BEGIN WITH THE PREMISE THAT THE GREAT PREPONDERANCE— if not substantially all—of the capital we accumulate during our working lifetimes is intended to support a dignified, independent retirement.

In the simplest terms, then, the most basic financial issue in retirement is: will our money outlive us, or will we outlive our money? Virtually all of us are going to get one or the other of those financial outcomes; it’s improbable in the extreme that any of us will run out of both money and heartbeats on the same day.

The fundamental job we and our retirement planners have is therefore to maximize (at least historically) the probability that we will get the first outcome—that we’ll enjoy a long and reasonably worry-free retirement, will never run out of money, and will therefore be survived by some amount of capital. Question: Then what?

The thesis of this little essay is quite simple, to wit: the time to be asking “then what?” isn’t then—we won’t be around to take part in that conversation. It’s now.

This is another way of calling the question: if we plan on being survived by some of our invested capital, who and what will it be for? I think most of us will answer that it’s for our children and/or grandchildren. Some will say that it’s for an institution—a church, school, hospital or museum—which has meant a great deal to us in our lifetimes. A few of the most fortunate among us might say: it’s both.

My point is that to the extent we might want our capital to do good things for others after we pass, we should think about strategizing that outcome almost as much (and as soon) as we plan our own secure retirement.

This may sound a lot like an estate planning issue, and so it surely is. But what I’m inviting you to think through is the content of the estate. That is, how might we arrange our invested assets during our retirement so as to do the most good for the people we love, and must leave behind in the world?

Thus, to the extent that legacy becomes a serious goal, it has the effect of lengthening—by as much as a generation or even two—our investment time horizon.

Many of us have been trained to think that we ought to invest primarily in equities for growth during our working/accumulating years, then switch mostly into fixed income securities when we retire. But the unspoken premise of this strategy is that we’re investing just for our own (or our own and our spouse’s) lifetime, and so that becomes our investment time horizon.

Yet the more we yearn to bless our heirs financially, the longer our investment time horizon becomes. Suppose, for instance, our dream is to endow the education of our grandchildren—knowing how hard it will be for our kids to pay for it, and not wanting the grandkids to still have student loans when they’re 50 years old.

But like nearly everything else in life, tuition is a moving target—and it’s always moving in the wrong direction. (My firstborn daughter graduated from Duke in 1991; my best recollection is that room, board and books that year cost about $25,000. This academic year it’ll be closer to $75,000.) A fixed income retirement portfolio might support us in a two-person, three-decade retirement of relentlessly rising living costs; then again it might not. But the chances of it substantially funding legacy goals like our grandkids’ education will grow dimmer with every passing year.

I think you can see where this is going. Countercultural as it may seem, the more you have financial hopes and dreams for succeeding generations, the more you may want to consider remaining in equities to some significant extent, even after you retire.

This means living on equities’ historically rising dividends rather than bonds’ fixed interest, while permitting the capital potentially to go on growing for the heirs.

This is a complex issue; it will turn on the intensity of your hopes for legacy, as well as on your tolerance for equity volatility. It is therefore a subject for serious discussion with your financial advisor. I hope I’ve succeeded in prompting you to have that conversation sooner than later.


© March 2020 Nick Murray. All rights reserved. Used by permission

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