A Middle Path and the Courage to Take it

The following, recent, and unrolled Twitter thread by AJA Cortes (@AJA_Cortes) is a wee bit polemical and maybe a little off path with respect to my usual vibe, and might be vaguely risky here, but it harmonized with some thoughts I had recently about my own journey into, and maybe out of, retirement finance:

Masculinity is RISK taking. To "play it safe" is a negatively feminine quality, the desire to protect oneself from harm and consequence. Operating by fear is always cowardice. What does "negatively feminine" mean? Its means when a feminine trait takes on negative form. Impulsiveness and destructive behavior would [be] the "negatively masculine" equivalent (and complementary inverse). The role of father is to introduce tension to his children so that they might be brave. A son who takes no risks is an emasculated individual. A daughter who takes no risks and is fearful will always be at risk to be manipulated by safety and by group think. Men who don't take risks and live for safety are bitches[; e]veryone is disgusted by them, both men and women. There is an inherent intelligence in us all that recognizes bravery, and is repulsed by cravenness. AJA Cortes 

Reading this recalled to mind the crouch-of-fear posture I took for myself in 2010 at about age 52. That posture was not without cause methinks because I had just gone through : 1) the breakage of a 20 year marriage and the emotional, family, social and work network and financial fractures that come with that, 2) the global financial crisis that was at it's very worst when the settlement deal was being finalized, 3) a malicious bad faith trick that disorientingly moved me to a state I do not consider home, now or in the future, so that I would not fight custody across state lines...which I would have, 4) my conscious choice not to re-enter the professional workforce in order to maintain continuity of care for three kids in unstable circumstances...and the foregone wealth that comes with that choice (i.e., I retired), and 5) a coeval financial review that pointed towards a possible 80% chance of "risk of ruin" on the post-divorce path then being followed.  So, yeah. "Crouch of fear."  Entirely reasonable, right? I think so. Thought so.

But crouches of fear are a negative quality, repulsive and emasculating, as the quote suggests we consider it, even if there are visible and possibly reasonable root causes.  One way out of that crouch, or at least palliating the fear, back then for me was to perseverate on retirement finance in order to understand, at least financially, what I was dealing with. I had naively swallowed the idea, probably from that horrible ad that used to run on TV, that there was "a number," one number out there and if one "had it" everything was going to be ok.  Maybe there were even several numbers. Either way I entered on a quest to find and understand the numbers.

Numbers, however, are ridiculously easy to find.  An excel spreadsheet, some account statements, maybe a few lines of code? Then numbers can be found in full abundance.  Your advisor loves numbers. Everyone loves numbers.  Numbers give the illusion of answers.  But there are no answers because the future will always be beyond our grasp.  What there is in it's (answers/numbers) place is a "way," a path, a process.  A path, I might add, with many landmarks that change with each mile.  I touched on this idea in my 5-processes paper and there I called it "continuous triangulation" or something similar. I still believe that methodology is sound.  But recall that in 2010 I had no method or perspective. I still thought there were fixed answers...even in the context of a process. I also thought that there would be answers somewhere in the extremes: allocate everything to equity! Or all bonds!  Spend the very minimum. Constant spend! Or wait, no, adapt 100% to conditions. Annuitize everything. Or maybe nothing. But this binary, extreme way of thinking is an adolescent, middle school way of thinking.

In 2019, I am, thankfully, now no longer in a crouch of fear. I could say that's because I ginned up that continuous triangulation methodology I mentioned but I know that's not really it. Or maybe it was the lifestyle changes: losing weight, drinking less, lifting more, eating pure, etc. While that latter lifestyle thing is powerful, I know that's not really it either though it's strong.  The point-of-view change, rather, is most likely due simply to the passage of time and one hell of a bull market. But I will also credit, as long as I am posting, some other, softer, contextual changes.  I'll offer two examples though there are probably more: 1) I found a "middle way," and 2) I found a little courage. #1 was an outgrowth of coming up with the method by looking at numbers and #2 no doubt came from both #1 and the lifestyle changes I mentioned.

1. The middle way.  

This phrase sounds vaguely Buddhist, which it is. I suppose that this is a rare case where I can put my B.A. in religion to work. I recall a class I took in 1979 taught by a visiting Sri Lankan scholar.  We spent a ton of time on early Buddhism narratives and the Noble eight-fold path. I could dig into that memory but I'll let Wikipedia do the heavy lifting for me here:

In the Pāli Canon of Theravada Buddhism, the term "Middle Way" was used in the Dhammacakkappavattana Sutta, which the Buddhist tradition regards to be the first teaching that the Buddha delivered after his awakening.^[b] In this sutta, the Buddha describes the Noble Eightfold Path as the middle way of moderation, between the extremes of sensual indulgence and self-mortification:^[2]

Monks, these two extremes ought not to be practiced by one who has gone forth from the household life. There is addiction to indulgence of sense-pleasures, which is low, coarse, the way of ordinary people, unworthy, and unprofitable; and there is addiction to self-mortification, which is painful, unworthy, and unprofitable.

Avoiding both these extremes, the Tathagata (the Perfect One) has realized the Middle Path; it gives vision, gives knowledge, and leads to calm, to insight, to enlightenment and to Nibbana. And what is that Middle Path realized by the Tathagata...? It is the Noble Eightfold path, and nothing else, namely: right understanding, right thought, right speech, right action, right livelihood, right effort, right mindfulness and right concentration.^[3]

I could have used Goldilocks as an analogy, I guess, but this is better.  Now, just think of this in terms of spend rates. Self mortification through an ultra-low consumption plan seems a little dour. On the other hand, blowing money on yachts and extreme travel seems to at least be risky if not exactly "low, coarse, and unworthy," though there is likely a case for that judgement, too.

Lest you think this analogy is just empty blogging fuzz, we can demonstrate this principle in action in a number of my recent analytically-driven posts.  In the following illustrations, let's ignore entirely the exact set-up and parameterization or even the reason for having done them. The point I'm trying to make is that in almost every (not all) analysis I do, going down a "middle path" seems to obtain the best results.  Other parameterizations might ruin my point so I won't test this idea too much...yet.

Now, if we say that some of the most powerful levers that we have in navigating a post retirement path are:

- Spend rate choice
- Allocation (risk) choice
- Degree of adaptiveness along the way, and
- Willingness to hedge longevity risk via annuities

(and there are probably others, this is just my favorite list) then we can see the middle way idea in the following three figures, all of which are developed using a lifetime consumption utility model described here:

Figure 1 was from a post I did on Having Some Fun with Portfolio Choice vs. Lifetime Consumption Utility. It depicts the trade-offs, as measured in utiles (as in "expected discounted utility of lifetime consumption"), between the spend choice and the allocation choice.  The middle way in both spending and in allocation seems to be the place to be in this chart.  I could no doubt mess this up a bit with radical changes in some of the parameters but for at least this one set, the broad middle appears to be fecund.   The extremes in both spend rate and allocation don't do us any favors. Partial annuitization with real annuities will change that conversation but we haven't gotten there.

Figure 1. Spending vs Allocation choice (one set of param)

Figure 2 is a little harder to see but does, I think, illustrate the same idea. This was from Spending, Rules and Habit a few weeks back.  The evaluative method is the same as Fig 1 but here we are looking at trade-offs between spend choice and degree of adaptivity (habit) which was scaled, in the post, between 100% constant and almost 100% "adaptive to changes in the endowment."  Again, ignore the exact parameters and note that the highest spot in utility terms is in the middle...of both spend rate and degrees of habit.  It's that little yellow patch on the top.

Figure 2. Spending Choice vs Habit and Adaptation (one set of param)

Figure 3 was from a game I was playing in Nominal annuity allocation vs deferral - supplement to last post. Evaluative framework is the same but here I was looking at trade-offs between partial annuitization and annuitization deferral age. It's important to note that this was with fake in-model nominal annuities. Real annuities or in-model abstracted instantaneous tontines ala the Yarri approach would change things a bit.  The main point, again is that there is a middle way here too. Some annuitization makes sense given only what's in the model but not everything; some deferral, too, but not too late. You get the idea.   

Figure 3. Partial (nominal) annuitization and deferral age (one set of param)

So, Middle Way.  Of course, on the margin this is probably rather bogus. In the presence of things like extreme wealth (either low or high) or high annuitization we'd see something like the risk-allocation go towards the extremes. But that's not my point today. The point here is that if I believe what I'm saying in general, and I do, then having "a number" like those in the TV ads is more or less meaningless. And performing the "continuous triangulation" methodology that I laid out now seems a bit overwrought. Even making overly-specific conclusions about spend rates, allocation choice (and here your advisor will probably gasp and then deny), annuitization choice, and variable spend rules seems to fade in importance a bit.  Basically, I gather for myself that if I can successfully eschew the "extremes" and focus my being on some kind of "middle way" along all fronts then I probably don't really (but maybe sometimes) need "numbers" or "methods" or advice on precision....I'll be "ok" if I can follow a middle path.  But then again that path will always be on a razor's edge. The razor's edge idea (that was going to be the original name for the blog, by the way, but it was taken), isn't Buddhist but Hindu. Here, for example, is the Katha Upanishad: 

"Like the sharp edge of a razor is that path, so the wise say—hard to tread and difficult to cross."  

2. The Middle Way and Courage

The middle way in retirement finance is both an imprecise practice and something deeply embedded and instinctual in lived experience moment by moment. It's what we all do. But it's not really a plan and it's not ever prospectively knowable.  From any particular vantage point over time it (the exact way) is neither known nor knowable but still needs to be found. But, by definition, there can be no plan here; nothing is plannable; nothing is fixed; but the consequences are immense. That is why fear is so debilitating on this kind of fuzzy middle-path. I mean, if I were to be presented with one of those unknown unknown events that sometimes crop up (and we know they happen) what will I do? How will I find the way? Freeze, cower and piss my pants? Or step up and walk towards the shooter?  To ask this question is to answer it.

I used to hold a high estimation of "indifference" in these kind of situations, something I considered naively to be a zen-like virtue.  But that idea came from my trading where it probably is a virtue, especially when shorting options on commodity futures. If I hated the losses I must love the wins which is a terrible way to live a trading life. The goal, rather, was to be indifferent to both win and loss so that the process, the system over time, given stability in both edge and odds, has a chance to work its magic.  But life is not trading, there are serious consequences.  Just like one does not want a calm, cool, collected pilot to be indifferent to all possible outcomes of a flight but rather to be courageous, one also does not want to be indifferent to the consequences along the retirement path.  

What is needed, and what I lacked in 2010 in what AJA Cortes implied above is an unmanly way of being, and what I alluded to in the last paragraph's pilot analogy, is courage. I used to think this kind of thing was antithetical to rational thinking or, in our analogy above, Buddhist equanimity. But it's not, really.  Here is one take: 

In Buddhism, courage, or fearlessness, is highly valued. In one of his letters, Nichiren...urged his followers: “You should not have the slightest fear in your heart. It is lack of courage that prevents one from attaining Buddhahood...”

Many people live their lives locked in a paralysis of fear, seemingly unable to take a step forward to resolve a deadlock or reveal their true potential. These challenges differ for every individual, both in their nature and their scale. What may to one person seem a simple problem may be experienced by another as overwhelming and insurmountable. But the process of summoning up the courage required to take action is always the same regardless of how seemingly big or small the challenge.

Here is another random internet take on a Buddhist mindset. If it's on the internet, it's true, right? 

There is no nobler vision than a willingness to voluntarily encounter the unknown. As human beings, we are designed to go beyond what’s comfortable in order to grow and to develop. This growth is measured in large part by how bravely we face suffering in the forms of conflict, disagreement, disappointment and grief.

Here is one more, a little more directly, from Bhaya-bherava Sutta 

"And while I was staying there a wild animal would come, or a peacock would make a twig fall, or wind would rustle the fallen leaves. The thought would occur to me: 'Is this that fear & terror coming?' Then the thought occurred to me: 'Why do I just keep waiting for fear?"

And all of this is before we get into other modes of thought, say, for example, the Shinto- and zen- derived tenets of Bushido, way of the warrior, where courage among other virtues is revered.  If I worked at it a little harder I would no doubt find comparable threads in all other faith and honor traditions but I had to complete the one analogy in my post here.  It works well enough to make my point, though.

So, the missing element in my foray into retirement finance was probably never really math at all, or at least not 100% math anyway, it seems to have been character...for a while.  Maybe it was the weight lifting or the diet changes or the weight loss or the blog research or the relationship changes or the not-un-related-to-the-other-changes up-tick in T-levels. No idea. But confidence seems to have been what came back to fix my problem by way of all of that other stuff; not really the math. Today, while I have neither too much nor too little to be certain that I can make things work over the long haul (still on a razor's edge), I am also not bending into a fear-crouch that helps neither me nor my tribe.  11 years! and I have prospered and grown. I now know that if I get whacked again, and I've forgotten how many times I've gotten whacked over a lifetime, I know I've rebuilt myself at least once so I know I can build something new at least one more time.  

Concluding Thoughts

Originally I was going to end with the above but that would have been the weakest closing tie-up in my blog history...but then this won't be much better.  

I've been doing this ret-fin thing now for a while. I did a few exploratory posts on LinkedIn in the last quarter of 2014. So that's about five years with some rounding.  And I did the early analytics and simulation work that started me off for a year before that. I think I first read Milevsky's "Seven Equations" in 2012 so let's call it, end-to-end, maybe six or seven years of quant retirement finance. That's a lot of numbers and spreadsheets flowing under the bridge.  I even recently consolidated what I know into 168 pages of quant retirement finance. This post, on the other hand, tells me that I'd (almost) trade all of that for the two principles articulated here: Middle Way and Courage. That latter word can go by a bunch of other related names: resolve, focus, commitment, fortitude, grit, blah, blah, blah....  Whatever. In unison the pair of the two is a powerful way of living. Don't get me wrong. Numbers matter and are necessary. They are the landmarks by which one navigates the way. But that makes my point for me. The numbers are landmarks, not the way itself.

Maybe it's a little like martial practice. Most honest practitioners in that discipline, if you ask, and if they will tell you, will say that the vast majority of outcome-success comes not so much from the techniques (i.e., numbers) themselves but from broadly defined situational awareness (i.e., the way) just as within a technique, the majority of outcome-success often comes less from the actual move itself than it does from being centered, grounded, and having proper zanshin.

Notwithstanding my martial metaphor, we could perhaps at least reflect back on the AJA Cortes question about "Men who don't take risks and live for safety...?" His answer was, well, you know...  Hmmm, retirement finance as slur. Whatever it takes.