How Much Money Is Enough?

“Who is rich? He who is happy with his lot.”
– Pirkei Avos (4:1)

At my seminars on the New Tax Act, I told the audiences about the unprecedented estate planning opportunity over the next two years of making gifts. The Estate Tax, Gift Tax and Generation-Skipping Tax exemptions are all at $5 million. For a married couple, that means doubling the exemption to $10 million.

Making lifetime transfers (maybe calling them lifetime transfers is easier to accept than calling them gifts) is a well-recognized estate planning technique. Rather than hold onto all your assets until you die, make lifetime transfers to take advantage of currently available exemptions and exclusions and to insure that appreciation on the assets is not subject to estate tax later. In 2011 and 2012 there is a tremendous opportunity to avoid transfer taxes by making lifetime gifts.

The question is always “how much to give?” The real question underlying that is “how much do I need to keep?” How much is enough?

Enough money is not a financial concept. It’s in your heart and mind. We all have known people of modest means who are proud of their savings. And we have known people with millions who worry that they won’t have enough or want still more. Enough is not determined by some calculator with assumed rates of return and other variables factored in.

John D. Rockefeller was once asked, “How much money is enough money?” He replied, “Just a little bit more.”

Those who lived through the hungry 1930s (the Great Depression for you youngsters) may never get over the fear of not having enough money. The harsh reality of hunger, unemployment, deprivation, and hopelessness, left indelible marks. The fear that you and your family could be in want is deep-seated. When you’re below the survival line, enough means having food, shelter and clothing. But how much more do you need?

Proceedings of the National Academy of Sciences published an August 4, 2010 paper by Daniel Kahneman and Angus Deaton. The paper attempted to measure correlations between aspects of subjective well-being and income levels using surveys conducted by the Gallup Organization. They found that “emotional well-being also rises with log income, but there is no further progress beyond an annual income of ∼$75,000.” The quality of the survey respondents’ everyday emotional experiences did not improve beyond an income of approximately $75,000 a year. Isn’t that funny? A scientific paper to show that money does not buy happiness. says: “I’ve always been amazed at some, make that most, rich people, who clearly have enough money to live very well for the rest of their lives, but they continue to work very hard to have more and more [I’m talking about people who don’t really love what they are working at – I know some people love what they do and the money is secondary]. It leaves me wondering why more?

Could it be that no-one ever really feels rich, no matter how much money they have? That no matter how much is in the bank there could always be more? That our minds can still play tricks on us; making us believe that if we had just a slightly higher number in there, then we’d really be well off? Or that we’d be happier?”

Or is it really a matter of competition? Sonja Lyubomirsky writing for the New York Times quotes a Harvard study performed by economists David Hemenway and Sara Solnick which demonstrates a fascinating conclusion about monetary satisfaction. They found that many people would prefer to earn an annual salary of $50,000 provided that others are earning only half as much, rather than earning a yearly salary of $100,000 while others make double that amount.

Warren Buffet and Bill Gates have been giving their money away – billions of it. After a certain point, the increase in net worth makes no change in the lives of these billionaires and by giving their wealth away, they find meaning.

Few have that kind of capital to spread around. But the point remains, that each of us has an idea about what is enough. What’s your number?