South Florida. Carl Hiaasen novels. Palm Trees and spectacular white Gulf Coast beaches that, if discovered by Gulf Coast Texans, would leave modern-day Galveston’s second home market abandoned.
Chrissy Weaver plans never to leave Florida. She grew up in Coconut Grove near the beach, raised alone by her father, Earl, and without siblings. Earl was a Florida International math professor, giving him more time at home with Chrissy than most fathers. Her mother, Jane, tragically died in a car accident while driving down Hwy 1 with Chrissy, a toddler, in her car seat.
Chrissy didn’t recall that day but still regrets its outcome. Time has dispelled the middle-of-the-night “what-ifs” about the loss of motherly love, but Chrissy knows her brain is part Mom, a genetic gift to Chrissy. Growing up, Earl told her stories about Jane’s command of seven languages and contractual work for the CIA that remains mysterious because Earl never really knew where Jane was going when she made overnight trips on private jets a few times each month. Language is easy for Chrissy, and her fluency in Spanish and Mandarin has had a salary effect: multiple international business consultants wanted her on their teams. A skillset in demand but possessed by few. Like Tua Tagovailoa, but in the consultant category, not the NFL.
Chrissy took from Earl, too. She is a quant., snagging a master’s degree in Statistics at the University of Florida after graduating from UF’s Warrington College of Business. Chrissy, a strategy consultant with a Big Four firm living in Boca Raton, has a stunning CV. She adds statistical expertise and R modeling talent to her work team and takes pride in creating client presentations that champion her above her Tableau-loving consulting colleagues. Multi-lingual, brilliant reasoner, social personality, and ready for a view of her financial life. Her grandmother, “Nana,” gave her a gift that created the need.
Chrissy is Frugal. Really Frugal.
Nana undertook some estate planning, which we will get to in a moment. Chrissy’s $175k salary this year follows her talent, and her salary has been good for a few years, permitting her to accumulate $120k of non-retirement investments. Her living standard, however, is out of whack by any relative measure. Jewelry, higher-end travel on JSX to New York, spa treatments, etc., are not in her mix. Summarized by nine general categories of expenses, Chrissy’s actual living standard signals a person who lives far within her means. Discretionary spending is minimal. Monthly rent and utilities are very low.
It is as if Chrissy is trying to minimize her standard of living until she explains:
“I have no time to live outside the frame of my work life and travel schedule. On the weekend, I need to decompress. During the week, I have a very good expense budget, and I know I won’t work all my life. I’d like to be out by 60.”
More years in retirement than out of retirement are expected due to good family genes. Behind the expense listing, the gap between take-home pay and actual spending is not as wide as it seems. She utilizes an employer match to her 401(k) and contributes $3.5k annually. Federal income and FICA taxes peel off another $44.3k, leaving $90k of additional savings, more than half her pre-tax income. Snap judgment: Dave Ramsey would love her even though he has lost many of the Gen Z’ers.1
Chrissy can handle this gap in several ways while targeting an age 60 retirement date.
Increase 401(k) contributions to their maximum allowable level
Purposeful savings, the most obvious one being for a home purchase
These two choices are not mutually exclusive, and Chrissy may have other ideas, including spending less time decompressing and more time having fun on the weekend or upgrading her apartment.
Playing What-If with the 401(k)
Let’s suppose Chrissy jumps her 401(k) contribution to the maximum for this year, $23,000, and maintains this contribution level to balance her work life until retirement. Her actual spending this year will be the higher retirement contribution and the tax savings benefit from the tax-advantaged higher contribution amounts,
Can Chrissy increase her living standard today, tomorrow, and in the long run? Yes. We ran Chrissy’s baseline financial plan for max 401(k) contributions using economic methods that show how much room Chrissy has to increase her living standard after maximizing her 401(k) contributions.2 Chrissy’s next year's total optimal spending is represented by line 16, $169,436.
An algorithm under the hood produces the result in line 22. With housing expenses, income and social security taxes, and retirement contributions considered, Chrissy can fit her other actual expense allocations plus another $69,818 of fun into next year’s budget. She is not sacrificing her future either.
While this year’s best living standard plan is on display in the table above, these results were pulled from a year-by-year highest, sustainable living standard path for the entirety of her life. The entire plan is linked at the bottom of the page.
The Alligator Endowment
What about Nana? Chrissy did not know her maternal grandparents well. Her mother died when she was young, and Earl never engaged that side of the family when she was growing up. An occasional Christmas card would make it through the cracks, including a few bucks for Chrissy and a “Love, Nana” signature, but that was about it.
The fact is that Chrissy’s grandparents were entrepreneurs who built a tropical tourism business with an Alligator tourist company near the Everglades. Airboats and creatures. A circus among the mangroves.
Summers away, working with the grandparents would be terrific or terrifying, but Chrissy would never know. She learned at 23 that Nana had never forgotten about her when she received a phone call from an attorney. Nana had died, leaving $2.5 million in trust for Chrissy that would become available when Chrissy turned 45.
An inheritance eighteen years in the future stirs the financial planning kettle. How are the trust assets invested? Is Chrissy the rock-solid sole beneficiary? How would consideration of the inheritance affect Chrissy’s living standard today? Given trust assets are invested in a more conservative asset allocation that is 80% in a total stock market index fund and 20% in a bond market ETF, and Chrissy is the irrevocable beneficiary of these assets. It is more reasonable than not, to consider a projected value for the trust today to estimate Chrissy’s living standard path while maintaining maximum 401k contributions.
In the results below, we assumed the trust would reach $5 million in value in 18 years. Then, it becomes part of invested and available non-retirement assets that earn a 0% real rate of return, where returns match inflation. 401(k) assets earn 4% nominal. This is very conservative but without risk considerations.
The inheritance prospect raises the living standard by about $18k this year. Total spending, including taxes, is more than pre-tax income this year. Unusual and ill-advised? There is an explanation.
The prospect of an inheritance provides Chrissy with financial flexibility for the next 18 years until her endowment. Chrissy’s steady salary and $120k in the bank permit Chrissy to move the value of existing financial assets up in time to support her living standard. At age 45, Chrissy receives a large cash infusion after tax and plans to continue to work until age 60. At age 61, 401(k) withdrawals, spread out for the ensuing 34 years, kick in to supplement her investments during retirement. Social Security retirement benefits are optimized by waiting until age 70 to begin withdrawals.
What if Chrissy prefers to hold the value of an inheritance to her death with plans of gifting back, say, to the Everglades Foundation? It will take a bite out of her living standard, but end-of-life planning fits easily into economics-based financial planning.
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Wall Street Journal readers may have caught this recent piece on Ramsey.
Readers interested in the details, including the plan's investment assumptions, may find them at the bottom of the page.
It's fascinating to see how her upbringing and the surprise inheritance play such pivotal roles in shaping her financial strategies and life choices.
You are right, and she may feel one way today, and another way in five years. "As of today," a baseline plan can be assembled and no family or interest in one is in Chrissy's lens. If she is on the fence today, then setting aside some funds makes sense and it is easy to play what-if by looking at how a living standard changes when savings amounts move higher and higher.