Yahoo Finance isolated what it thought was an overlooked issue for retirement planning which is the extent to which people change over time. We've looked at this point countless times, I've framed it as not knowing what the future you will want to do. This really then becomes about optionality, about giving the future you as many options as possible. On what I think is a related note, Mark Baker Tweeted a question to his followers; Can't all be negative - what's been the best thing about 2020? I replied that I hoped people learned something about themselves, the things they might be vulnerable to and what they can do to start to overcome those vulnerabilities.
Earlier this week I read an article (sorry no link) that theorized that people can't envision themselves past 50% of their current age. Not that they are going to die, they simply can't visualize. So at 20, you might have some understanding of what 30 will be like or at 40, you might have an idea of what 60 could be but not 70. This was tied to when people are trying to advance in their careers and when they start to hunker down in terms of retirement planning. I've talked about this idea before in a more roundabout way. I've framed it as when I was 25, I did not realize 50 could be young. I will tie this into optionality in just a second.
So Yahoo notes that people get caught off guard by more than normal life events like the loss of a parent or spouse, retirement and other events that get talked about, people get caught off by less dramatic things, like maybe a new hobby that you totally throw yourself into or maybe you catch the bug to go live in another country or take on an all consuming volunteer endeavor. I recently reconnected with an old boss on Facebook. I think he's a couple of years older than me, has been retired a little while and spends several months every year volunteering like it's a job at a national monument north of here. While I don't know specifically if he'd always wanted to do that, you can envision how someone might find that kind of passion at 60 and just want to go all in.
In the last six months I've started preparing the fire department for the possibility of my stepping down as fire chief. I've been the chief for almost nine years but I've pretty much been all in for almost 18 years. I still love it but I can see not wanting to be all in when I'm in my 60's (I'm 54 now), I might want to pursue something else although I will always want to be a firefighter.
If you can accept that you don't know what the future you will want to do then you might start to think more about your optionality and things you can do to enhance your optionality. Where this is an investing blog, financial optionality is a high priority for me and probably everyone. Paraphrasing Taleb, we learn from our grandmothers not to live beyond our means. When you live below your means you are saving more and are better able to withstand an external shock. Living below your means can also make it easier to take advantage of an opportunity. True story from this year, we live at the end of a road on top of a small mountain. Between us and the rest of the world is an undeveloped, 15 acre parcel that the guy bought about 40 years ago. He sold it this year to someone who plans to split it up into five parcels while keeping one for himself to build on. This is a bit of an uh-oh in terms of encroachment. We're incredibly lucky that we were able to be part of the transaction to buy a slice of the 15 acres as a buffer such that while the road up to us might become busier, we won't see any building that might go on, thus greatly reducing the encroachment we're trying to avoid. The parcel we bought is buildable and has a great view which we view as future optionality, not something we plan to do now. This is just an example of the sort of optionality that has always been high on my priority list, chances are you have examples from your life where you either able to take advantage of your optionality or wish you had it to take advantage of. Either way, now look forward, what can you do you enhance your financial optionality?
Another form of optionality that his high on my list is health and fitness. I've logged a lot of time trying to learn more about this in the last few years. I have always lifted weights and exercised and have learned a lot about what to eat, what not to eat and about intermittent fasting (I just skip breakfast) more recently. Inflammation, insulin resistance and becoming frail promote biological aging. Genetics obviously play some role but our behaviors can also play a major role in how we age. Lifting weights, cutting sugar and some form of fasting can actually reverse aging in terms of biomarkers like A1C, triglycerides/HDL ratio and a bunch of others (research it, don't just take my word for it). Once you then get in shape on these fronts, you can slow down the rate at which you age. This accounts for why, taking an example from my life, people can qualify to fight wildfires in their 70's while others can fail to do so before getting to 40. Obviously lifting weights will build muscle mass and promote bone density which will very likely stave off frailty.
So if you're 65 and are still strong enough to deadlift your own weight, have endurance from some form of cardio or from hiking and in good health metabolically then your physical optionality is pretty good. It can allow you to pursue whatever the 45 year old you can't envision. Also, being fit like that would allow you more choice if your hand is forced into having to work into the time you thought you'd be retired.
I've probably written 1000 post on monetizing a hobby. What is that if not optionality? If there is something you like doing and are spending time on, it will be pretty easy for you to figure out whether monetizing it is realistic or not. I've sold a few pictures but I don't think I have a realistic shot of making money from it. It's asymmetric though. I love taking pictures, I imagine I will always do it, there is no downside and if it ever turns into an income stream, well, great! A more realistic hobby that I could monetize if I needed to would be firefighting, more specifically working with an incident management team in one of the positions I have some training for. That is not Plan A but I continue to cultivate it as I think it is a door that is open to me. If not, that's ok, it is a subject I am very interested in learning more about, again there is no downside.
The other optionality I will mention is the optionality that comes from staying curious and learning new things. Learning promotes successful aging. Learning new things that you might use is obviously a definition for optionality. Where I live, one example of optionality would be learning how to fix things along the lines of a handyman or investing in a backhoe or other piece of heavy equipment and doing that sort of work, there's plenty of it up here.
If you haven't thought about these things before, I would encourage you to start doing so. Optionality is a path to solving and/or preventing your own problems and having better outcomes.