Use the ‘Elam Ending’ to Reduce Retirement Uncertainty

March Madness is upon us. The end of college basketball games can be especially maddening, especially tight games where the losing team slowly tries to claw its way back through frequent fouls as it battles against the game clock.

What if there were a better way to determine the winner of a basketball game? I was recently introduced to the concept of the “Elam Ending” format in an article on FiveThirtyEight.com.

The Elam Ending format was created by Nick Elam, a professor at Ball State University. The format creates a score target required to win, which makes the game clock a nonfactor at some point in the game. It was recently used in the NBA All-Star Game and is being used in various NBA G League competitions as well.

To provide an example, let’s say the winner is determined by adding 20 points to the winning team’s score at the end of the third quarter. Therefore, if the score through the third quarter was Kentucky Wildcats 60, Louisville Cardinals 30, the first team to 80 points would be declared the winner. While shot clocks would still be enforced during the fourth quarter, there would be no more game clock to worry about.

This format is perhaps more similar to how pickup basketball games work, where the first team to the respective target wins. There is also no potential for overtime.

Creating a “hard target” to determine the winner has obvious implications on gameplay and strategy in general. While it may still make sense to foul players who aren’t very good at the free-throw line, the format encourages more pure basketball play since there is no more ambiguity on the number of points required to win.

I think the Elam Ending concept lends itself to a variety of domains, such as retirement planning, especially as it pertains to longevity risk. Uncertain longevity significantly complicates retirement income planning since the retiree doesn’t know whether savings need to fund spending for five years or 40 years.

This uncertainty would generally be expected to result in lower retirement spending and lower retirement satisfaction and is something retirees are increasingly faced with as the shift away from defined benefit plans to defined contribution plans continues.

One possible way to eliminate the uncertainty around longevity, and to create effectively an Elam Ending for retirement, could be to allocate savings to a strategy or solution that seeks to provide income that is protected (or guaranteed) for life. This includes delayed claiming of Social Security retirement benefits or potentially purchasing an annuity that provides protected lifetime income.

By eliminating the uncertainty around longevity, an individual can spend more freely in retirement, a concept that Michael Finke and I dub “A License to Spend” in research based on data from the Health and Retirement Study.

While I doubt we’ll see the Elam Ending format in college basketball anytime soon, I believe that considering ways you can create more certainty for clients (especially retirees) is something every financial advisor should actively be thinking about!

(Pictured: David Blanchett)