Ready For Retirement
Ready For Retirement
The Hidden Cost of Financial Optimization (And How to Avoid It)
What if the “financially optimal” choice doesn’t actually lead to your best life?
This conversation explores the balance between optimizing money and optimizing happiness. We break down the Five Types of Wealth—financial, time, social, mental, and physical—and show why sometimes the decision that looks inefficient on paper may actually be the smartest for your overall wellbeing.
From real-life examples like paying for time-saving conveniences or investing in health, to reflections on why peace of mind often matters more than perfect numbers, this episode reframes what true optimization looks like.
Because at the end of the day, wealth isn’t just about money. It’s about building a life you don’t want to retire from.
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The strategies, case studies, and examples discussed may not be suitable for everyone. They are hypothetical and for illustrative and educational purposes only. They do not reflect actual client results and are not guarantees of future performance. All investments involve risk, including the potential loss of principal.
Comments reflect the views of individual users and do not necessarily represent the views of Root Financial. They are not verified, may not be accurate, and should not be considered testimonials or endorsements
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Hey, james, we talk a lot about optimizing and you might be aware of this, but many of our team members actually make fun of me. They'll say we know Ari's weekend wasn't fine, it was optimized. Now it's a silly joke, but the reality is we want you to optimize what you've worked so hard for. But sometimes it actually makes sense not to optimize because your life would actually be better. So what we're going to talk about today is okay. What could we do in our life that might not make financial sense? That would really add to our quality of life. So my first question for you, james, is when you personally go buy a car, do you like to get a loan? Do you pay all cash? What do you do?
Speaker 2:I've done both, so I guess I've optimized and I've not optimized, or I guess I would think about it differently. I've optimized for different things in different cases.
Speaker 1:I like that. Now why did you pay all in cash?
Speaker 2:The first couple of cars I purchased, it was all cash. Part of this was just even growing up the Dave Ramsey mentality of you buy things in cash, you stay out of debt, you live within your means, which all great things, and so there's this sense of buying something in cash. You're not having any debt. In some ways you're optimizing for that, but there's other arguments to be made of. Then you're tying up some cashflow or you are losing some liquidity. So in other instances, when I have not paid all cash, I was optimizing for preserving liquidity, I was optimizing cashflow, I was optimizing for some other things. So I think it's less at least the way I think about it less about optimizing versus non-optimizing, more about what are you optimizing for and taking that approach.
Speaker 1:I like that because you do not go to the grocery store. For those who are unaware, why don't you go to the grocery store? I? Don't like it and your life is better not going.
Speaker 2:My life is better not going. So yeah, this is just like a fun, funny example, I guess. But yeah, there's something about the grocery store that I it's like going to the DMV for me. I walk in, my wife will ask me to go pick up something in the grocery store. I just don't even know where to go. It's hey, can you go get shredded cheese? And I walk through every aisle twice before I can find the shredded cheese, which is always in the deli section in the back. It just takes me, for whatever reason, so long because I don't like being there that I would rather pay for delivery and just have that hour, that 30 minutes, that two hours, whatever it is of my life, back to do something else with my family, with my friends, with work, whatever it might be.
Speaker 1:Now we're being lighthearted today talking about cars and grocery stores, but this is real life stuff and I'm going to tell you what prompted this episode today. So in our free community, the root collective, we go through and we look at what topics do we think might apply to all of you. Watching slash listening, and this is a common one. This comes from Steve, and Steve says I've struggled with the idea of paying off my mortgage. I had planned on paying it off before retirement. I've not really started working towards that. I understand the concept of not paying it off at a lower rate to potentially make a higher return with investments. However, what about my budget? What about the fact that maybe I just sleep better at night by not having that mortgage? I don't know. What do you guys think? So do you see this a lot, James?
Speaker 2:Yeah, all the time, and I think that it comes down to what are we keeping score of, what is the thing that we're tracking? And so I see what Steve's saying and I even want to take it one step further of return be versus what does cash flow look like, versus optimizing for peace of mind, of being debt free, not being debt free. So there's certainly optimizations conversations. In that I look at it a little bit differently and it's a little bit different than even Steve's question. But what points? What do you think about when you see Steve's comment there? Ari?
Speaker 1:I'm wondering if Steve is beating himself up with calculations. But for asking himself what he would really like, let's dive in, if it's okay with you. James, you even brought up a few moments ago the unoptimizing versus optimizing and then keeping score. I would love to hear that kind of concept of keeping score. How do you view that?
Speaker 2:Yeah, and I hope I'm not derailing our conversation too much. I'll take Steve as an example. Let's say Steve along with this. He says hope I'm not derailing our conversation too much. I'll take Steve as an example. Let's say Steve along with this. He says I'm not actually going to retire until I have my mortgage paid off, even though I could. I have enough liquid assets, I have enough income, I could totally retire, have that mortgage. But I'm trying to optimize for the perfect retirement. So I'm going to push off my retirement four or five years until the mortgage is gone so I can have a more optimized retirement.
Speaker 2:And you look at that and the math is sound, the logic is sound if you're just thinking about optimizing for the financial component of what you're doing. And there's this great book that I've read that I think summarizes this real nicely. It's called the Five Types of Wealth and it talks about or the way I relate this concept to what we do as advisors is there is financial wealth, but that's only one component. That's only one way that we should be looking at things. There's also time wealth, social wealth, mental wealth, physical wealth, and so people, when they are optimizing, you see this all the time, specifically, maybe in the FIRE community. I'm keeping my costs super, super low, I'm keeping my savings rate super high, I want to retire super early, and they have optimized for this incredible financial wealth.
Speaker 2:But in doing so, what did you sacrifice in terms of social wealth, mental wealth, physical wealth, time, wealth, time maybe not so much there. But if I go back to Steve, steve time is we talk about this a lot the only non-renewable currency. You work four or five more years. I know he didn't actually say that, but if I'm extrapolating this to use as an example a very well financially optimized retirement, no more mortgage In those four or five years he saved even more. He has a great balance sheet, great income sources, but what did you lose in time, wealth, in other words, what was the marginal gain? You got on the financial side of things, but compare that to the marginal loss or the marginal detriment or what you sacrificed in your time wealth, knowing that those are four or five more years that, assuming you don't like what you do for work and assuming you want to retire, you're not going to get those back. What about social wealth? What about that scorecard? Well, what could you have done in those four or five years with your family, with your grandchildren, with your friends, with whoever that now you don't get to get. What about your mental wealth? What about your physical wealth?
Speaker 2:We see this a lot that people in those final years of retirement or final years of work, I should say before retirement their bodies are at this point that every successive year gets more and more, takes more and more of a toll on your body, because it's these years of dealing with this stress, managing this job, putting off your health, saying you'll take care of it when you have more time, when you have more, whatever, less demands, and so that compound effect. In the same way, we talk about the positive compound benefits of interest or of growth. Well, there's the same thing to the negative. What about those negative compound effects of not taking care of your health, your mental health, your physical wealth? Well, the final few years, in the same way, the final few years before retirement, assuming the market's doing well, you see extraordinary gains in your portfolio. The final few years before retirement, if you've neglected your health, you might see extraordinary deterioration in your physical health, your mental health.
Speaker 2:And so I talk about the scorecard, because if I'm putting words in Stephen's mouth, or putting words in Stephen's comment, if all we're focused on is here an optimized retirement, which he has, my question would be how much? Marginally better is that? Maybe slightly, especially if we're making the assumption you're already good to go with retiring now? A marginal improvement in one financial scorecard, but a major detractor and for other types of wealth that we also have to think about, types of things that we have to account for. So the question isn't should you optimize or shouldn't you optimize? You should absolutely optimize, but make sure you're optimizing by looking at the right score card this is plural, not just one single score card, which is the financial one.
Speaker 1:I love that. There's one more I want to add on which I don't think they talked about in the book, and if they did, I'll be impressed because I just came up with it just now. The final one missing might be and I'm going to give credit to one of our clients here who I will not say their name for security reasons health, wealth, and here's what I mean by that. We have a client that said Ari James, it would have been really hard for me to buy food at the airport, especially Chick-fil-A, because it just costs so much money, and I would have beat myself up. But he bought it. He felt great about it and imagine he didn't buy it. He would have been cranky. Maybe his partner would have said hey, why are you acting so weird? I know I get hangry for those who are unfamiliar hungry and angry a very dangerous combination for an individual and our client was so grateful they did it. Normally it would have just eaten them up inside. So I love that reframing of what you basically said. James was opportunity cost. You just put it in a way that allows people to digest it. So, steve, we're not ignoring your question here.
Speaker 1:Steve's wondering about the budget and retirement and hey, why wouldn't I potentially consider maybe paying off my mortgage or not? Well, steve, the way we would look at it is we would first give you a very clear financial answer and say, steve, if you were to, let's say, have a 3% mortgage rate and you felt confidently you could invest and get 10%, then the reality is that's the financial answer and it doesn't mean you have to do it, because even if you paid off that mortgage, the reality is you'd still be in a good spot to accomplish your goals, assuming that's the case here. Now maybe Steve does pay off the mortgage and sleeps better, and you can't quantify that impact on your health. And now maybe his partner feels more comfortable spending more money to go out to eat. Maybe they can pay for friends to go on trips with them all, because they made the not financially optimal decision but was better for their scorecard.
Speaker 2:Yeah, yes, and again, going back to, I would say they optimized for something in that it just maybe wasn't the typical thing. Every decision we should be asking and you can take this to an extreme, even like the financial one I mentioned time I mentioned financial, I mentioned physical, like physical health. I remember like in high school played football and college played rugby and there was like this I can't skip a workout, I have to eat healthy. I think you get in that into the point that's like okay, james, at some point that's done, miss the freaking workout and go hang out with your friends at the beach. Don't be afraid. Like, enjoy, enjoy a pizza. If it means you're hanging out with your like it's.
Speaker 2:You can over-index or over-optimize for all of these things and that might be totally appropriate in a certain season. If you're trying to be the best you possibly can be, you want to be in the best possible physical shape. Because the most important thing to Ari is being the best soccer player that he can possibly be, the best thing to me Awesome. But understand the why that's connected to that. If it's like, okay, you're just doing this and now it's just because of that's become who you are and your identity and you have. Is that really who you want to be? Do you really want to be the person that over indexes to or goes is maybe super extreme in one of those categories, but in doing so you're under indexingindexing, you're under-investing in the other components of wealth.
Speaker 2:So, when we think about wealth as not just money, but when we think about it as our ability to spend time with people we love, our ability to have a healthy body that allows us to do the things we want to do, the ability to have a healthy mind, a healthy spirit, all these different things, that's really, and this isn't trying to get, this really isn't. I think people are like oh, money, it's just, it's a portfolio. That portfolio means nothing if you don't have relationships. Portfolio means nothing if you don't have your health. That portfolio means nothing if you don't have your time because you worked until you life passed you by and it's okay.
Speaker 2:I'm at the final months and years of my life. What good is this multimillion dollar portfolio? The answer is it's not, unless your legacy goals were the number one thing to you. So the portfolio enables these things, but that doesn't mean we can sacrifice those other things, those things being health, time, relationships, et cetera. We have to have this more integrated approach of how we look at it if we want to be able to get the most out of life with our money.
Speaker 1:Amazing. I have an example that goes deep on being a steward of money, which I largely learned from you, james, and from all of you who have left comments in the collective on YouTube through podcasts, just to say, hey, here's something I did that I'm really glad I did that. If someone else looked at my budget they would go what are you nuts? So I currently pay $220 every week for a session with a physical therapist who specializes in soccer, and even my fiance will say Ari, I know you love soccer, but that seems a bit excessive. And I'll say I thought it was excessive when I started as well. I just really was comforted by the fact that the exercises are so tailored to my game. And she said I get that, but is that really necessary? And I was thinking more about it. And a few months ago I was at a game and I was having a ton of fun, as I always do, and I got invited to another game, which normally I would love to do, but I try to think I want to play almost every day of the week. It's going to be tough on my body, but I went. You know what? If I were to get hurt in this next game, I don't really care, because I know I have an awesome person who's going to take care of me.
Speaker 1:Before I would have had a bit of hesitation and I would have thought maybe I shouldn't play that next game, because if something does happen and I'm injured, I don't know where I'm going to go. It's going to be a hassle. We'll often use that phrase head trash of hey, maybe that's just something I shouldn't worry about. Well, it turns out I played for that one team. I had a great game and I met friends that I would have never met, who I now play consistently with every single Sunday, all potentially because I pay $220 every single week.
Speaker 1:Now, it's not that clear of a translation, but these are things that, if you're good about your money and I don't do many other things that a lot of people do I don't enjoy drinking because I don't feel better, so some might say, well, that's a cost that a lot of people do that you don't do, so you can do that. I don't even think that's the way of looking at it. I think you should look at what you have coming in the door and ask yourself what do you want your scorecard to look like? Because I think that is, once again, the best way to optimize.
Speaker 2:Yeah, let's actually play this out as an example, because you'll see on LinkedIn or you'll see in videos, people, hey, what if you never got that extra guac and Chipotle and invested that? Do you know how much money that's worth for you? Or what if you didn't buy that nicer card and invested? Do you know how much money that is? And it's, yeah, all right. What if you didn't pay 200 bucks a week to this therapist and you invested that? That's a lot of money. When you add that up every month, every year you're young that money could compound for you over time. It's like what? What if that truly is a million dollar decision that you're making and someone could run with that and say a million dollars at the beginning of retirement, by the end of your retirement, that's, that's 2 million. Like what are you thinking spending $2 million doing this? Two million? Like what are you thinking spending $2 million doing this? And you would say, okay, well, let's play that out. When you are in your 60s and 70s and 80s and you've got an extra couple million dollars, what do you want to do with it? Well, I would have wanted to have played soccer. I would have wanted to extend my time to be able to do what I love.
Speaker 2:Charlie Munger, shortly before he died, a guy worth well over a billion dollars hey, what's one thing you wish you could have done or would have done? He said I really wish I could go back and catch a 200-pound tuna right now. Billion and a half dollars or whatever it was when he passed didn't change the fact that what he wishes he could have done was to have the health and the vitality and the ability to go do what you are spending money to do today. And that's not to say he didn't live a wonderful life. It sounds like a very eventful life, lots of fun things that he did.
Speaker 2:But it's that sense that if you over optimize for the financial, you're going to under optimize for everything else. And I don't think that's a conscious thing that most people realize that money by itself means nothing. It is only a medium of exchange that allows us to use it for the things that actually do mean something. And we have to look at it. We have to look at the scorecard. We have to look at the things that we're actually trying to do and be and say what is the impact on each of these components of our life, each component of our scorecard, to make a more well-rounded decision.
Speaker 1:Powerful example with the tuna there, James. Now, if this episode resonated, check out the episode. How many different firms should I split my money between? Because we give more examples in that episode specifically around is there a benefit of having my money at Vanguard and Schwab and Fidelity and Empower? And what we find is oftentimes people don't understand that there's not always a benefit of having my money at Vanguard and Schwab and Fidelity and Empower, and what we find is oftentimes people don't understand that there's not always a benefit to it. Not only is there not a benefit, but it creates so much unnecessary complexity that your life it's not about optimization, it's about simplicity and actually understanding okay, what can we do to make your life better? So check out that episode.
Speaker 1:If you're unfamiliar, James and myself we both have our own individual channels, so you can check out James Canole or Ari Taublieb on YouTube, as well as our own podcast, Ready for Retirement and Early Retirement. And once again, this is Root Talks. If you guys want to potentially have your question addressed in a future episode, make sure to join our free community, the root collective, in the description. Thank you everyone. We'll see you next time. Thank you.
