Funding Discretionary Spending: EDU #2533

August 13, 2025

Funding Discretionary Spending: EDU #2533

Chris’s Summary
Jim and I continue discussing funding discretionary spending in Robert Merton’s three bucket retirement income framework from last week’s article, focusing on how his flexible and aspirational spending categories compare with our philosophy. We explore why annuities are insurance products, where TIPS fit into income planning, and why funding Go-Go years demands liquidity and principal protection. The conversation also examines how Minimum Dignity Floor™ expenses differ from discretionary goals and why tying those goals to high-risk investments can be problematic.

Jim’s “Pithy” Summary
Chris and I pick up where we left off last week, taking a closer look at Robert Merton’s second and third retirement income “buckets” and how they’re presented in the article we’ve been dissecting. While I can see value in some of the thinking, I have a hard time with the notion that your passions and big adventures should be considered optional spending that you cut when markets turn. These Go-Go years don’t last forever, and I’m not about to tell someone to shelve an elk hunt, delay a trip to see family, or skip the project that brings them joy because of a short-term dip. That’s not my idea of funding discretionary spending.

We also look at the tools Merton and the article highlight for flexible spending—TIPS, for example—and how those compare with keeping your discretionary funds liquid and principal-protected. On paper, some of these options sound flexible, but real life rarely plays out as neatly as a model suggests. If the market timing works against you, that “flexibility” can disappear fast.

Then we’ll get into the aspirational spending—the so-called extras—and the suggestion to tie them to higher-risk assets. We share our thoughts on matching the right investments to the right spending, why emotional comfort matters in retirement planning, and how your Go-Go years deserve a funding approach that lets you enjoy them while you can.

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