My inadvertent pandemic hedge

I was catapulted semi voluntarily into early retirement in 2009 at ~50. This was before I knew a whit about retirement or life-cycle finance which, in the end, would have confirmed my behavior anyway. The behavior in question was my very very conservative spending early in my retirement.  The basic idea was:

   A really long planning horizon

+ model-able risk as we know it

+ un-model-able uncertainty
+ lack of pooled-risk life income other than SS

+ ignorance of retirement finance and econ

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= low spending…until any or all of that changes…which it will

So, let’s call that risk aversion (economics) or common sense (me). Either way, the one constant from 2009 through 2019 – that’s ten long years – was that I was consistently shamed or badgered or harangued on this by financial advisors, ex girlfriends, my ex wife, popular financial media, you name it. My favorite was a financial advisor who said “live a little, bro.” Favorite because the bro got fired from my account for saying that. My least favorite was a string of ex girlfriends hectoring me to spend more on them out of a combination of what I can only assume to be self interest, ignorance, and/or greed. This effect transcended educational and economic strata. The near-broke were obvious but even the polished professionals wanted more lifestyle support (not sure that's the right framing) in casual relationships that didn't really warrant it. I don’t know if I was subjected to this because of something in me or it was the luck of the draw or there was some kind or residual inter-sexual evo-psych from our cave days.  No matter, they had no skin in the game though and the game that was being played involved my future self and my children, neither of whom could afford to add someone new that brought almost nothing to the table except financial fear or greed. That may sound a little harsh but dating in my 50’s in South Florida was an education a Minnesotan was not expecting. There were some odd pathologies going on over that interval that I have not seen before or since. 

My intuition, however, was correct I think.  It turns out – if we were to denominate things in time, which is wise in decumulation – that the incremental cumulative difference in monetizable net worth between a “live-a-little-bro spend" and my "risk-aversion spend" over 10 years translated to about three or four of five years (depending on how we count) of consumption going into COVID19. Of course some of that got clipped in March 2020 but the point is that I went into COVID more strongly positioned than if I had blinked at uncertainty in 2010 and then “lived a little.” Bro.  In 2020, let’s call the annual difference a hedge fee or an insurance premium on a pandemic-payoff product, the payoff of which is a bigger war chest when it's needed most. 

Nothing I’ve learned in the last six years has disabused me at all of what I imply above. I mean, one can’t reserve for everything otherwise one would be spending 2 cents a year and living in a cave but having a war chest for under-appreciated low-probability but big-impact-hits like divorce or war or pandemics or long term care is not totally irrational.  I can’t answer “how much,” though. Then, as longevity expectations come in at later ages and the planning horizon shrinks and some of the unknown-unknown uncertainty starts to abate, one can loosen up, sometimes quite a bit. I’m not quite there yet but at least I softened the most recent blow. My kids and future-me thank current-me for that.