Applying Charlie Munger's Famous Mental Model to Your Retirement Plan

Charlie Munger, the late vice chairman of Berkshire Hathaway, would always say, "Invert, always invert." Instead of asking "How can I have a great retirement?", he'd suggest we ask the opposite: "What are the things I can do to make sure I have the most miserable retirement possible?"

Today, we’re going to apply that powerful mental model to retirement planning. Let's look at the seven things you can do to guarantee a miserable retirement, so you can make sure you do the exact opposite.

Step 1: Avoid Cultivating Interests Outside of Work

Imagine spending 20, 30, or 40 years climbing the corporate ladder. Each promotion felt like validation, and each raise was progress. But here's the uncomfortable truth no one talks about: every ladder has a top rung. When you reach it, the structure that defined your days, your purpose, and your identity suddenly crumbles. Without meaningful passions and hobbies you've nurtured along the way, retirement doesn't feel like freedom—it feels like falling into a void. Your mind will find something else to obsess over, whether it's the news or political outrage, just to give your achievement-oriented mind something to aim at. Discovering and nurturing hobbies is not just a nice-to-have; it’s a critical part of your retirement plan.

Step 2: Fret Over Things You Can't Control

Starting your day with a cup of coffee and catastrophe on your phone or on the news is a surefire way to ruin it. Every market fluctuation becomes a personal crisis. Is inflation going to ruin my savings? What if the next recession is coming? Is Social Security going to be bankrupt? The 24-hour news cycle becomes your new boss, and it's far more demanding than your old one. You now have unlimited time to do a deep dive into every economic prediction, political controversy, and expert analysis on everything falling apart in the world. This constant state of worry doesn't just steal your peace; it also destroys your judgment, leading to poor financial decisions.

Step 3: Manage Your Portfolio Without an Investment Policy Statement (IPS)

A lot of retirees spend more time researching their next vacation spot than creating a coherent investment strategy. Without a written Investment Policy Statement (IPS), you are much more likely to be influenced by trends, suffer from fear of missing out (FOMO), and experience "investment whiplash" as you constantly shift your portfolio based on headlines. The comparison game with friends is a trap because people often only tell you about their wins, leaving you measuring against a false measuring stick. Think of your IPS as your investment constitution—a written document that outlines your goals, risk tolerance, and specific guidelines for how you'll manage your portfolio. This document becomes a filter for every decision, helping you turn down the noise and stick to your long-term plan.

Step 4: Wait Until You're 80 to Go on Adventures

The cruel irony that catches a lot of retirees off guard is the difference between healthspan and lifespan. We spend our careers postponing adventures, telling ourselves, "I'll do that when I retire." Then, we spend the first decade of retirement still postponing. The brutal truth is that your peak adventure years are typically in your 60s and early 70s. After that, your body will start slowing down. To put this in perspective, think about your energy levels now versus 10 years ago. The solution is counterintuitive: you have to frontload some of these adventures in retirement. It doesn't mean being reckless, but it is about prioritizing what you want to do and in what order you'll do it.

Step 5: Spend All of Your Investment Earnings

I've seen this firsthand, and it's a brutal mistake. Imagine you retire, and the market goes on a bull run for the first few years. It's easy to fall into the trap of spending all those gains, but you are setting yourself up for a lot of pain down the road when the market returns to a more normal environment. If you inflate your lifestyle early on, it becomes very difficult to scale it back. The best defense is to have a spending plan and stick with it. Your IPS should be your guide, not the market's recent performance.

Step 6: Take More Risk Than You Can Handle

Everyone is brave when answering risk tolerance questionnaires for their advisor. However, you need to put yourself in the situation to truly understand it. When your retirement accounts have millions of dollars in them, even small market fluctuations can be equal to years of your working income. It is a horrifying thing to see your accounts down by six or seven figures. If you haven't experienced this before, you are much more likely to make a rash decision that you will later regret. Guard yourself against this by not taking on more risk than you can genuinely handle, not just what a questionnaire says.

Step 7: Completely Ignore Inflation

On the flip side of taking too much risk is taking too little. You might think, "I'll just put everything in cash or bonds to be safe." While this might feel safe in the short term, over the long term, inflation will relentlessly erode your wealth. You may be foregoing generational wealth that you could have passed on to your family. You have to strike a balance between avoiding unnecessary risk and having a portfolio with enough growth potential to outpace inflation.

Inversion to a Great Retirement

So there you have it: seven ways to make sure you have a miserable retirement. By understanding these pitfalls and actively working to avoid them, you can build a retirement plan that protects not just your money, but your peace of mind and sense of purpose.

At Barrett FP LLC, we offer expert financial planning on an hourly basis, focused entirely on helping you achieve your goals.

Learn more about how we can help you build a resilient and fulfilling retirement plan and see if we're a good fit.