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Predicting Retirement is Tough, but it Gets Easier

October 28, 2020 by Lazy Man 2 Comments

JakeBeachGnarly
Retirement can be a gnarly problem and not the way gnarly is usually used at the beach

It seems like everyone is in the prediction business this week. We’re trying to predict which states will vote one way. We’re trying to predict which way the Supreme Court will vote. I’m trying to predict when the Patriots will have a competitive quarterback again. (Wait, that was supposed to be in my inner monologue. The rest of the country probably had enough of Patriots quarterbacks for a number of years.)

I don’t know about you, but I’ve had enough of those predictions for a little while. Why not take a break from them? What if instead you focused on your personal finance journey and tried to predict what retirement would look like?

I know I’m a strange bird. It takes a “unique personality” to blog about personal finances for 14 years. I continue to update my passive income and net worth statements. It’s a little outdated, but generally our next 45 years of expenses looks steady.

Most people aren’t strange like me. Has it been a while since you calculated your net worth? When was the last time you thought about what your expenses will be when you retire? Regular readers are likely to do these things more often. I wonder how often the Average Joe or Average Jane looks at this financial stuff. For example, I’m always slipping when it comes to getting my car checked. I had been very bad about seeing dentists (but I’m better now). I have to think that money check-ups are the same for some people.

When I started this blog, I could have made some predictions of what retirement would look like. I would have been wildly wrong. I had never left the Boston suburbs before, but we moved out to California for 6 years. We came back to New England and live in the “drive-through” state of Rhode Island. I may have been able to predict the two kids. I wouldn’t have thought that they’d go to private school, because the discount was just barely good enough, but it’s still extremely expensive.

Life has a way of slowly moving you a different direction than you planned. So if you last looked at your financial plan a few years ago, it is a good time to look again and see if adjustments need to be made. For example, we found that with COVID, not being able to spend on travel has helped our bank accounts. (It’s hard to admit that knowing how negative COVID has been for the country overall.)

I like to think of long-term financial planning (for retirement or even college expenses) as being like a hole of golf. You have to take a big shot with your driver to get as close as you can. Then you focus your attention more and more until you are making a manageable putt.

This might be a good time to see if you are using the correct golf club.

Filed Under: Retirement Tagged With: covid, election

Gambling on the Election

October 12, 2016 by Kosmo 2 Comments

[The following is an article written by the occasional staff writer, Kosmo. He mentioned this to me months and months ago and I am kicking myself that I didn’t partake for the experience.]

Would you like to gamble on the upcoming election?

I don’t mean an indirect gamble, like putting money into (or pulling money out of) the stock market.  I mean an actual direct wager.  You can do it, regardless of your state of residence, and it’s even apparently legal.

I’m talking about the Iowa Political Market.  It is a non-profit market operated by the University of Iowa’s school of business.  The site essentially allows what would otherwise be illegal gambling for the purposes of academic research and teaching (in other words, you are the product).

How it works

You send a check to fund your account.  An actual paper check, sent via snail mail.  A one-time account setup fee of $5 is deducted.  Investments are limited to $500.

Now you buy and sell contracts that are based on the candidates or parties.  There are two basic varieties:

  • Winner-take-all: If your candidate wins, your shares can be cashed in for $1 each after the election.  If your candidate loses, your shares are worthless.  The presidential winner-take-all is by far the most popular market, with more than $100,000 invested.
  • Vote share:  You can cash in your shares for ($1 * the proportional of the two-party popular vote).  For example, let’s say the Democratic candidate gets 69% of the vote, the Republican candidate gets 23%, and candidates for the other parties combined for 8%.  We exclude the third party vote to get a ratio of 69:23, or 3:1.  This means that the Democrat share would be worth 75 cents and the Republican share would be worth 25 cents.

What can you buy

(Note: quoted prices are around noon Central time on October 11.  They will change by the time you read this.)

Presidential race:

  • In the winner-take all race, Hillary Clinton last traded at 83 cents per share and Donald Trump traded at 17 cents (technically they are Democrat shares and Republican shares).  If you bought $500 worth of Trump shares (2941 shares) and he wins in November, you could cash out for $2941.  It seems like there might be an opportunity to make a few dollars betting on Trump.  If you buy at 17 cents (which is the all-time low for Trump) and it bounces up to 22 cents next week, you can sell those shares for 22 cents and make a profit.  Surely at some point Hillary will have a bad day and Trump will spike a bit – that’s the ebb and flow of a campaign.  You don’t need to hold until maturity, and there are no per-trade fees.
  • In the vote share market, Hillary Clinton last traded for 60 cents and Trump traded for 38 cents.  In an efficient market, these would always add up to 100, but this is a relatively small market.  If you actually bought both investments at those prices, you’d be guaranteed a profit – it would cost 98 cents and would be worth $1 after the election.  We first must exclude any third party votes and look at just the votes cast for those two candidates.  Let’s say there are 100 million votes case.  If you bought Hillary shares and she gets 60 million votes, you break even.  If she gets 55 million votes, you lose 5 cents per share.  If you own Trump shares and he gets 38 million votes, you break even.  If he gets 45 million votes, you have a profit of 7 cents per share.  I think the Trump shares are also a good buy here.  He only needs to get 38% of the two-party vote to break even.  For example let’s say that the third parties combine for 10%, leaving Clinton and Trump to split the remaining 90%.  If Trump got 38% of the 90% – or 32.4% of the total votes cast – to break even.  As divided as we are politically, that’s a pretty low bar to clear.

Congressional Races

You can also wager on control of congress.  These are all winner-take-all – whichever scenario plays out will be worth $1 and the others will be worthless.

There are four scenarios:

  • Democrats control the Senate, Republicans control the House – 37.8 cents
  • Republicans control the Senate and the House – 28.0 cents
  • Democrats control the Senate and the House – 20.2 cents
  • Republicans control the Senate, Democrats control the House – 0.3 cents (not 3 cents, 0.3 cents)
  • Other (there’s a tie in either the House or the Senate) – 19.4 cents

Again, this is not a perfectly efficient market, since you can also a bundle of all five for $1.

Some knowledge of politics helps here.  After each census, congressional districts are redrawn to have equal representation (some states may gain or lose representatives, but even within a state, the population will shift).  Some states have non-partisan (neutral) committees to re-draw districts, in an effort to ensure fairness.  However, in most states, state governments control redistricting.  If your party controls the state house, state senate, and governorship, you can re-draw the districts to help your part.  This is called gerrymandering.  Both parties engage in the practice, but Republicans had more opportunities following the 2010 census, simply because they had complete control in more states than the Democrats did.  As a result, the Republicans have a pretty firm grip on the US House, at least until the next census, after which the districts will be re-drawn once again.

In the Senate, one third of the seats are up for election every year.  This year, the Republicans have 24 seats at risk and the Democrats have just 10.  If the Democrats win 15 seats and the Republicans win 19, the Democrats would gain control of the Senate, 51-49.  This is considerably more likely than the House flipping, although even this is a coin flip at this point.  For this reason, the combination of the House flipping and the Senate not flipping is an extreme longshot – it would pay out $1 on an investment of 0.3 cents.

Filed Under: Gambling Tagged With: clinton, election, trump

How Much is Your Vote Worth? Mine is $21.

November 6, 2012 by Lazy Man 11 Comments

Happy Election Day! I think regular Lazy Man and Money readers know I’m not one to side with any political party. That’s one of the reasons why I don’t write about politics in this space. I believe in voting for the person, not the political party. Most of the time I just hope I’m not in situation of voting for Kang or Kodos, but far too often it feels like I am. I guess I don’t have much of an affection politics either.

So I’ll put much of that aside and pass on this cool tool to see what your vote is worth online. The tool asks you a few questions and determines how much your vote is worth considering the billions that the candidates are spending online. My non-swing state vote in California is worth $21. As usual my wife has bested me… her vote is worth $38. I played with the tool a little and found that if you are undecided woman in swing-state Ohio who uses Facebook a lot, the vote could be worth as much as $48. I don’t know how accurate it is, but I can over look it for the sake of fun.

Wouldn’t it be a fun social experiment to see how many people would take the straight cash for their vote? As someone who went by Taco Bell for a free taco last week, I can attest that numerous people will go through great lengths for $1.29 (though Dorito tacos are particularly awesome).

I found another tool Politify that allows you to determine how much the candidate will impact your net worth by 2015. According to the tool, Romney winning will net me a cool $3,500 more than Obama. So you might think I’d be a Romney person. Well, due to Romney’s history of support of MLM/pyramid schemes, I have decided he isn’t the person I want to see as President. I estimate that these scams cost consumers around $20 billion dollars a year. (If there is reader interest, I could explain the calculation in more detail.) That’s the equivalent damage of a hurricane Sandy every two and half years (using the $50 billion damage estimates I’ve seen)… and few people seem to care.

With that, I give you reason #519,285 why Joss Whedon is awesome (and I’d find it funny even if it was directed at Obama):

Filed Under: Politics Tagged With: election, obama, romney, vote

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