Good squirrel

It's remarkable how behaviors found in nature and the animal world can provide insights into our own instinctive behaviors and thinking.  

While much of what we observe in animal behavior is 'present'-focused – food, water, shelter and safety as examples – we clearly have many examples of forward-looking behaviors and actions that speak to a planning and preparation focus. 

Whether it be bears adding fat stores that will sustain them through a long winter of hibernation, birds building nests, or squirrels stuffing their cheeks with nuts in the fall to store in their winter dens, animals seem to anticipate and act on an imminent change of seasons.  

This 'saving for the future' sentiment can be very strong for certain people as well.  My observation has been that a sacrificial saving bias found in pre-retirees is a tough switch to turn off in retirement. The very behaviors that reflect good stewardship and responsible financial management seem to cement our hard-wiring and can often get in the way of living an enriched and fulfilling life. 

In the absence of a thoughtful drawdown plan for retirement assets we can become fixated on the high water mark of our investments.  Many retirees will adopt a gamification approach to their finances where they need to level up and not let the 'number' fall below their previous high score.  The problem with this approach is that it will subconsciously apply the brakes to spending as a method of controlling the outcome of the game. 

Achieving balance

To be clear, I don't view an ever-expanding net worth statement as an indication of retirement 'success'.  Financial assets are intended to provide utility and enable a full and enriched life.  They are not to be collected like awards or medals in a trophy case.  The problem with maintaining a sacrificial saving bias in retirement is that you will underlive your potential.  Worse yet, the largest beneficiary of excessive frugality in retirement is often-times the tax man.   Deferrals in taxable accounts like RRSPs simply lead to an ever expanding tax liability for your estate; a tax bill that is quite often in excess of 50% of the asset value. 

Let's put that in perspective...Given that your savings efforts from years ago were implicit trade-offs between lifestyle today in exchange for future spending, this tax bill is not desirable.  The unintended consequence of not spending in retirement, is that your contributions from years ago were really outright gifts to the government.   Just think of the missed opportunity to enrich not only your life, but the lives of those that you care about. 

An intentional retirement income plan identifies the cashflow required for the target lifestyle (including travel), incorporates future major purchases, accounts for unplanned emergencies, and carves out any legacy or estate objectives.  When conservative growth assumptions are used in conjunction with an optimized tax plan, spending should be done guilt free and independent of the ever-changing investment statements. 

For some, the reluctance to spend is rooted in anxiety over an uncertain future.  This uncertainty can be greatly reduced by simply having a comprehensive plan that is stress tested for the worst of market and economic conditions.   In the absence of a plan, we can often catastrophize the impact of daily news and events to the point of paralysis. 

Lifestyle & healthspan

For those who have not been able to identify interests or pursuits outside of work activities, an unhealthy preoccupation with portfolios and financial markets can fill the void and lead to an obsession with the daily fluctuations of retirement assets.  Keeping in mind that a well-designed income portfolio should have minimal exposure to variability for at least 1 to 2 years of cash flow needs, a significant amount of emotional energy can be expended in areas of little consequence to the here and now. 

Instead, energy should be expended in areas that give you joy in the here and now.   There are very practical reasons for re-focusing your vision to shorter timeframes.  Whereas your more youthful accumulation years benefited from an eye towards the future, for retirees the future really is now.    

I was reminded of this a few years back when a good friend invited me to go heli-skiing in the Rockies.   As much as I love skiing I balked at the suggestion as I considered it a luxury I couldn't afford.  This friend is a physician who has a knack of distilling my insecurities down to some essential truths.   He told me that we have this fleeting window of time where we have finally reached a point where we can afford such things, yet have precious few days remaining to be able to actually do them. 

I think of that a lot these days...I never did go on that trip, and I'm embarrassed to say that I'm beyond the time where it is feasible.  I'm physically fine, but extreme sports would be pushing my luck.   My appetite for risk is limited to pickle ball these days. 

While we all hope to have longevity and a long lifespan, we can't always count on an equally long 'healthspan'.  The American Heart Association published a study in 2020 showing that while the average lifespan of an American was 78, the average healthspan was only 66.  If healthspan is defined as the age at which we can expect to live with reasonably good health, then the 12 year gap quantifies the difference between living and living well.  We need to take full advantage of this time period marked with good health and mobility; in other words, the time where we can put our financial resources to best use. 

Don't ignore this fact as you build your own spending plan for retirement.  Front loading your spending makes best use of your good health.   Like the good squirrel who gathers nuts for winter, there comes a time when it's ok to eat...get to snacking. 

Cheers,