Ever since I saw my real retirement risk back in 2011 at age ~53 I have been a hoarder, protecting my future like the grubby, frightened, penny-pinching old man that I seem to want to become. Seven years of analytics have barely budged me off that wary retirement crouch. Otoh, I just today applied my own tools (e.g., the WDT tool I've been playing with in some past posts - no data shown of course) to my own situation. The conclusion? If I were to commit myself to a constant, well managed consumption path not too dissimilar from the lifestyle I have right now (recall the penny pinching, though) from age 85 to infinity where 85 is roughly mean life expectancy for me (maybe less if you knew the heart history of the men in my family but the main point here is that over 85 is low or really low probability of being around to consume) then I could probably increase my consumption between now and 85 by up to something like 50%! If I were to also commit to annuitizing a pretty high portion of wealth at 75 or 80, then my consumption capacity from 60-85 would probably be even higher! And get this: it would be higher (in nominal and utility terms) both before and after annuitization as compared to the original plan. That is a serious revelation and should be a motivation to act.
But here is the lie lie lie of utility math. The utility functions that economists seem to like are power functions that have a positive first derivative and negative second. i.e. it rises forever with higher consumption but there are diminishing returns to utility as you go - a crust of bread when starving is a huge life-altering gain; a second lear jet? ho hum. My personal opinion is that this is not true or at least not true at the far right side of the curve. I have tried this argument out before in a past post with no takers on the discussion. Here's the deal: I like being frugal. I think it is a proper moral response to existence in my own weird RH way. That means that there is likely some point (for me) where an additional dollar of consumption actually subtracts from utility. In the past I tried to frame it as something like this: When you buy a third TV, it is not only pretty much unnecessary but the packaging and materials extraction and distribution logistics means you are probably ruining the world in some small way with that choice. When you buy your fifth lear jet you are pretty much just a rich jerk incurring an opportunity cost on the the world for the other productive things you could be doing with your wealth. The point is that the utility of consumption for some people (me?) does not rise forever at diminishing rates. It probably goes down at some point.
So am I going to loosen up? Yeah, maybe a little bit. Certainly the normal retirement risk at 60 is different now than it was at 50. That alone changes the calculus. And anyway, my kids would probably gain from it. But I will probably not loosen up a ton. I still like my miserly life. (I once fired an advisor for literally telling me to loosen up to my face). Now about that bequest plan...
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