Leeds on Finance: Imaginary Trust Funds

For the past two weeks, I had been preparing a bombshell to drop on Jenny. I had spent a lot of time meeting with accountants to put the information together. On Friday, I finally worked up the nerve and I sat her down to break the news. As best as I remember it, I said, “Jenny, I’m not sure how to tell you this, so I’m just going to come out and say it. My imaginary trust fund is going to run out sooner than expected.” Needless to say, she didn’t take it that well.

Jenny wanted an explanation. So, I gave it to her. I told her what happened. For the past 15 years, we’ve been doing a good job of saving for retirement and for our healthcare when we retire. Each year, I had been saving $100K for retirement and healthcare. I had been putting it in my imaginary trust fund.

My imaginary trust fund is an envelope. You would probably imagine that my envelope is pretty big – since it has to hold all this cash. But, it’s not. You see, my envelope doesn’t really hold any cash. What happened was that while I’ve been doing a pretty good job saving for retirement and healthcare, I actually needed to use that money for some other things. I spent some of it on education for my kids. I also spent some of it on an alarm system for my house (I like to think of this as defense spending). I also spent some of it on some pet projects (there was some promising research that promised to allow me to grow my hair back, etc.).

Jenny started to get angry when she heard that I had spent all of this money. She’s not really as financially savvy as I am. As she started to get madder and madder, she looked like she was about to vote me out of the office of “husband.” I knew that I needed to calm her and regain her vote. I said, “Jenny, it’s not nearly as bad as it sounds. I don’t have the cash in our trust fund envelope. But look…I wrote myself some IOUs. All of these IOUs are in the envelope.”

Jenny saw the IOUs and started to calm down. Seeing my chance, I told her, “Jenny, it’s even better than you think. We’ve saved $100K for 15 years. You thought that we only had $1.5 million in our imaginary trust fund. But we don’t. We have more. We have $2.5 million. Each year, the IOUs that I put in the envelope paid imaginary interest. So I spent the imaginary interest (on other things) and put more IOUs in the envelope. Now, our envelope has $2.5 million of IOUs that I’ve written. I told her that my biggest regret was that interest rates were so low. If they were higher, I could have written myself some even bigger IOUs. She agreed that this was a shame.

Still financially challenged, Jenny asked a silly question. She said, “aren’t we going to need to start spending some of this $2.5 million soon? You seem to be working less and you’re not getting any younger.” I told her that this was an interesting observation. But, I said, “remember those nice bankers who have loaned us $10 million in the past, when we were spending more than we were earning? While I expect to continue to spend more than we earn, we’ll borrow that money. In addition, I’m also going to need the bankers to replace me as the lender of this $2.5 million. I’m sure they’ll be fine with it.”

Never satisfied, Jenny said, “but if we have been spending our retirement and healthcare money to fund our extravagant living, and now we’re not making enough to save for retirement and healthcare, where are we going to come up with the cash to fund our extravagant lifestyle?” Oh, sweet simple Jenny. “You’re so cute when you don’t understand high finance. Don’t you remember why I talked you into having three kids? They’ll pay for it for us. They’ll just spend less on themselves and send more of their money to us. And, if that doesn’t work, I’ll take it out of their imaginary college fund.”

By the end, Jenny had calmed down. She said, “you’re so smart. You should run this country.”

I’ll be writing two more blogs this week with the Social Security and Medicare numbers and the dismal outlook. But, if you understand today’s entry, you are officially disqualified from running for Congress.

Leeds on Finance

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