Bill Perkins made the most important argument in personal finance in a decade: money you die with is money you wasted. He is correct. The lifecycle consumption model (the theory behind how economists have priced retirement since Merton) says exactly the same thing. The optimal plan consumes the endowment. Terminal wealth is zero. But "spend it down" is a direction, not a navigation instrument. Without a funded ratio, you cannot know when decumulation can begin, how fast you can go, or what happens if the world changes between now and the end. Perkins has the destination. This series provides the map.
The Argument That Changed the Conversation
Bill Perkins's Die With Zero made an argument that the entire accumulation-obsessed financial industry found uncomfortable: the purpose of money is to fund experiences, and experiences have a time value. A dollar spent at 35 on a hiking trip with your children buys a fundamentally different (and often richer) experience than the same dollar spent at 75. Dying with a large estate means you traded irreplaceable experiences for a pile of money that outlived its purpose.
The FIRE community received this with a mixture of enthusiasm and anxiety. Enthusiasm because the argument validates the early in early retirement: stop accumulating, start living. Anxiety because "spend it down" collides with the 4% rule's core promise of portfolio survival. If you die with zero, you have, by definition, not survived to a safe withdrawal endpoint with money remaining. The two frameworks appear to contradict each other.
They don't. The contradiction is an artefact of measuring in the wrong units.
Merton Got There First (1969)
The core insight in Die With Zero is not new. Robert Merton established the lifecycle consumption optimisation in 1969 and refined it in 1971. The result is unambiguous: the optimal consumption plan for a rational agent with a known finite horizon and no bequest motive is to consume the full present value of their endowment (financial wealth plus human capital) over their remaining lifetime. Terminal wealth is zero. Not approximately zero. Exactly zero. Every dollar of remaining wealth at death represents a failure of optimisation: utility that was available and not consumed.
One refinement matters when the horizon itself is uncertain, which for a person it is. Yaari (1965) showed that reaching exactly zero then requires an annuity market: the pool absorbs whatever each member leaves and pays it back out, as mortality credits, to the members still living. Hold that thought; this article returns to it.
Perkins states this in the language of experiences and regret. Merton stated it in the language of stochastic calculus and dynamic programming. The conclusion is identical. The mathematics, however, matters, because the mathematics tells you how.
Where "Spend It Down" Breaks
Perkins's argument has three structural gaps that the funded ratio fills:
Gap 1: When Can I Start?
"Spend it down" assumes you have enough. But enough is not a number: it is a ratio. Enough means your assets, valued at the no-arbitrage discount rate, cover the present value of your remaining consumption liability with sufficient margin.
That discount rate is doing the work, and it is a price, not a forecast. The real yield at every maturity is tradable: you can buy the 2040 dollar of groceries today, at that yield, in a TIPS. No assumption about future equity returns enters the liability, because an expected return is not a price anyone will contract to deliver. You cannot eat it (Post 12). A plan discounted at what stocks are hoped to earn is a bet described as a measurement; a liability priced off the traded curve is an arbitrage argument.
The funded ratio answers this directly:
| Funded Ratio | Interpretation |
|---|---|
| < 100% | You do not have enough to fund the plan. Decumulation is premature. |
| 100% | Fully funded. Your assets cover the expected cost of the consumption stream at today's rates. The option to begin exists. |
| 100–110% | Funded with thin margin. Begin decumulation cautiously. |
| > 110% | Surplus. Spend the excess: Perkins is right, sitting on surplus wastes utility. |
Without this measurement, "spend it down" is a leap of faith. You cannot know whether you've crossed the starting line.
A measurement is not the whole obstacle, and it is worth naming the other half here rather than leaving it to the reader's surprise. Retirees with a surplus mostly do not spend it either (Post 14): the money arrives only if you sell something, and selling is the act people decline to perform. Perkins is arguing against a preference, not an arithmetic error.
Gap 2: How Fast?
Even if you know you are above 100% funded, you need a rate of decumulation that adjusts to changing conditions: interest rates, inflation, mortality, portfolio performance.
The 4% rule gives a fixed rate. Die With Zero gives no rate at all: just the instruction to reach zero by the end.
The funded-ratio framework produces a dynamic decumulation path:
Where is current wealth, is the prevailing real yield for maturity , and is the survival probability to age . This updates every period, and its rate sensitivity is a chosen exposure: a book short of the liability's duration sees its ratio improve when rates rise, while a hedged one (Post 7) moves with the liability and holds its ratio through the same move. Either way the path is self-correcting: you hit zero at death because the formula continuously recalculates the consumption that exhausts the endowment over the remaining horizon.
This is the Merton consumption rule in discrete time, in the special case where you hold the liability-matching asset and want level real consumption (Waring and Siegel call it the annually recalculated virtual annuity). Richer preferences change the coefficient, not the structure. It is what any honest decumulation rule has to reduce to, and what Die With Zero needs and does not have.
The survival weighting has one property worth naming. Without an annuity pool paying mortality credits, spending at the survival-weighted rate front-loads consumption, and a self-funder who keeps surviving recalculates onto a gently declining real path. Perkins would count that as a feature rather than a bug: the formula itself routes the dollars toward the years you can best use them.
Gap 3: What If the World Changes?
Perkins's framework is silent on states of the world. What if inflation spikes and your purchasing power erodes? What if rates collapse and your surplus evaporates? What if you experience a bad-beta loss: a permanent impairment that no recovery can fix?
The funded ratio moves in real time. It absorbs every shock:
- Inflation surprise: Your liability (real spending) is unchanged, but your nominal assets buy less. Funded ratio drops: unless your portfolio has positive inflation beta (Post 6).
- Rate collapse: Your liability PV rises (future spending is discounted at a lower rate). Funded ratio drops: unless your portfolio has matching real-rate beta (Post 7).
- Bad-beta loss: Portfolio value falls permanently. Funded ratio drops with no self-correction (Post 4).
The dashboard from Post 10 (funded ratio plus three betas plus duration gap) gives you a real-time early warning system. You don't just "spend it down" and hope. You monitor the ratio, adjust the consumption path, and know at every point whether you're on track to die with zero or die with a shortfall.
The FIRE Community's Die With Zero Problem
The FIRE community has an accumulation culture. The milestones are $100k, $500k, $1M. The celebrations are wealth numbers. Nobody celebrates "97% funded." Nobody posts "I lowered my duration gap by 3 years."
Die With Zero challenges this culture by saying: stop accumulating, start living. But the community has no tool to know when to flip the switch. So the message becomes either:
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Premature: Someone at 85% funded stops saving and starts spending, believing they have "enough." They don't: not at the no-arbitrage rate. The 4% rule told them $1M was the number. The funded ratio says they need $1.1M. Their one real cushion is the asset the ratio leaves out: human capital, the option to earn again, which is largest precisely when retirement comes early.
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Ignored: Someone at 130% funded keeps saving, driven by the wealth instinct, because no measurement tells them they passed "enough" two years ago. They are accumulating money they will never spend. Perkins would call this a tragedy. The lifecycle model calls it a failure of optimisation: surplus wealth that could have been converted into living.
The funded ratio resolves both failure modes. Below 100%: keep going. At 100%: the option exists. Above 110%: exercise it. Above 130%: you are wasting time and utility, and Perkins is unambiguously correct that the money should become experiences.
The Bequest Motive Changes the Equation
Perkins handles bequests by carving them out early: decide what to leave, fund it separately (e.g., life insurance or a ring-fenced pot), then die with zero in the consumption account.
This is structurally correct in the funded-ratio framework. A bequest is a separate liability with its own maturity (your expected death) and its own present value. Add it to the total liability:
Then compute the funded ratio against the total. If you're at 115% funded against consumption alone but want to leave $200,000 to your children, your effective funded ratio (against consumption plus bequest) might be 98%. You're not funded yet. Keep going.
This is precisely what pension funds do when they have multiple liability streams: retirees in payment, deferred members, active members. Each liability gets its own PV. The total is summed. The funded ratio applies to the aggregate.
Die With Zero without a bequest motive: terminal wealth = $0. Die With Zero with a bequest of $B: terminal wealth = $B. The math adjusts cleanly. The instinct remains: beyond the consumption liability and the bequest, every additional dollar is waste.
"Why Not Just Buy an Annuity?"
Perkins's practical implementation path for Die With Zero leads naturally to life annuities: pool the mortality risk, guarantee income to death, eliminate sequence risk. The FIRE community will ask: if the goal is income certainty to age 92 and terminal wealth of zero, why build a TIPS ladder and track a funded ratio? Why not buy a single-premium immediate annuity and be done?
The theory is on the annuity's side, and it is worth saying so plainly. Yaari's result above means the "exactly zero" endpoint properly runs through a mortality pool, and the economist this article leans on agrees: Merton has spent the past decade arguing that the retirement industry should be building better annuities, not fewer. Any honest version of this framework starts from that position rather than waving it away.
Practice is less obliging, in three specific ways. Most US annuity contracts are nominal, and a fixed payment fails the most basic test of consumption hedging: at 3% inflation it buys roughly half as much after 20 years, and even at 2% it loses a third. The capital is surrendered irreversibly, so healthcare shocks and family obligations you did not foresee at 60 cannot be funded from it. And the insurer must stay solvent for 30+ years, with state guaranty funds typically capping coverage at $250,000.
The resolution is not ladder or annuity. A TIPS ladder covers the priced years with inflation protection, and without surrendering control or taking credit risk. What it cannot cover is the tail: a ladder built to 92 has nothing to say about 97, and outliving the ladder is the one path that actually ends in a shortfall. The instrument built for that tail is a deferred income annuity bought small and late, where mortality credits are largest and the nominal and liquidity objections weakest. Priced as its own liability, the tail slots straight into the funded ratio.
The surplus in the funded ratio framework (the funded ratio above 100%) is the precautionary buffer for the uncertainties that make a pure Die With Zero path unrealistic. Healthcare shocks. Long-term care. Family obligations that emerge after retirement begins. Holding some surplus is not a failure to optimise: it is the rational response to incomplete markets. The funded ratio makes this explicit: it tells you how much buffer you have, and when the buffer is large enough that further accumulation truly is waste.
The Ultra-Wealthy Exception
One class of investor should not die with zero: the ultra-wealthy.
As Peter Mladina of Northern Trust has argued, ultra-high-net-worth investors have already fully hedged consumption. Their surplus portfolio (stocks, private equity, real assets) exists for wealth transfer, not spending. The buy-borrow-die strategy (never sell, borrow against the portfolio, step up cost basis at death) is a tax optimisation on dynasty capital. Terminal wealth is not zero. Terminal wealth is maximum.
That is a different objective function. It is the one the wealth management industry is built to serve. It is not your objective function, unless your consumption is already 100% funded and your surplus is larger than your remaining lifetime spending. If you are reading this series, you are almost certainly not in that category.
For you, the mass-affluent investor compelled to take risk to fund retirement, the objective is Perkins's: consume the endowment. The funded ratio tells you how.
A Worked Example: The Die With Zero Decumulation Path
Sarah, age 60. Retired. $1,200,000 portfolio. Social Security: $19,700/yr from 67, a present value of $320,000 at a 2.37% real yield.
Consumption target: $55,000/yr real, to age 92. Priced at the same 2.37%, that stream costs $1,253,000. Social Security discharges $320,000 of it, so the net liability her portfolio must cover is $933,000.
Funded ratio: $1,200,000 / $933,000 = 129%.
Sarah has roughly $267,000 of surplus: assets in excess of what her consumption actually requires. Under the Die With Zero philosophy, that surplus should be deployed into experiences (travel, family, donations, living larger) not hoarded.
The framework turns that into a spending path. Amortise the surplus over the years she is most likely to enjoy it (say, to 85) and add it to core consumption. Each year the funded ratio is recalculated against a shrinking liability (fewer years of spending remain) and the actual portfolio balance. The table below is computed on a constant 2.37% real return, with the surplus drawn down to zero by 85:
| Age | Portfolio | Net Liability | Funded Ratio | Core Spend | Surplus Spend | Total Spend |
|---|---|---|---|---|---|---|
| 60 | $1,200,000 | $933,000 | 129% | $55,000 | $13,950 | $68,950 |
| 65 | $979,000 | $754,000 | 130% | $55,000 | $13,950 | $68,950 |
| 70 | $793,000 | $614,000 | 129% | $55,000 | $13,950 | $68,950 |
| 75 | $627,000 | $501,000 | 125% | $55,000 | $13,950 | $68,950 |
| 80 | $440,000 | $374,000 | 118% | $55,000 | $13,950 | $68,950 |
| 85 | $231,000 | $231,000 | 100% | $55,000 | $0 | $55,000 |
| 90 | $70,000 | $70,000 | 100% | $55,000 | $0 | $55,000 |
| 92 | $0 | $0 |
Illustrative, and computed on certainty assumptions: a fixed 2.37% real return, no mortality weighting, spending to exactly 92. The real path recalculates annually against prevailing TIPS yields, actual portfolio performance and updated survival probabilities. The level total-spend line also assumes the surplus is held in the liability-matching asset; surplus held in growth assets makes the surplus spend the volatile tranche, repriced with the portfolio each year. Note also that Social Security is netted off the liability rather than added to the assets: it is a stream that retires part of the obligation, not capital Sarah can spend down.
Two things to notice. The surplus buys Sarah an extra $14,000 a year for twenty-five years: a materially larger life, starting immediately, at the age she can best use it. And the funded ratio barely moves for the first fifteen years: the liability shrinks as fast as the portfolio does, which is exactly what a correctly-sized decumulation path looks like.
By 85 the surplus is exhausted, she is precisely 100% funded, and the remaining path is level consumption to a terminal wealth of zero. This is how the Merton consumption rule works in practice: the formula continuously recalculates the spending that exhausts the endowment over the remaining horizon.
Perkins is right that experiences have a time value no formula can capture: a trip with your grandchildren at 65 compounds in memory for decades; the same trip at 85 may not happen at all. The funded ratio cannot measure this. What it can measure is whether you can afford the experience. The philosophy says don't defer. The mathematics says here is exactly how much surplus you have, and here is the path that exhausts it optimally.
Die With Zero + The Funded Ratio
| Die With Zero Says | Funded Ratio Provides |
|---|---|
| "Spend it while you're young enough to enjoy it" | When you can start: funded ratio ≥ 100% |
| "Don't die with too much" | How much surplus you have: funded ratio − 100% |
| "Money has a time value for experiences" | The dynamic path: consume surplus early, core spending throughout |
| "Carve out bequests separately" | Bequest as a separate liability with its own PV |
| "Stop accumulating when you have enough" | Exactly when "enough" arrives, priced at the no-arbitrage rate |
The two frameworks are not in tension. They are complementary. Die With Zero provides the philosophy: life is finite, money is instrumental, dying rich is dying wrong. The funded ratio provides the engineering: the measurement that tells you where you are, the dashboard that tells you what's at risk, and the consumption rule that tells you how fast to go.
Bill Perkins changed the conversation about retirement from "how do I survive?" to "how do I live?" That is the right question. The funded ratio is the quantitative answer.
Your money exists to fund your life. Not to survive you. Know your funded ratio, spend your surplus, and die (as Perkins insists and the mathematics confirms) with zero.
That's the framework. Run your own funded ratio, and subscribe for occasional updates.
This is Post 11 of The Funded Ratio — a series on amifunded.com applying actuarial principles to individual retirement portfolios. Built on the Campbell-Viceira (2002) intertemporal asset allocation framework, the lifecycle consumption theory (Merton, 1969; 1971; Yaari, 1965), and Bill Perkins’s Die With Zero (2020). The dynamic decumulation formula is a discrete-time application of Merton’s optimal consumption rule, the annually recalculated virtual annuity of Waring and Siegel (2015). No financial advice is given. All methods use publicly available academic research and market data.