You May Have Already Won Your Lottery

You May Have Already Won Your Lottery

One of the hardest concepts for financial planning clients that range age 55 and older is helping them to respond properly to risk.  People have a tendency to either take too little risk or to take too much.  Today, I address taking needless risk.

Let’s first consider what you would do if you won the lottery… say $50 million.  That would be a game changer for most people.  What would you do?  How would your life change?  What would you be doing in six months that you would not have done otherwise?  If you are still working, you would likely quit your job… but six months out you would probably be bored and would look for something to do, perhaps charity work or teaching.  Other than that, most respond that there would be very little difference in their lives.

Now, we analyze their present situation and, it appears, that many clients can do everything they would do if they won the lottery, or rather, not much different than they are doing at present.

Next, we discuss what would happen if they lost a third of their assets.  It is likely that changes would have to be made in their lifestyle and their level of security would drop significantly.  I then show them that if they doubled their money, not much would change.  The conclusion is that losing a third of their assets would hurt them much more than doubling their assets.  If so, why take the added risk?

If your life won’t significantly change if you won the lottery, then you already won your individual lottery.  Accordingly, you should adjust your risk levels downward.