In 1966 the Guinness Book of Records named J. Paul Getty the richest private citizen in the world. At his death in 1976, his net worth was estimated at more than $25 billion (in today's dollars). You may remember the name, and you may remember the story of his grandson.
J. Paul Getty was famously frugal, and the kidnapping of his grandson is one verifying story.
Getty's grandson, John Paul Getty, III, was kidnapped in 1973. The kidnappers demanded $17 million (around $94 million today). John Paul Getty, Jr. asked his father for the money, but Getty did not pay the ransom, suspecting that it was a ploy by his grandson to extort money from him.
Roughly four months later, Getty received a portion of his grandson's ear in the mail and a new ransom demand of $3.2 million (around $18 million in today’s dollars). The kidnappers then further reduced their demand from $3.2 to $3.0 million. Getty still wouldn't pay. He stated that he would pay no more than $2.2 million; the maximum amount that was tax deductible at the time.
Getty ended up paying the $2.2 million of the ransom that was tax deductible, and then loaned the remaining $800,000 of the ransom to Getty, Jr. (at 4% interest) to complete the ransom payment to the kidnappers.
Getty was negotiating with his grandson's life on the line. While the equivalent of $18 million today is certainly a lot of money, bear in mind that Getty's fortune was estimated at $25 billion only 3 years later. The ransom demand was likely less than 1/1000th of Getty's net worth at the time.
Does this sequence of events give us an idea of J. Paul Getty's priorities? Money appeared to have come first for him. Didn’t Getty have enough money to satisfy himself?
To be fair with Mr. Getty, he did state two reasons for not paying the ransom:
- He stated that by submitting to the kidnappers' demands, he would be placing his other 14 grandchildren at the risk of copy-cat kidnappers, and
- He contended that giving in to the demands of criminals and terrorists would further the continuing increase of violence such as terror-bombings, "skyjackings" and the slaughter of hostages.
But maybe his drive for more money did play into his thinking and his decision.
For the several of us who haven’t amassed our $25 billion yet, there is a certain amount of savings we need. The general rule of thumb for calculating this number is 25x the annual amount you will need in retirement. That’s the 4% draw-down thinking. And that “safe” percent draw-down is still getting lower, according to our Simply Financial radio show guest (aired May 26, 2018), Dr. Philip Romero, Professor of Finance from the University of Oregon.
But who likes rules of thumb? We at Insight Folios Inc. often prefer that dividend income along with other income streams cover the annual amount needed in retirement. When supplemental dividend income covers your expected expenses, you are truly financially free. Relying on dividend income rather than selling portions of your portfolio to generate income frees you from the worries of what the market is doing. And future dividend growth adds an additional buffer as well as can help to create inter-generational wealth.
Even if the market were to experience a 50% decline, it wouldn't make a difference to your lifestyle as long as your dividend income keeps coming in. In fact, market declines create compelling buying opportunities.
We at Insight Folios strive to create portfolios that are comprised of high quality dividend growth stocks that are trading at fair or better prices, to help our clients achieve their financial freedom.
Maybe J. Paul Getty's biggest mistake was focusing on money itself as an end goal, and not on what money provides. Focusing only on having a larger net worth with no end in sight puts too great an emphasis on the importance of money. It’s not all about “standard of living,” but maybe it’s more about “quality of life.” Conversely, not thinking about retirement, investing, or saving, at all is a recipe for disaster for your future self.
Come visit with us and we’ll show you the impact on your future of having an understandable financial plan that includes a dividend growth portfolio using our proprietary Simplicitree® software.