Anytime we have a major election in this country, there’s a lot of angst about polling data and whether or not the polls were accurate.
The polls are almost never wrong. It’s just that most people don’t understand how they work.
Anytime polls are conducted, there’s a set of assumptions that has to be made about what the electorate is going to look like. How male or how female will the electorate be? How black or how white? How religious or non-religious? And if any one particular demographic doesn’t show up to vote with the same intensity that the pollsters expected, it can skew the accuracy of what the polls are predicting.
This is why pollsters tell us the “margin of error.” Some people think that the margin of error is something that statisticians just make up to cover their butts. But it’s quite a bit more complex than that. It’s essentially their way of saying that they don’t know exactly who is going to show up to vote and who isn’t, so they’re going to give us a range of outcomes that could occur, depending on what the electorate actually ends up looking like.
So when you see that Bill Nelson is leading in Florida by two points in several consecutive polls, it might be tempting to think that the consensus is that he’s going to win. But pay attention the margin of error. If the margin of error is four, that essentially means that the range of outcomes could be anywhere from Rick Scott winning by two points all the way up to Nelson winning by six. (And as I write this post a week after the election, they’re still trying to sort out the votes in Florida).
But sometimes you have races that just don’t get any coverage at all. Even though they conduct polls in California, no media outlet feels the need to bother reporting on Dianne Feinstein’s lead, because everybody knows she’s going to win. Same story with John Barrasso in Wyoming, Roger Wicker in Mississippi, or Amy Klobuchar in Minnesota. Unless you live in those states, you might not have even realized that those folks were up for re-election.
That’s because it’s a “safe seat.” If pollsters see that Klobuchar is leading by 25 points and the margin of error is four, there’s not much to talk about. That means she could win by anywhere between 21 and 29 points, depending on who shows up to vote. But either way, she wins. For all intents and purposes, it’s statistically impossible for her to lose. (As it turned out, she won by 24 points).
This is the same kind of certainty that you should try to build into your retirement plan. Financially speaking, you don’t want to live in a swing state.
Think of stock market returns as being analogous to voter turnout. We don’t know who’s going to show up to the polls, just like we don’t know what the market is going to do from year to year. So the best we can do is predict a range of potential outcomes.
If you’re on the brink of retirement, we can assess your age, investments, life expectancy, and how much income you’ll need from your portfolio each year, and then see what the “polls” tell us. If the spectrum of potential outcomes ranges from a best case scenario where you have $325,000 left when you die to a worst case scenario of you running out of money at 79, then you live in a swing state and your seat can’t be considered even remotely safe.
On the other hand, if your range of outcomes falls somewhere between you dying with somewhere between $500,000 and $750,000, then your seat is safe and you don’t have to sit around sweating it out on your financial “election night.”
If you have a range of outcomes that isn’t satisfactory in the political realm, you don’t just give up. You invest more on TV ads, get more volunteers out in the community to knock on doors, and crank up the opposition research on your opponent.
If you don’t like your range of outcomes in the financial realm, there’s also plenty that you can do. You can work an extra year or two, decrease how much you take from your portfolio each year, downsize to a smaller house, or plan to work a part-time job for a while after you retire.
There’s always something you can do, the key is knowing where you stand.
What if, financially speaking, you’re running for Senate as a Democrat in Mississippi, but you think you’re in Vermont? Things probably aren’t as rosy for you as you think.
Or, on the other hand, what if you’re a Republican and you think that you’re in California, but in reality you’re actually in South Carolina? You’re probably in much better shape than you ever dreamed.
You just don’t know until you see what the pollsters are saying.