a patron of the center.
For example, we go to Pomeroy Recreation & Rehabilitation Center for indoor swimming. Pomeroy is also an incredible facility to help children and adults with various levels of disabilities, the minority group we need to fight the most for. The staff do incredible work helping people with Down’s syndrome, cerebral palsy, and more.
How To Decumulate Wealth: Practice Spending More Money
It will be hard going from an accumulator all your life to a spender. But you must if you don’t want to waste so much time as a younger person. Think about all the stress, tears, and sweat you went through to build wealth when you were younger. Now harness that struggle into spending more. You deserve it!
It helps to take baby steps toward spending more money.
The easiest way to start is to get new shoes, glasses, clothes, and hats. In other words, the little things that you use daily. You’ll feel better in the process too because you might look better.
Once you get accustomed to having new things, take it a step further by spending more on nicer foods that are also healthier. Once you’re used to spending more at the grocery store, for delivery, and at restaurants, then you can take spending to the next level on more luxurious travel.
After getting used to more luxurious travel, then you can move up to a nicer car and ultimately the perfect home. When you’ve got these two things, letting your spouse or partner be free from the shackles of work is the logical next step.
Once you’ve freed your partner, you will feel a tremendous amount of accomplishment. Given your good fortune, you can’t help but donate more to charities to help spread the wealth. You might even start a free endeavor that consistently helps other people.
So you see, decumulating wealth is a good thing. You help the economy, help yourself, and help other people too! What’s there not to love about that?
A Change In Plans Thanks To Decumulation
After writing this post, I’m having second thoughts about trading my time and energy for money after both kids attend school full-time. Although our passive income no longer covers our living expenses, we still have enough total income to live comfortably.
Work is no fun if the fit isn’t perfect. Hence, as I shared in a recent CNBC article, maybe a more fulfilling job role is not in startups, tech, or AI, but instead in education — specifically, an educational role at my children’s school.
This way, the work isn’t about the money. Instead, it’s about maximizing the time I have left with my children while also being part of a nurturing community. Instead of accepting the 40-hour void once both kids go to school, why not partially eliminate some of it? They will be out of the house before we know it.
At the very least, I want to continue giving my wife the gift of freedom since she left work in 2015. Me encouraging her to also return to traditional work creates tension. Instead, I should embrace decumulation and feel good knowing I’m able to help her live freely.
Reader Questions And Suggestions
What are some other great ways to decumulate wealth? Some have said a divorce, but that’s a traumatic and sad experience. What are some tips you’ve used to go from being a saver to a spender?
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