When I was a young man, my father told me that the mortality rate is 100 percent. I apologize for speaking so plainly, but sooner or later there is a funeral in store for every one of us.
This sad fact weighs on many of the financial decisions we make later in our lives. The issue is that we never get to know ahead of time when our funeral is going to be. A new retiree might live another forty years, or they might not live to see their next birthday. Plans that make sense for one scenario may not make sense for the other, and we do not get to know which scenario we will face.
When possible, we prefer to invest for retirement on a sustainable endowment-style basis, aiming to generate portfolio income to live on rather than spending down principal: “owning the orchard for the fruit crop.” The longer you can maintain your principal, the less likely it is that you will outlive your money. This approach also has the advantage of leaving a legacy intact to pass down to your heirs, if that is a priority for you.
But not all of us are fortunate enough to be able to comfortably retire on portfolio income alone. And not everyone is content to lock away a lifetime of earnings without getting the enjoyment of spending it themselves. Spending your principal is also an option if you want to live more luxuriously, although this increases the risk of outliving your money—you may wind up merely trading future comfort for present pleasures. The decision you make at 65 may haunt you at 85.
None of us knows the future, life has a way of getting in the way of our best laid plans. Our preference is to plan for a long, healthy life: we believe it is better to have money and not get to spend it than it is to need money and no longer have it. But ultimately, the choices you make about retirement are a matter of which risks you’re comfortable with. Figuring out your priorities is your job. Once you know what you want to do, talk to us and we’ll see if we can help you try to do it.