MONEY

Madoff’s Retirement–And Yours

So Bernie Madoff is guilty. He’s in jail, and it’s likely, following his scheduled June sentencing, he’ll stay there for the rest of his life. Unlike his victims (and the rest of us), the 70-year-old crook doesn’t have to worry about how he’ll spend his retirement, or whether he has enough money to support himself. Lucky him.

Madoff hasn’t said much about what was going on in his head while he was carrying on his scam, but one thing he did say last week as he pleaded guilty was striking: “…(A)s the years went by I realized that my arrest and this day would inevitably come.” He knew he’d get caught. He knew he’d go to prison. Somewhere along the line, what was probably an initial, impulsive decision to fake a few months’ returns gelled into an economic decision: If I’m going to pay for my crimes some day, why don’t I delay that day as long as possible? That way I minimize the time I spend in jail and maximize the time I spend on yachts spending other people’s money–and revelling in the adulation and envy they feel toward me. Once Bernie Madoff got in deep, this was a totally sensible economic decision: Enjoy the benefits and delay the costs as long as you can. (Except, as my colleague Penny Wang has pointed out to me, Madoff may have underestimated the costs: He’s ruined the lives of his wife and children, not just the clients he knew he was ripping off. And, depending on what you believe about the afterlife, his punishment might last an eternity.)

The whole thing strikes me as a lesson in personal finance, an ant-and-grasshopper story. One tactic is to pay for things now that you enjoy now (your dinner) or later (your retirement), like the ant who stores up food for the winter. What Madoff did for many years–like the grasshopper and like other thieves who have a chance to enjoy themselves before they’re caught–was to enjoy life now and pay for it later. A non-criminal version of the same approach: Put a vacation or other goody on a credit card now, and spend a few years paying down the debt afterward. People make personal-finance decisions like this all the time: Suffer now & enjoy later? Or enjoy now and suffer later? Madoff made his decision, with horrifying results for his victims and a likely life sentence for him. But I guess he thought the yachts were worth it.

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