October 23, 2010


Joel falls during hockey (his third time on ice)
Did you read about the financial woes of former hockey players? No, I'm not asking you to bail out NHLers. Top athletes get paid well but usually have short careers. They may not prepare financially for unexpected costs during retirement. If you scan the comments, you won't find much sympathy for the players.

Let's look beyond hockey to the problem of longevity: the risk of outliving your savings. There are three ways we can protect ourselves.
  1. save more money now
  2. reduce the risk of unexpected expenses
  3. find ways to earn more money

Save More Money Now

There's not much to say about this boring but essential option. Saving more is one of the three practical ways to increase your net worth.

Why sacrifice today when nothing bad may happen? Optimism beats pessimism. Yet that's no guarantee that we'll be spared from a major financial setback in the future.

Reduce The Risk Of Unexpected Expenses

We can't tell what's going to happen to us. Our lives can change in an instant no matter what precautions we take. Think of an accident. We could be at the wrong place at the wrong time. We can't tell. That's why they're called accidents.

Archimedes on leverage (click for blog post)The cheapest way to prepare for some risks is with safe leverage: insurance. That's a great option for the costs of disability,  premature death or a critical illness. You could get a payout that's much larger than your investment. That's because your money is pooled and invested to pay the few claims that occur. You benefit from the combined magic of leveraging, compound interest and probabilities. If you think the insurers make too much in the transaction, buy their shares.

If you're among the majority who don't make a claim, it's easy to think that you "wasted" your money when you look back. In a sense you did, but you had peace of mind. Some forms of coverage refund your premiums if you don't make a claim. That gives you a form of retirement savings. You don't get that option with your car or home insurance.

It's sad to see people spending more to insure their cars than themselves. Priorities …

Find Ways To Earn More Money

Ah, the lure of get-rich-quick schemes. Why use the first two options when we might make a fortune by investing in the popular investments of the day? The choices of previous years didn't meet our expectations but this time is different, right? It's easy to forget that risk accompanies reward, and that past performance isn't a floor for future performance.

Finding ways to earn more income is a safer strategy. There are ways to bulletproof your career and insure against the risk of  losing your livelihood. It's tougher for athletes to stay employable when switching to a field for which they have no real training. Tim Horton was an exception.

We can fall on ice without warning. We're more resilient when we're younger and invest in protection.


Podcast Episode 89 (4:05)

direct download | Internet Archive page

PS Don't forget about lottery tickets. Somebody's going to win and it could be you …

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