We’re nearing the end of football season, and many of us are watching our favorite teams in the playoffs and indulging in some fantasy football of our own. There are a surprising number of parallels between what happens on the field and how we manage our finances. Let’s see what strategies we can take away from the sport that are applicable to personal financial planning.
The Red Zone
A winning team usually performs well in the red zone. Plays within these 20 yards require precise execution and offer little room for error. There’s a lot riding on the effort, since success in this zone usually means winning the game.
I believe there’s a financial red zone that stretches from 5 to 10 years before to 5 years after retirement. This is when paying attention to details like saving more, budgeting properly, and avoiding mistakes is critical to a successful retirement. These years are crucial because there’s little time left before retirement to correct mistakes, such as taking too much risk. You want to be protecting the assets you’ve worked so hard to accumulate and investing new money conservatively.
The Hurry-Up Offense
This tactic lets a team adopt a faster approach to play when they’re running out of time and need to gain a lot of ground right away. When the hurry-up offense is done well, it disrupts the opponent’s defensive strategy; however this offensive move is difficult to carry out efficiently and often leads to mistakes. The pace can result in chaos and the team becomes uncertain about what plays to make.
We see a similar situation in personal finance when people feel like they’re behind in saving and investing. If they don’t think they have enough money for retirement, they’re willing to take more risk than is prudent.
It’s a dangerous reaction and can mean gambling with money that’s meant to last a lifetime. Yes, pre-retirees and retirees need some element of growth, but very few are in a position to pursue aggressive growth and accept the risk that accompanies it.
The Victory Formation
With the win in hand, a team can assume the victory formation, allowing the quarterback to take a knee as the clock runs out. Because play stops, there’s no opportunity for a fumble that can put the win at risk.
It’s the same with retirement. If you’ve saved enough to retire comfortably, you may not need to grow your money anymore and take the market risk associated with a growth strategy. You only have one shot to get retirement right, so why …….