I post a lot about retirement finance for a variety of reasons but there is a lot of other "stuff" when it comes to retirement finance and I thought, for myself at least, I'd try to contextualize it a bit. At the risk of being reductive, here (maybe a little like Maslow) is my hierarchy of retirement. For now anyway:
1. Purpose
2. "last-mile" Tactics
3. Retirement Battle Plans
4. Strategic Plans
5. Retirement Finance Theory
My view of the current ret-fin world tells me that 2 & 3 are the bread and butter that are served to the retail retirement crowds, as it very probably should be. But it is 1, 4, and 5 where I think there are some serious shortfalls and inefficiencies in the material available to the retail (me) crowd.
#3 (Battle plans) is, to my mind, the mainstay of advisory work and retail retirement planning. This is stuff like planning around spending considerations and lifestyle, Monte Carlo simulation, portfolio design and asset allocation choices, insurance and annuities, etc. etc. These are "The Plans" in capital letters. #2 (Tactics) is what I'll call "last mile" stuff and includes things like Soc Sec claiming strategies, Roth ladders and conversions, determining what sequence of withdrawal from what account, day to day implementation of spending rules, exact timing of retirement, estate planning considerations, etc. I will probably never touch #s 2 and 3 here at rivershedge because: a) others do it way better than I could (see earlyretirementnow.com, theretirementcafe.com, canIretireyet.com, howmuchcanIspendinretirement.com for some of the best on this stuff -- or your advisor) and b) I do not yet really feel in the thick of it, though I really am if I were to be more self-aware about my situation.
What about 1, 4 and 5, though? Here are some thoughts:
1. Purpose. I'll get to this some other day but I was reminded of this after reading a post at financialsamurai.com "Why Settle For A Good Retirement, When You Can Go For A Great One?" The guest blogger had a pretty good cover of the idea of purpose. encore.org has some of this, too but there are probably quite a few others. I think that this concept is incredibly important in a world were there are traditional retirees, early retirees, late retirees, involuntary retirees, FIRE retirees, side-hustle retirees disdained by FIRE retirees, fewer pensions and more self rolled plans, etc. I, myself, had, for a while, the sense of a universe-given purpose that has sustained me in early retirement so far (think: continuity of caregiving for school age children during a move/divorce as well as the desire to be as present as possible without indulging in baby-mozart level obsessiveness) but I am perilously close to being purposeless again, short of un-retirement, if I am not careful. I do not see this kind of discussion in the lit much but I am going to be paying much closer attention going forward. In my fake hierarchy, this could maybe be "under" Retirement Finance Theory but it doesn't really matter. I put it on top.
5. Retirement Finance Theory. This has been my mainstay so far for a number of personal reasons. First and foremost is that I got a retirement scare after I retired when I realized I did not understand the substructures and processes of the theory and I also came to understand that I was at great risk. I want to call this the retirement "deep structure" but that is a little pretentious and Noam-Chomsky-esqe so I will not indulge. But being able to "see" the underlying boundaries and processes and nature and math of the retirement "problem" became a personal need and goal and thus "rivershedge." A second reason I work on this is that I think there is some kind of weird and unnecessary sink-hole somewhere between the academic researchers -- and their practitioner equivalents or acolytes -- and retail investor/retirees like me. "Old" theory, plus any new insights that come to light through research or practice, do not flow efficiently down to the people that need to understand and use it the most. I think that is unworthy of the discipline and this has been where I am most trying to shine a light if only for my own purposes. The closest I can come to listing people that do this well are folks like Joe Tomlinson, Moshe Milevsky, and Dirk Cotton. There are some others. Another reason I dwell on this topic is that there is an aesthetic to the math that I enjoy. While I am not really a quant as such I can at least appreciate the, shall I say, beauty of the math and the joy that "seeing it" brings. You scoff. As I did. But I remember a math teacher in college (Art Gropen; I sat in the back of his calc class and said nothing for two terms in 1976...he, however, remembered me by first name 25 years later when I accidentally walked by him on a campus sidewalk) telling me that math was both beautiful and funny. Funny? Really? I didn't understand until about 6 years ago. I was working on a trading problem where I wanted to exit positions when price hit the 20 period weekly exponential moving average and then re-enter when it was at some level above. Since the exponential moving average is a function of a past price series and the current price (and thus it moves like the head of a snake with changes in price) I spent at least an hour (maybe more but I would never admit it here) doing the algebra to transform and determine when P = Exp(20). When my atrophied math skills finally solved the equation I burst out laughing because the answer was so simple and obvious. Funny. And beautiful. I like to "see" the math.
4. Strategic Plans. This is an under-reported zone in the retirement lit. With the exception of Dirk Cotton at theretirementcafe.com I can think of very few researchers or practitioners that touch on it much except incidentally though I have not looked very hard. And by strategic plans I mean things like traditional corporate-style strategic planning and any game theory-like applications. While "#3 battle plans" are appropriately prevalent in practice and the lit, they rely on planning and decisions that consider mostly normal random processes rather than things like theater-level (battle) planning, non-random chaotic events, high level game theory and thoughts about who is playing, or styles of planning in reverse through backward induction, etc.
I recall early in my management consulting days being vaguely resentful of the strategy consultants (I was a business process guy). And it wasn't strictly because they got paid 3 or 4 times what I was (which they were) or because of their elitist and exclusive snobbery (which they had; I chalked it up later to their insecurity of not being at McKinsey or BCG), or their bill rates (at the time it was like 4 or 5K per day or more vs a programmer at 1000 or 1200, maybe 2K for a manager; no idea what the rates are 17 years later). It was because their tool set was so stupidly simple for all that money. The go-to strategic tool often seemed to be nothing more than a 4-quadrant scenario planning thing: x-axis low to high this or that, y axis low to high this or that, name the 4 quadrants as scenarios and then come up with a plan of action if any scenario comes to pass. 5 grand a day per consultant for that?!? But that really is a powerful tool. I mean, how many retirees, when faced with a non-normal-or-random "chaotic disequilibrium" like health shocks or bankruptcy or natural disasters (hurricanes, say) or divorce have a pre-scripted strategic plan where if "x" happens they'll do (specifically) "a" and if y happens they will do (specifically) b? (as game theory, or Mr. Cotton, would say: this is a single player game against the universe). I personally have a plan now, but I'm thinking it is rare. Maybe I'm wrong.
Here is another example: asset allocation. How many retirees actually have an economically rigorous, real, dynamic, asset allocation "strategic" plan? Sure, a savvy few will have some type of informed allocation based on economic theory like Markowitz mean-variance analysis/optimization. An even savvier few or their advisors will be aware of the problems with estimation error and will have a rigorous analysis of forward estimates based on re-sampled frontiers (and maybe adjusted for current return expectations). But mostly, I'm thinking, it is seat of the pants or heuristic stuff. How many of them, though, will have an economically rigorous forward "active plan" using a backward-induction-stochastic-programming derived allocation template? i.e., if my age is x and my wealth is y, what is the optimal asset allocation under those exact conditions? if the step-change is too large, how exactly will I implement a (tax-efficient) transition? Precious few, I gather. Even Markowitz said he defaulted to 50-50 based on nothing more than a theory of regret. (on wiki, someone would add "citation needed" but it is out there). Maybe this kind of thing falls into categories 2 and 3 but I think this is broad-brush anticipatory (I'll call it strategic planning) stuff that typically gets short-shrift in normal financial planning.
Here is another example: Spending. Sure there are plenty of spending rules but how many know the plan exactly. If my endowment drops by 30% over the next 6 or 12 months, what specifically and exactly (and how, and did I put it in writing) will I change in my spending and for how long? Seat of the pants I'm guessing. Maybe this falls into item #2 or #3 but you get the idea.
Conclusion.
I hinted in a past post at quitting the blog due to the hurricane but it wasn't quitting rivershedge as such that I meant. RiversHedge is me exploring my own learning about the process I am in which will never stop. With or without the writing (with or without the blog) it will continue. What I was quitting might be described as quitting an over-emphasis on #5 and re-allocating to thinking more about #4 and #1 while still continuing to appreciate #5.
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