Time Preferance and Actuary Tables

Recently, from several different sources, I have become aware of a flaw in my thinking. Ultimately, this flaw comes down to something economists call ‘Time Preference’. My own revelation came about through coversations with family and friends, watching the action of news and technology and culture on the stock and cryptocurrency markets, and then the final blow came from The Bitcoin Standard (read my review here – the book is worth reading but has some issues).

So, what is time preference?

It can be called a variety of things such as time discounting or long term vs short term world view. Ultimately, it is how much you value the present versus the future. A high time preference means you value the now most of all and a low time preference means that you value the future more than the  present.

I have ALWAYS been a high time preference individual. Not just high time, but highest time. I’ve always been a grasshopper that worries about tomorrow when it comes and enjoys the present as fully as possible when it is here. As a result, I’ve spent my life hearing other people say “How have you done all you’ve done and you’re only X years old?” And all of that is pretty cool. I’m glad I’ve done the things I’ve done but lately, I find myself regretting that I didn’t have at least a little bit of low time preference. I didn’t invest, I didn’t work for the future, I didn’t save. Ultimately, I’ve been living for the now for thirty years (My adult life).

I’ll turn 47 in a few months and the funny thing is that it was right around my 46th birthday that I started investing a little bit. Since then, I’ve started a couple of IRAs, a college fund for my daughter, I have a small portfolio of stocks, and a few minor investments. The problem before was always that something would come up and I would discount the future to pay for the present. I did it with jobs. I did it with a bunch of gold coins I was buying back in the 1990s (which I sold for a loss – ouch), I did it with my education, I did it with my relationships, I did it with just about everything in my life.

My high time preference (hehe High Times) came from an early awareness of my own mortality, an early reading of Ram Dass classic Be Here Now, and a sense that was imbued in me that the destruction of the  world and our civilization was imminent. Let me give an example of a high, low, and average time preference person so that you will understand.

Low Time Preference: Doesn’t go to prom because he has to study for SATs

Average Time Preference: Goes to prom and studies for SATs

High Time Preference: Doesn’t even bother going to school because they might get hit by a bus tomorrow anyway.

So…here I am. Assuming I was 16 when I began my high time preference lifestyle – I spent thirty years living like there was no tomorrow. It makes sense (now) that my worldview didn’t make sense to the women I was involved with, my family, my teachers, my employers, my friends, my co-workers. My life was seriously like this for thirty years: ‘that girl is interesting and attractive, I better fall in love now before one of us dies’, ‘I better cash in these savings bonds now because the government will probably collapse before they mature’ ‘I’d better tell this jackass boss to go fuck himself or else I may not get another chance’ ‘I’d better get rid of all my shit and travel the world before world war III happens’  “I want to learn how to do this fun thing instead of focusing on something else until I’m really good at it’ and it goes on. If it doesn’t make sense to you, that’s okay, it probably means your normal.

Anyway, at 46 it finally makes sense to me to slow down a little bit. The reason is – I can see my future and suddenly it’s becoming pretty clear what it cost me to live such an amazing life for thirty years. While other people were working towards retirement, I was trying out new careers almost yearly. While other people were buying houses, I was moving around the world. While other people were investing for retirement, I was spending my retirement. That’s what it is. My retirement might have been in the millions of dollars right now, but instead, I’m $100,000 in debt with no real material assets.

However, what I lack in assets – I feel like I make up for in experience and understanding. I’ve developed a broad understanding of this world, the cultures in it, the economic and political forces that shape it, and the interpersonal relationships that make it run. And…as a result, I’ve seen the light in regards to a lower time preference than I was running on.

Now, moving on to actuary tables. I found myself recently thinking I was getting old. A big part of that is because I am older than most people who are at this building stage of life where I find myself.  I’m economically sitting where recent college graduates sit but I’ve got a wife and young child so family wise, I’m where people in the mid to late thirties are. These are the people around me who I relate to – people in their late twenties to early forties. I’m not officially in my mid-forties and usually one of the older people in the room when I attend conferences about cryptocurrency, go to school functions, or apply for jobs at start-ups (which does not work in my favor at all). So there I was, feeling old.

I began thinking about how much time I actually had left before I can’t work anymore. Before illness and death come knocking. How much time I have to prepare for retirement – since I’ve done nothing. So, having worked in insurance, I decided to look at some actuary tables. According to the Social Security Actuary Tables….I can expect to live to be 82 years old as an American. That leaves 36 years. Now here’s the thing…that means, I can actually live the same amount of time I lived high preference (30 years) an still have six years to be retired, old, or what have you.

The actuary table I used though, is flawed. I live in Hawaii, so my life expectancy is actually higher. On my father’s side upper 90’s is the norm. So, I probably (barring accidents, disease, or disaster) have closer to 46-50 years and since technology is helping people to live longer – it might be longer.

Chances are though – I probably won’t get the opportunity to try out a third time preference. So, I’d better get this right. Here is what I am going with. High time preference for letting the people I care about know that they are important to me. Low time preference for spending the money I earn. I’m loving for the moment and saving for the future. I recommend it, but not having tried it yet – you may have to experiment to find a balance which works for you.

What do you think?

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