Chapter 2: Money for a Lifetime

Larry Garfield: “You want to play the game? Learn to play it right.”

Kate Sullivan: “Oh, is that what you call it, a game?”

Larry Garfield: “You're damn right. The best game in the world. I'll teach you. It's easy. You make as much as you can for as long as you can.”

Kate Sullivan: “And then what?”

Larry Garfield: "And then what? Whoever has the most when he dies, wins. Look. It's the American way.”

– Other People’s Money (1991)

For a few unlucky souls like Larry “the Liquidator” Garfield, money is the purpose of life. The rest of us just want to make sure we have enough. “Enough” is not a number. It is the ability to live the life we want. Some people make do with very little. Some people are in the 1% and don’t have to worry. For the rest of us, it's about how much money we have coming in and how we manage our expectations of “enough.”

When we are young, our money lies ahead of us—in the form of future earnings. Those potential earnings depend on a lot of factors, many not in our control, including (unfortunately) gender, race, social networks, and the economy, but also intelligence, skills, career choices, education, and health. The wonky term for this is human capital. The thing to remember about your human capital is that it is a finite amount.

Here’s some simplified math. A “typical” working lifetime may span forty-five years. This means that somebody making on average $60,000 a year can expect lifetime earnings of perhaps $2.7 million. That $2.7 million has to pay not just for living expenses while working, but also for retirement, which could be another thirty years. Over the long arc of a lifetime, then, the challenge is figuring out how to make $2.7 million last for seventy-five years. Simple math tells us we have $36,000 a year available. That’s on average how much this “typical” person can support, before we get into such fun topics as saving and investing.

Annual Income	Number of Future Working Years	Total Future Earnings, Plus Money Already Saved	Future Working Years Plus Retirement Years	Available per Year
$60,000	45	$2,700,000	75	$36,000

I encourage you to repeat this simple formula with your own aspirations. Count only future years and add any savings you’ve already accumulated. Just dreaming? See how much different professions earn here.

So how do you accomplish this “spreading” of money over a lifetime? The short answer: you save.

Before you leave the room in disgust, sneering, “I can’t save 40% of my pay,” [2] hear me out. First of all, you can expect to collect some Social Security when you retire, as long as you pay taxes into the system (more on that later). In addition, the earlier you start saving, the more investment income you get, thanks to the power of compounding (more on that later, too). By the time you factor these in, saving about 15% of your pay for retirement will get the job done.

We will come back to the important questions of how much to save, how to save, and how to invest the money you save. But first, we need to earn us some money.