The Absurdity of my Mental Financial Gymnastics

Yesterday an involuntary chuckle escaped my mouth. I hadn’t entirely lost the plot and descended into madness—I happened to be thinking about my financial arrangements for the first few years of my recent retirement and in retrospect, I found them amusing.

On Humble Dollar we all, I assume, like to think of ourselves as rational and reasonably “on the ball” when it comes to our retirement portfolio and finances. One of my choices makes me question my right to claim the same ability.

Constructing our retirement “paycheck”, particularly for those of us without a pension, is a crucial priority before pulling the plug and waving goodbye to the comfort of a regular wage. It’s complicated with many moving parts to consider.

In my case, I decided to cover my essential recurring expenses for the first ten years with a type of annuity called a term annuity that gives me great peace of mind. Beyond that, for my discretionary expenditure, I walked around the problem many times thinking about the best approach to the conundrum.

In the end, I essentially gave up thinking about the problem and abdicated from making a decision, kicking the can down the road. I took a portion of the cash I received from selling my business and dumped two years of my expected discretionary spending into a money market fund and mentally ring-fenced it from the rest of my portfolio. I’ve exchanged some yield for the pleasure of simplicity.

In the meantime I haven’t sat on my laurels—I’ve constructed a bond ladder to take up the discretionary spending slack in two years time. It’s all worked out fine, but I would be stretching the truth if I suggested my choices are the result of purely rational behaviour rather than a bit of convoluted mental accounting.

So yes, I’ve committed the cardinal sin of sub-optimal asset allocation and engaged in some questionable mental accounting. My inner finance nerd occasionally winces at the opportunity cost. But you know what? I sleep well at night, I haven’t once worried about my spending money, and I’ve had the breathing room to think clearly about the next phase without panic or regret.

Sometimes the best financial plan isn’t the one that looks prettiest on a spreadsheet—it’s the one you’ll actually stick with when real life gets messy. Even if it does make you chuckle at yourself eight months down the line.

With my little confession in mind,  I’m wondering if anyone else has come to a paycheck compromise that seems to be working, or am I a sad subset of one beating the mental gymnast drum of “good enough” until I come up with something better?