Brackets, Busts — and Building a Resilient Retirement Plan

By now, most brackets tied to NCAA March Madness are already busted.

That didn’t take long.

Then again, it never does.

Every March, millions of us confidently — or at least optimistically — predict outcomes in a tournament defined by unpredictability. We study matchups, trends, seeding history, and (too) often assume that the track record of colleges of our youth remains constant — and then watch a 12-seed dismantle our assumptions before the first weekend is out. Though in fairness, alumni affections DO plan a role (well, for those of you whose alma mater makes it into the tournament, anyway).

If that sounds familiar, it should. Because in a lot of ways, retirement planning isn’t all that different. It’s focused (or should be) on projections based on reasonable assumptions — expected returns, steady contributions, rational behavior over time. And then reality intervenes. Markets don’t cooperate. Emergencies emerge. Excrement occurs. Life happens.

And just like that, that “perfect” plan looks a lot like a busted bracket.

The problem, of course, isn’t that we get it wrong. It’s that we think we won’t.

There’s a certain overconfidence baked into both exercises. In March, it shows up as the belief that this is the year we’ll finally nail the bracket (or that our alma mater will return to its former glory). In retirement planning, it’s the quiet assumption that averages will hold, that risks will materialize neatly and on schedule …

Unfortunately, upsets happen in basketball — and in markets. Call it volatility, sequence risk, or just bad timing, but the effect is the same: outcomes diverge, sometimes sharply, from expectations.

Which is why the real lesson of March Madness isn’t about picking winners.

It’s about surviving uncertainty.

In the tournament, style points don’t matter. Teams advance, or they don’t. A sloppy win counts just as much as a dominant one, and a single bad performance can end a championship run. The best team with the most elegant strategies doesn’t always win.

Retirement investors face a different structure — but a similar reality. The goal isn’t to “win” every year. It’s to avoid the kinds of losses — particularly at the wrong time — that can permanently alter outcomes. Sequence of returns risk isn’t all that different from a first-round upset: recoverable in theory, devastating in practice.

The teams that make deep runs in March tend to have options — multiple scorers, defensive flexibility, and the ability to adapt when things don’t go according to plan. Retirement plans benefit from the same kind of diversification: across asset classes, across income sources, across strategies that don’t all depend on the same outcome.

Because when (not if) something goes wrong, you need somewhere else to turn.

Preparation for the upset. For the unexpected. For the moments when markets — or participants — don’t behave the way the model said they would or should.

There’s no tomorrow in the NCAA tournament, but the best retirement strategy needs to plan for one. 

-          Nevin E. Adams, JD

Comments

Post a Comment

Popular posts from this blog

Do Roth and 401(k) Pre-Tax Holders Really Spend Differently?

Image
An interesting—and somewhat counterintuitive—report came out last week, one that cast doubt on the “common wisdom” regarding Roth versus traditional pre-tax savings. The assumption underlying the research [i] was that those who had not yet paid taxes on their savings (the traditional pre-tax savings) would be hesitant to tap into those savings and trigger taxes, certainly more so that individuals that had already paid those taxes. Instead, the research suggested that the opposite occurred; that individuals who had saved on a pre-tax basis actually withdrew more/sooner—but with a twist.  This they hailed as good news. They noted that the research suggests investing in a CT (current-taxed, or Roth) plan could help ease concerns about outliving funds—because they spend at a lower rate (though they saw this as a negative for those who saved on a deferred tax (DT) basis).  They even managed to find a silver lining in the “cloud” of faster spending by the pre-tax c...
Read more

The Biggest 401(k) Rollover Mistake

Image
  Readers of these columns know that for years I held off rolling over my old 401(k) balances. Oh, I had rational reasons for (not) doing so; the institutional pricing of a particular fund in one, the low fees in another, the managed account option in a third—but the reality was that the process of rolling over your accumulated savings has been—and in many cases remains—painful. Rollovers are a big deal. Vanguard reports that annual contributions to IRAs ($701 billion as of 2020) far exceed all DC plan contributions, largely due to rollovers ($618 billion in 2020), while the Investment Company Institute claims that investors now hold an estimated $13.5 trillion in IRAs—“approximately $3 trillion more than in DC plans, despite the fact that 45 million fewer Americans own IRAs than participate in DC plans,” according to the report Two things, in particular, stayed my hand over the years—trying to time the liquidation of funds (I know, but I’m human), and worrying about the timing I’d...
Read more

Let’s Stop Shaming the Claiming

Image
  The most recent “debate” was inspired by a recent Wall Street Journal article by Derek Tharp — an associate professor of finance at the University of Southern Maine —   titled “ Why Delaying Your Social Security Benefits May Not Make Sense .” Shortly thereafter,  Schroders 2025 U.S. Retirement Survey  stated that 44% of non-retirees plan to file for Social Security benefits before reaching age 67 (the full retirement age for everyone born in 1960 or later) — and “just” 10% plan to wait until age 70 (when an individual reaches their maximum monthly benefit). And, sure enough, the retirement industry commentary that followed was largely in the vein of “can you believe people are ignoring all this free money?” But it was the Wall Street Journal article that appeared to draw the most critical fire — largely from academics, and mostly (it seemed to me) quibbling about some of Tharp’s math assumptions (when you’re guessing, even rationally, at things that can’t be precis...
Read more