Notes, Views, and the Occasional Provocation June / July 2016 

With the markets calmed for the moment after last week’s vote by Britain to leave the European Union, it’s a good time to take a step back to contemplate the bigger picture – in this case, what it means to move money across time to fund retirement.

I hope you have some relaxing time planned for the Fourth of July holiday.

Best regards,

Milo Benningfield

Moving Money Across Time
Money, as the saying goes, is more than money. It’s an idea, a financial technology, a tool with almost magical properties that can move resources through time and space. No wonder funding retirement can be so confusing. more

BFA Media Quotes
Recent media quotes. more

Moving Money Across Time
Forty years ago, Chinese archaeologists made a startling discovery in northeast China, unearthing the tomb of Lady Fu Hao, who lived at the beginning of China’s Bronze Age over three millennia ago. Wife of a king, Fu Hao played many roles – mother, politician, shaman – but was famous before the tomb’s discovery for her role as a military leader and the numerous victories she won against neighboring tribes.

Fu Hao’s tomb was one of the only ones from the period not to be looted. Among its contents were hundreds of bronze vessels, jade objects, and over a hundred weapons. Beneath Fu Hao’s corpse, there were sacrificial dogs and the skeletons of sixteen sacrificed human servants.

There was also a hoard of almost 7,000 cowrie shells. Made by sea snails, cowries had been used by primitive societies as money, since they had all the attributes needed to serve as a store of value: they were transportable, recognizable, not easily obtained, and capable of lasting thousands of years. But what was their purpose in Lady Fu Hao’s tomb?

We know the shells were used as money in ancient China; the symbol for the cowrie shell is used in many Chinese characters relating to money or trade. The shells were probably used to pay soldiers’ salaries, so it’s plausible that Fu Hao’s “shell hoard may have been her war chest for the battles she would face in the afterlife.”1

The idea of transporting a tangible war chest of cowrie shells from this world to the next seems wishful thinking at its best. If ever there were an example of “you can’t take it with you,” this is it, right?

But the primary purpose of any currency – shells, coins, or banknotes – is to serve as a store of value that we can move across time. And money can travel in either direction: with retirement funding, we seek to move money from today to tomorrow to pay for future needs. With a mortgage, we transport money from our future earnings back to today in order to buy a house. Viewed in this light, the financial technology known as money has almost magical properties and Fu Hao’s ambition with the cowrie shells, while still impractical, doesn’t seem so farfetched.

In today’s world, we’re still coming to terms with what it means to accumulate financial resources through our working years and then move them across several decades of retirement. Retirement itself is a comparatively new concept – less than a hundred years old in terms of being widely available. But it’s the length of time involved that presents so many challenges:

Competing Goals for the Nest Egg
If we look back over time and remember how often our lives and goals have changed, it shouldn’t be too hard to anticipate that we’ll experience more of the same during retirement. Yet retirement is often imagined as being about merely replacing a paycheck with other sources of income.

Instead, retirement funding includes a number of goals for our nest eggs. We want our money to keep up with inflation. We want flexibility for surprises or changed plans. We may want to gift or leave money to other people or causes.

Thus, the first order of retirement planning is to identify these needs and quantify them with time frames and dollar amounts. We also need to prioritize the needs in case we can’t afford all of them.

Clients who go through this exercise are often surprised to see what is required to cross thirty or forty years without further employment earnings. More than one person has sat quietly and asked, “Does everyone know about this?”

Varied Spending Periods
It’s also a bit of revelation to many people that retirement isn’t one, long monolithic period of life, but is comprised of several financial stages – what we only half-jokingly refer to as the Go-Go, Slow-Go, and No-Go years.

As retirement begins, people can finally realize deferred goals like travel, hobbies, or home improvements. Afterwards, life tends to slow down, as does spending. Then, towards the end of life, expenses may spike because of healthcare needs.

Part of making one’s money last is anticipating these different periods and aligning resources to fund them over time.

The Present Is Always With Us
As we move across the years of retirement, moving toward the future we’ve imagined, we necessarily live in the present, influenced by a collection of spending preferences, shaped by past experiences with money. These preferences are powerful influences on how we’re willing to move money across time.

Someone who saw parents living miserably because they ran out of assets may make it their mission to “not run out of money under any circumstance.” Someone whose parents died prematurely may prefer to “spend today and take their chances tomorrow,” since deferring a goal could mean denying it forever.

How we feel about spending often changes once we turn off the earnings spigot. As one client said, “After you’ve spent a lifetime working hard to accumulate the money, it’s not that easy to turn around and start spending it!”

The better we know ourselves, the better we’re able to structure our financial resources to travel through time. As a compatriot of Lady Fu Hao, General Sun Tzu, wrote centuries later, “Every battle is won or lost before it’s ever fought.” Planning in advance to move money across the retirement decades won’t guarantee our success, but it should tilt the playing field in our favor.

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BFA Media Quotes
The New York Times, April 1, 2016
Milo was quoted in an article by Tara Siegel Bernard, “To Buy or Rent a Home?,” which explored whether purchasing or renting a home is a smarter financial decision.

Milo noted, “Arguing about whether rent versus buy is a better financial decision is like debating active versus passive investment strategies, hedge funds versus mutual funds, Apple versus Google. Somebody’s going to be right in terms of higher returns in the future, but we can’t know in advance who that will be — and it will be tough to quantify how much risk was taken along the way.”

Thank you for reading. Please look for our next newsletter in August.

Best regards,

Milo Benningfield
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1 William N. Goetzmann, Money Changes Everything (Princeton University Press 2016), p. 151.

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