Bracket Busted? That is ok - its almost impossible.
We just finished the first weekend of March Madness which means the bracket(s) you filled out are probably busted even though you thought this might be the year you get it right and collect huge prize money.
Part of working in finance, planning and projecting is to look at probability and account for it.
What is the probability of a market down-turn in the next decade? (high)
What is the likelihood of needing Long-Term Services and Support? (70%)
What is the chance of getting a perfect bracket? (1 in 9,223,372,036,854,775,808 if you just guess or flip a coin)
See… don’t feel bad that your bracket is busted.
You might be like me and actually know a lot about the teams. That helps your odds go to whatever that number is above to 1 in 120 billion. In the word’s of Lloyd Christmas, “So, you’re telling me there’s a chance.”
The NCAA has a wonderful article outlining how complicated it is to predict a perfect bracket and I believe it offers insights into financial planning for the future.
Let’s start simple with 4 teams like the article does. This provides us with 8 “bracket permutations.”
(using the term “permutations” makes me really happy) Not bad. That means you have a 1:8 shot of getting it right. Often with financial advice, only a couple variables are looked at, especially with the way the industry presents retirement. Variable 1 - how much you have saved. Variable 2 - how much you can withdraw. Variable 3 - How long you want to do that for. Variable 4 - what level of risk you take.
With that, we can make a few predictions and get a 1:8 chance of getting it just right. because we don’t know with certainty.
Those 4 are a good start but we know there are more things to account for in the calculation, right? Two variables are listed above with market loss and long-term care. Lets add those in as well as a few others to take our total to 8 variables.
In a March Madness bracket of 8 teams, how many permutations do you think we get? Double? Quadruple? 10x?
128! So now you have a 1:128 shot with just 8 teams. It is exponentially more challenging to get it right. Then you jump to 68 teams that currently make up the field and you get impossible odds.
“How crazy are 1 in 9.2 quintillion odds?” the article asks.
Luckily, I don’t think our odds are that bad when it comes to financial planning but they certainly are not simple ones. Advanced planning education teaches advisors that there are some 30 or so risk factors to account for. Most advisors look at 4 - the 4 above in our 1:8 bracket.
In my book, The Future Poor, I make a case for thinking differently and is ways to account for more variables and financially plan better for the things that are most likely to happen as we age. The more variables that we account for the better the odds get for us. For example, when we know something about the teams playing we can make smarter decisions and go from 9 quintillion down to 120 billion.
Take a look at this article about these odds. There are some fun facts and great visuals to represent these astounding odds.
As always, if you come across a financially related article you’d like to send my way please do!
Best place to send them is to me.
More next time!
Jonathan