Finance 432: Managing Financial Risk for Insurers Last Lecture – Risk Management and Life

Objective Last lecture before retirement Words of advice for those about to start –A career –A more independent lifestyle Advice I may have found helpful at your stage, if I would have listened to someone about to retire (not likely, though)

1972 War in Southeast Asia –Military draft –Domino theory Financial system facing new challenges –Floating exchange rates –Inflation What will I do? –Law school –Government statistician –Pollster –Actuary Casualty Life

1972 Update Vietnam –Vacation destination –Budding capitalist system Financial system –Series of financial shocks Inflation in the 1970s Interest rates in the early 1980s Savings and loan crisis Financial risk mismanagement crises –Stock market fluctuated until 1982 Then advanced rapidly until 2000 Since then both up and down years I became a casualty actuary, then a professor

2008 War in Mideast –Volunteer military –Homeland security concerns Financial system facing new challenges –Subprime crisis and derivatives –Inflation What will I do? –Consulting –Teaching –Travel –Writing Fiction Nonfiction

Have a Goal Begin with the end in mind* What do you want from life? –Write it down –Read it regularly –Revise as you learn and grow * Steven Covey, Seven Habits of Highly Effective People

Know Yourself and Live Accordingly Not as easy as it sounds Up to now many of you lived according to others’ rules –Parents –Teachers –Professors –Friends –And soon - bosses Determine what it is you want from life, then find people who will help you achieve your objectives

Life is a Marathon, Not a Sprint Those who may appear to have an early lead may not turn out to be winners –Glamorous lifestyle –Prestigious job –High income May lead to substance abuse, depression and early demise

Health >>Wealth Seven factors to predict healthy aging* –Not smoking –No alcohol abuse –Stable marriage (partnership) –Some exercise –Not overweight –Adaptive coping style –Years of education * George E. Vaillant, Aging Well

Plan to Cope with the Inevitable Disasters Insurance for hazard risks Diversification for financial risks Support system for emotional risks –Family Parents, siblings, children –Friends –Trusted advisors

Be Willing to Take Risks Don’t take foolish risks Don’t miss out on opportunities just because some risk is involved Evaluate and try to choose wisely If something doesn’t work out –Learn from your experience –Get on with your life

If You Want to Retire, Plan for Retirement Save money –Retirement plans –Additional savings –Things cost less for those who have money Invest wisely –Doesn’t need to be time consuming –Review your portfolio periodically, not constantly Develop an inexpensive hobby early in life* * Ben Stein and Phil DeMuth, Yes, You Can Still Retire Comfortably

When Will You Retire? Longer lifespans Fewer defined benefit pension plans Lower Social Security benefits –Effect of Baby Boomers Plan to work into your 70s Find work you love

When Things Go Wrong – And they Will If you are injured by someone else’s fault –Recover financially or –Recover physically –Your choice, but can’t do both If you lose your job –Find a better one –Two years after, people agree it was for the best If someone hurts you emotionally –Talk about it with someone you trust –Move on

Career Advice Work with people you like –More time with co-workers than with family –Common interests –Shared values Leave dysfunctional workplaces –The Office –No disgrace in changing jobs Decide what you love to do –Then figure out a way to get paid to do that What would you do with your life if you won the lottery? –Do that now, forget the lottery

Define Success Now Tendency to ratchet up goals –How much money is enough –How much prestige is enough –How many papers are enough Don’t chase the carrot on a stick

Appreciate What You Have Consider our current life –Food –Shelter –Freedom A small minority of humans have ever experienced this level of these basic needs What we lack now –Overriding mission, survival –Clan or tribe to help

Advice for Life Enjoy the experience! Write home, and to me