Risk Parity Radio Episode 436: Your Fear of Running Out of Money May Be Something Else And Portfolio Reviews As Of July 4, 2025
Fear of Money Running Out is Phobia
- Fear of running out of money in retirement is a phobia similar to other irrational fears.
- The possibility effect cognitive bias inflates this fear despite very low real risk.
Running Out of Life, Not Money
- People fear running out of money, but the actual bigger risk is running out of life.
- A 55-year-old man has about an 11.3% chance of dying in the next 10 years, a bigger worry than financial failure.
Practice Spending Before Retirement
- Test your retirement spending by creating a separate account and withdrawing monthly like retirement.
- Practice this before retiring to build confidence and overcome fear of spending.
In this episode we explore one big long answer to an email from Bob about why people refuse to spend money in retirement despite having more than adequate resources. We touch on the math and psychology of the Possibility Effect and how to use Base Rates to overcome that, what the numbers say you really should be afraid of, how to break down expenses to alleviate fears and the real underlying problem in many cases, which is not fear, but personal identity rooted in "Frugality Inertia."
And THEN we our go through our weekly and monthly portfolio reviews of the eight sample portfolios you can find at Portfolios | Risk Parity Radio.
Books Referenced:
"The Top Five Regrets of the Dying" by Bronnie Ware
"Falling Upward" by Richard Rohr
"Strength to Strength" and "Build The Life You Want" by Arthur Brooks
"The Second Mountain" by David Brooks
"The Soul of Wealth" by Daniel Crosby
"The Art of Spending Money" by Morgan Housel
"Die With Zero" by Bill Perkins
Additional Links:
Father McKenna Center Donation Page: Donate - Father McKenna Center
Morgan Housel Podcast: The Morgan Housel Podcast, Episode 1: The Art of Spending Money
Narrative Psychology: How to tell stories that give you meaning | Jane Goodall, Terry Crews & Dan McAdams
ChooseFI Pod #508: 508 | 5% SWR, Revealed Preferences, and the 3 Stories | Frank Vasquez
Four Idols Video: https://tinyurl.com/4vua3eb2
Satisficing: Satisficing - Wikipedia
Breathless AI-Bot Summary:
This episode tackles the psychology behind the "golden coffin" phenomenon – wealthy retirees who maintain sub 3% withdrawal rates, essentially ensuring they'll die with maximum assets. While justified as prudent planning, the real barriers to enjoying retirement wealth are more complex and fascinating.
We dive into cognitive science, exploring how the "possibility effect" (identified by Kahneman and Tversky) distorts our risk perception. Your brain amplifies the tiny probability of running out of money while downplaying the vastly higher probability of running out of time. A 55-year-old man has an 11.3% chance of dying within 10 years – yet many obsess over financial scenarios with less than 1% probability of occurring.
Beyond cognitive biases lies an identity crisis. Many successful investors have spent decades defining themselves through wealth accumulation. This "frugality inertia" becomes so embedded in self-image that spending feels wrong, even when mathematically sound. The financial services industry exploits these fears, selling products that promise impossible certainties while encouraging hoarding behaviors.
The solution? Reframing retirement spending around four evidence-based wellbeing categories: relationships, experiences, work avoidance (paying for freedom from tedious tasks), and giving. These categories reliably generate happiness returns far superior to watching account balances grow. For those struggling to make this psychological transition, books like "Falling Upward" (Rohr), "Strength to Strength" (Brooks), and "The Soul of Wealth" (Crosby) provide frameworks for evolving beyond accumulation as life purpose.
What retirement story are you living? The miser who dies rich but unfulfilled, or the transformed Scrooge who discovers generosity's joy? The choice defines not just your retirement, but your legacy.