My last article, One Dozen Thoughts on Dealing with Risk in Investing for Retirement, was a mashup of two of my older articles Managing Money for Retirement and From Stream to Shining Stream. I wrote as a submission to a Society of Actuaries request for essays on the topic of Post Retirement Needs And Risk Committee Managing Retirement In Light Of Diverse Risks. I added more material, chopped out some of the weaker stuff, and tried to rewrite it to have a consistent tone, etc. As Susan Weiner, our go-to person on investment writing says, “The best writing is rewriting.” Given some of the responses I got, the article was well received. Hopefully the folks at the SOA will like it as well, but it will probably be the least technical essay they receive. It also still has some typos. Oops. So it goes.
There was one comment on the article that I would like to highlight. Here it is:
The other thing to watch for with retirement spending is not spending enough of your investments, especially in early retirement. Many studies have shown that actual spending in retirement decreases by around 50% from age 55 to age 80. One study in Germany showed that people’s wealth actually started increasing again in their 70’s as their pension incomes exceeded their lifestyle costs, with the resultant increase in savings.
People need to think about this in how they structure their retirement spending. It may make complete sense for someone with a $1 million portfolio and a standard government pension to spend $800,000 of that $1 million by age 80, leaving a $200,000 cushion for the lower cost part of their lives as most of their day-to-day living expenses will be covered by their pension.
People need to spend their money when they are active and mobile and able to enjoy it. I think the financial press needs to talk about this more, so people are not scared into not spending their money until it is too late.
The author of the book that I most recently reviewed, Carlos Sera, gave one of his sayings on page 97 of his book:
“There is a fine line between over-saving and under-living.”
That particular story dealt with a couple that had been especially frugal, and after not earning all that much, at retirement had $6 million. They had a traditional marriage, and the husband handled the money entirely. He worked until 72, retired due to incapacity, and on the day of his retirement, he handed his wife a check for $3 million.
She thought it was a joke, so for fun she tried to cash the check. To her surprise, the check cleared. Then came the bigger surprise — her amazement gave way to anger! All the years of self-denial, and they were this well-off! There were so many things she denied herself along the way, and now both of them were too old to truly enjoy their riches.
There’s more to the story… the point the author goes for is mostly abut how husbands and wives should learn to cooperate on the shared tasks of household economic management, so that both are on the same page, and they can be agreed on goals and methods.
I agree with that, and would add that the best approach on spending versus saving is what I would call a conservative version of the “middle way.” Make sure that you are provident, but balance that with contentment and a happy enjoyment of what you have. Life is meant to be lived.
Yes, it is good to be prudent and frugal, but not to the point where you amass a lot of assets and never enjoy them.
[Now for those not crazy about Christianity, you can skip to the end.]
In Ecclesiastes 5:13-20, Solomon says [NKJV]:
There is a severe evil which I have seen under the sun: riches kept for their owner to his hurt. But those riches perish through misfortune; when he begets a son, there is nothing in his hand. As he came from his mother’s womb, naked shall he return, to go as he came; And he shall take nothing from his labor which he may carry away in his hand. And this also is a severe evil— just exactly as he came, so shall he go. And what profit has he who has labored for the wind? All his days he also eats in darkness, And he has much sorrow and sickness and anger.
Here is what I have seen: It is good and fitting for one to eat and drink, and to enjoy the good of all his labor in which he toils under the sun all the days of his life which God gives him; for it is his heritage. As for every man to whom God has given riches and wealth, and given him power to eat of it, to receive his heritage and rejoice in his labor—this is the gift of God. For he will not dwell unduly on the days of his life, because God keeps him busy with the joy of his heart.
Ecclesiastes 4:8 and 6:1-3 say similar things, and are cited by the Larger Catechism in question 142, where it says:
What are the sins forbidden in the eighth commandment?
The sins forbidden in the eighth commandment, besides the neglect of the duties required, are, theft, robbery, man-stealing, and receiving any thing that is stolen; fraudulent dealing; false weights and measures; removing landmarks; injustice and unfaithfulness in contracts between man and man, or in matters of trust; oppression; extortion; usury; bribery; vexatious lawsuits; unjust inclosures and depopulations; engrossing commodities to enhance the price, unlawful callings, and all other unjust or sinful ways of taking or withholding from our neighbor what belongs to him, or of enriching ourselves; covetousness; inordinate prizing and affecting worldly goods; distrustful and distracting cares and studies in getting, keeping, and using them; envying at the prosperity of others; as likewise idleness, prodigality, wasteful gaming; and all others ways whereby we do unduly prejudice our own outward estate, and defrauding ourselves of the due use and comfort of that estate which God hath given us. [Emphasis mine]
Along with questions 140 and 141, they summarize most of what the Bible teaches on ethics in economics. My emphasis is the last phrase “defrauding ourselves of the due use and comfort of that estate which God hath given us.”
This may be a surprise to some, but (among other things) God wants us to enjoy life. That is not the highest goal, but God commends it through the voice of Solomon in Ecclesiastes multiple times.
Now, not everyone in Christianity thinks this way. John Wesley famously said, “Earn all you can. Save all you can. Give all you can.” This is admirable as far as it goes, and Wesley’s life reflected it. He was very industrious, frugal, provident and generous. But in the middle of his life, he did not purchase and enjoy some blessings, in an effort to give more to the poor.
Why? Black tea was relatively expensive back then, and the lower classes were spending too much of their money on the relative luxury of tea. Wesley liked tea a lot, but gave it up for two reasons: to set a good example to the poor, and have more money to give to aid the poor. (He also abstained from alcohol, fasted several days a week, and ate cheaply when he did eat.) That said, occasionally bothered him that some of the money he gave to the poor got spent by them on tea. Oh well. With something that is not in itself a sin, it was probably better to let people spend their money as they saw fir, and not discourage them by arguing that tea was a wasteful luxury.
I would amend Wesley and say it this way, “Earn a competent amount. Save a good portion of it. Give to poorer brothers who are ailing, despite doing their best. After that, enjoy the blessings God has given you.”
There is a reason why God is portrayed in the Parable of the Lost Son as a generous man who throws a party when his younger son repents of riotous living, while the older son (representing the Pharisees) is portrayed as a miser. God is generous, while many religious people get proud of what they have achieved, seemingly apart from God, and resent those who get gifts, while they themselves work. This is parallel to salvation, which cannot be purchased no matter how hard we work, but must be received as a gift from Jesus, who did all the work for those who would receive the gift of salvation. Echoing that, C. S. Lewis in The Screwtape Letters portrays God as jolly when “the patient” gets a girlfriend, while the demon Screwtape boasts of the grand austerity of Hell.
Closing this section, I would simply say take care of all your other obligations to God, but if God has given you something legitimate to enjoy, then enjoy it, and don’t feel guilty. Rather, take the opportunity to thank and praise God for the blessings he brings.
Assets and money are tools. They are valuable, but they are a means to an end. Use them to enjoy life, while being prudent as you do so.