Investing to 100: How Longer Lives will Affect Financial Strategies

Living to 100 is not such a rarity these days, and it will become even more commonplace in the future. While actuaries don’t predict anything close to the majority of people living to that age in the near future, the likelihood of living into one’s 90s is already a reality.

So, if phrases such as “70 is the new 60” eventually give way to “90 is the new 80,” what are some implications for financial planning and investing? Here’s another way to look at it. If a fifty-year-old with substantial wealth were to reasonably consider himself or herself to be middle-aged, then they should be looking at the next fifty years as far as wealth management is concerned. Not twenty, thirty, or even forty. Possibly fifty.

A long-term investment strategy has been our go-to approach for years. With increasing longevity, “long term” takes on even great significance. Consider the following implications:

Ratio Change
The ratio of earning years to retirement years will shift, putting greater pressure on generating and increasing wealth efficiently throughout one’s career. What’s more, the number of healthy years—those spent without significant health challenges or disability — will trend upward. This implies that there will be many additional opportunities for travel, entertainment, hobbies, and whatever else you choose as uses for your hard-earned wealth.

Travel Well
Living longer, and being healthier for more of the later years, means a more active lifestyle for many. If this means additional travel, then it also suggests a higher level of expenses. So, when working on your investment strategy, consider the level and timing of such expenses and the liquidity necessary to cover them.

Generational Wealth
The number of generations still alive in a family will be expected to increase as well, changing the circumstances that affect estate planning and family wealth management during one’s lifetime. Could we eventually see something along the lines of a two-generation-skipping tax strategy?

The trend of higher healthcare costs is unlikely to subside, so longer lifespans suggest an even greater focus on financial planning that takes concerns about rising healthcare costs into consideration.

Living Longer Together
The gap in life expectancy between women and men is narrowing, which suggests that couples will be able to spend an increasing amount of time together throughout their lives. The implication here is that investment strategies may need to reset the general timing of estate planning and any related portfolio management to support it.

Life Insurance
There is an entirely different set of concerns when considering the implications of much longer lives as they relate to insurance policies. For instance, a term life insurance policy that covers certain ten-year spans for someone might look dramatically different down the road. The fine print in whole life policies needs to be examined carefully as well, as there are often restrictions that only come into play with very advanced age. These are, of course, complex matters that need to be addressed with the assistance of your financial team.

The Gifting Years
For those who include gifting in their annual plans, adding ten years or more to an average lifespan can certainly change one’s long-term thinking. If the plan has always been to gift at the highest level allowable by the IRS without taxability, for example, and projections show this is not sustainable, then you will want to sit down with your financial planner and decide on a workable strategy.

Staying on top of financial matters depends on sharp mental faculties. Unfortunately, studies have shown that the possibility of developing dementia increases with age. As lifespans increase, so does the number of years that a decline in mental agility could affect one’s ability to manage finances effectively.

Also, the elderly face a barrage of financial scams that need to be defended against, and wealth presents a tempting target. Essentially, a key to keeping ahead of the game with financial planning and investment requires the habit of keeping in touch with your financial advisor and being open to discussing the additional financial planning concerns that come with the natural process of aging.

Longer-term Investing
In summary, living into one’s nineties—and potentially to 100 and beyond—delivers good and bad news for wealth management. As financial advisors, we have followed a long-term investment strategy that helps investors avoid the tendency to react to shorter-term volatility events. In fact, one of our recent blogs explains our long-term investment strategy in detail. With extended lifespans already a fact of life, the need to rethink of portfolio strategies in terms of even longer horizons becomes all the more important.

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