It is not the strongest of the species that survives, nor the most intelligent. It is the one most adaptable to change.
How much should you save? How much should you spend in retirement? How much do you leave to your children? How little do you leave? What happens if some unforeseen event happens? Is your investment portfolio safe in case of a sudden change in the world economy?
I was traveling on family business to the Emerald City, Seattle, Washington. While there I visited the 605-foot tourist trodden tower called the Space Needle which was built to celebrate the 1962 World’s Fair. As I observed the enormous edifice from the base, it appeared to gaze in soulful benediction over the sprawling city. After I stepped into the elevator it swiftly lifted me to the top floor. As I exited the doors high above the city, I walked onto the deck of the brightly lit observation turret. The sun’s rays were so bright they seemed to kiss the expansive windows as the visitors inside enjoyed the spectacular views. Near a set of elevators, a teenage attendant with red streaked hair was talking excitedly to a group of eager tourists. He spoke about the substantial sturdiness of the structure and how it was riveted into a foundation of reinforced steel and cement that can withstand a 9.1 earthquake as measured on the Richter scale. He added that the materials in the design were not only strong but also very flexible. In case of a hurricane, the tower had the special design capability to sway back and forth on very windy days even with winds of 200 miles an hour! The elevator may have to slow down during these conditions, but the structure was built resilient enough to adjust for sudden changes in the forces of nature. I thought of the many modern buildings and physical structures built in this way to withstand the daily effects of nature and weather, including our human bodies. If they were not flexible like the Space Needle structure, they would also suffer the strains of daily living causing us discomfort and pain.
THEREFORE, SUCCESSFUL RESULTS IN ANYTHING WE EXPERIENCE OR WANT TO ACHIEVE ARE DETERMINED BY HOW WE CAN ADAPT TO DIFFERENT CONDITIONS.
In the ancient Chinese text, the Tao Te Ching, the author Lao Tzu says:
“Thus, an army without flexibility never wins a battle.
A tree that is unbending is easily broken.
The soft and weak will overcome.”
During our working years we “accumulate” money in savings and investments to provide income for us when we are no longer working. At retirement we can depend on this money to live. When we “de-accumulate” or take withdrawals the process works in the opposite way. However, there are many factors to take into consideration. Just as the structurally solid Space Needle needs to be flexible to bend and sway during heavy winds and unseen forces of nature, similarly, our investment portfolio needs to be pliable yet have a solid foundation built on the principles of asset allocation and diversification. This includes the flexibility as well to adapt to unforeseen events. In addition to what we expect to withdraw, we may need additional money from our accounts to meet unforeseen circumstances. This is especially important when we are no longer earning money and must depend on our savings for income. We can achieve this by making our income producing portfolio pliable and safe as well as leaving the opportunity to make minor adjustments during this critical disbursement phases in life.
“Oftentimes success doesn’t come from strength but from flexibility and adaptability.”
Flexibility and adaptability are the sine qua non-conditions we must consider. As I have written and discussed many times before, what worked in the past may not work anymore. With rapid changes in technology and science, we need to be mindful and open to new ideas and cope when things don’t go our way.
Brandon, an established client and personal friend, was a successful pharmaceutical executive. Initially, he gave the appearance of someone who was not comfortable with small talk. His facial features gave the impression his that his career was often stressful. At our initial meeting, he expressed the need to work another few years at which point he would be rewarded with valuable company stock options. This was good news but at the same time, he had some health issues that in the past were a concern. His investment portfolio had increased to the point where he could live very comfortably on his savings alone. I mentioned this to him and he remained adamant and unwavering in his belief of wanting more and not caring about the risk either to his health or delaying retirement. His gut told him to take the risk. he felt the new products they were manufacturing would propel the stock 100% in the next two years and he wanted to wait for the big hit. We had many discussions about this, but he remained inflexible in his thinking.
A few months later, the economy started to weaken, and the stock market corrected which did not bode well for his industry and the future of his stock options. Eventually, the company canceled the new products. After telling me the news I met with him to discuss his options. His face conveyed more than his worry about failure of the stock options. He had brought his wife and brother to our meeting. This was very unusual; I knew something was awry. He stared rigidly at my face, looked into my eyes and said, “I think my cancer has returned, I am waiting for the results of a biopsy.” An uncomfortable silence filled the room. He said he was fearful and didn’t want to spend his retirement savings too early. He said, “My greatest fear is running out of money and having to depend on my children!” After he said this I looked at him, he looked like a graduate student who was struggling with the tenets of existentialism. He admitted he should have taken my advice and not put so much pressure on himself to achieve more. After the meeting ended we agreed to meet in a few weeks.
This was a terrible misperception that many people face at critical times in their life. We are so absorbed in working and careers that as John Lennon alluded to in his 1980’s song Beautiful Boy, “life is what happens to you when you’re busy doing something.” We need to grasp the fact, and academic studies have shown, that many upper middle class and wealthy families end up leaving their entire estate to their children. They live off their interest and give the bulk of their assets to their children. They rarely get to enjoy the fruits of their labors because they suffer from retirement age uncertainty.* They are hounded by their fears which include: How much will they need to save for retirement? What is the chance they will run out of money? How long will they live?
If you don’t spend your savings, what good will the money do you when you’re dead? A quagmire! Like a termite choking on the splinters! Many investors suffer from financial constipation! It’s paradoxical, isn’t it? You hoard and stockpile money for an uncertain future where it cannot be spent!
I got an email a few weeks later asking me to meet him for lunch. I told him his portfolio was resilient enough to provide a safe and secure future for him and his family under many different scenarios and to weather any market downturns.
Our fears of financial failure may be embedded in a mindset that existed from parents and grandparents from the generations who suffered from the great wars and depressions. These experiences can have a lasting impact on our perceptions of money and life as children. When we live through a paradigm like this we are bound to get frustrated. What happened many years ago doesn’t apply to today’s world. It’s like using a map from 150 years ago to get where we are going. The towns and highways we have today didn’t exist back then! How crazy!? Today we live in a technologically driven society where the speed of information and the answers to questions about the future can be found more readily than 150, 100, 25 or even 2 years ago!
At our lunch, he told me the results of the biopsy were benign. He expressed how grateful he was for my patience with him and he is now willing to be open and flexible to new ideas concerning his next phase in life.
Being steadfast to our goals is commendable, but having flexibility and openness to new ideas epitomized by the structure of the Space Needle are essential qualities for a safe landing.
* “The Impact of Retirement Age Uncertainty on Retirement Outcomes.” The Journal of Financial Planning Sept. 2018: p. 36.