John Ferry
02/01/2006
Paul is a 50-year-old resident of Denver who worked in the oil and gas business for 20 years. He has been independently wealthy since his parents passed away a few years ago, making him the beneficiary of a family legacy that began several generations ago, when one of his ancestors made a fortune in the tool business in Illinois. Paul now commits time to charitable endeavors and to investing. He estimates that he has approximately $8 million in investable assets, but he is a very conservative spender and only needs to spend approximately $150,000 a year. "I think as far as spending goes, it’s probably constrained by the fact that I have a family history of not being showy with it," he says. "At the front of my mind is living a comfortable life, but not having a real opulent lifestyle; I live in what you might call an upper-middle-class area; my son goes to the local public school."
Paul is currently spending around 2 percent or less of his portfolio annually, a figure well below that which would be considered dangerous in terms of long-term wealth preservation. However, he still carefully tracks his spending in Quicken. "I report back to my advisor what my expenses have been for the previous year, and he rolls that back into his model. From my expenses, and assuming an inflation rate and an investment target return, he calculates the money I need to have working for me in order to meet my day-to-day living expenses."
Unlike many affluent families that lose their wealth by the third or fourth generation, Paul’s family has successfully sustained its wealth over time. "I think they were lucky in that they didn’t make any huge financial mistakes from generation to generation," he says. "The previous generations were financially conservative like me." Indeed, the single biggest purchase he has ever made was when he wrote a check a few years back to pay off his $300,000 mortgage. "My advisor actually says we don’t spend enough, and has encouraged my wife and me to increase our spending," he says.
Clearly, his family tradition of never being ostentatious has served to
ensure wealth preservation, and continues to do so. "I’m well aware that markets
in the United States and around the world could drop a lot," he says. "If they
did, then I wouldn’t be happy about it, but I could maintain my lifestyle
without any compromise at all."
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