Longevity Planning

A desert landscape

Redefining the traditional retirement conversation to refocus on our modern “longevity journey” doesn’t simplify life. Instead, it forces us to make choices that are more deliberate and conscious since with medical advances, the likelihood of living into one’s 80s is very high. We challenge clients to broaden their perspective, and our goal is to inspire clients to use their life’s wisdom to prepare for an abundant second “half” of life.

Increases in longevity and the decisions associated with longer life means developing a plan that integrates health care, financial management, and personal life goals into a strategy that supports and enhances the later mature years. A successful navigation of the preservation and distribution phases of life requires a great deal of knowledge, confidence, and a steady hand: all things we strive to provide.

Longevity and investment returns are concepts that go hand in hand because if investments aren’t earning enough real returns, that is, after inflation, taxes and expenses, they are losing value. The most effectively structured longevity-oriented investment portfolios are constructed with the knowledge that while income is a critical requirement, continued investment growth that keeps pace with inflation is equally important.

The sum of our values, knowledge, life experiences, and lessons learned from our successes and failures is called wisdom, a significant by-product of living a long life and one of the greatest gifts clients can give to the next generation.

One of the main challenges that confronts all of us is how to prevent having to sell our hard-earned retirement assets at the wrong time. Knowing how much can be withdrawn from our investment portfolio on an annual basis without depleting the principal too quickly is critical to peace of mind.

The all-important “buy low and sell high” discipline is sometimes put out of reach when people are forced to sell in a bear market to provide cash for living expenses. We strive to thoughtfully establish a spending plan to balance our clients’ desire to maintain a consistent lifestyle with preserving assets for a retirement that could last 30 or 40 years. We have to plan on how much retirement savings will be spent initially and how this amount will change over time to reflect the effects of inflation and the performance of the underlying investment portfolio.

Even a 5% rate of withdrawal to support a comfortable “lifestyle” can deplete a diversified nest egg in about 20 years.

A lifestyle spending policy is calculated by identifying a percentage of the portfolio that is to be withdrawn to cover expenses, increased by a cost of living adjustment, typically measured by the Consumer Price Index (CPI). An “endowment” spending policy is a blended approach. Unlike the lifestyle spending policy which relies upon a flat rate that will be withdrawn every year, the endowment spending policy combines a small percentage based on the current portfolio value with the prior year’s spending. When blended together, these two values determine the next year’s spending amount.

Life is a succession of trade-offs, the most significant of which is youth for old age. If we survive into our 60’s, we get to choose the way we invest the “life lived” dividend or wisdom we have gathered. Happiness also has a lot to do with the return we receive on that investment.

Studies of success and its relationship to happiness contradicts the assumption that if we work harder, we will be more successful and then we will be happy. It turns out that something else is true. Training your brain to be positive at work actually fuels greater success and we believe our success is predicted not by intelligence, but by

1. Optimism-a belief that your behavior matters
2. Strong social connections
3. The ability to manage energy and stress in a positive way.

Because of medical advances, there is now a new phase of life which comes after middle age and before old age. This phase renders obsolete many myths that were taken to be conventional wisdom. The uncertainty of the world moves many of us to focus on our own sense of purpose and connection to others. As we age, clients begin to feel the need to move from success to significance. The desire to be significant and make a difference explains why our aging population is becoming more concerned with clarifying their legacies which means identifying our calling, recognizing our gifts, and sharing ourselves authentically with the world.

No longevity planning strategy is complete without an analysis of future risks, costs, and anticipating what decisions need to be made associated with health and long-term care expenses. Health care costs are likely to account for a greater percentage of all of our expenses as the years go by so planning for them should not be left to chance.

Long-term care services are those that relate to the assistance needed with the basic personal tasks of everyday life. They are often called Activities of Daily Living (ADLs). According to longtermcare.gov “70% of people turning age 65 can expect to need some form of long-term care during their lives.” Most of us don’t want to deal with this fact” and others feel that health and aging conversations are too personal or perhaps premature. One of our challenges is to depersonalize these discussions and help clients understand that these decisions are just as important as the investment decisions.

We encourage clients to use this meeting as an opportunity to co-create their health and long-term care plans with any people in their lives who may be called upon for emotional and possible financial support in the event of a health issue or long-term illness. In many cases, this will be a child/children who will thank their lucky stars that they were in the discussion before a catastrophic health event. Once everyone who will be financially or emotionally responsible involved in the event of some illness, the dynamics of the discussion and the outcomes are surprising productive.

Proper nutrition, weight moderation, exercise, and good genes aren’t the only determinants of good health. Longevity is also influenced by intangibles like attitude, psychology, spirituality and a secure material plan, which although they can’t be measured, directly affect health.

Researchers believe that community and relationships are two of the most important intangibles that shape our psychological and spiritual well-being as we age. Because aging often coincides with loss of community and relationships as friends and loved ones are lost to illness or death, it’s important to us to discuss our clients’ residential options ahead of time. Our longevity planning conversations can increase awareness of the importance of meeting new friends and establishing new relationships, which may motivate some of them to make different decisions about how and where they live.

Increased longevity has produced many creative new housing choices and opportunities for our aging population. In fact, we at The Rikoon Group are involved in researching investment opportunities in these kinds of building developments. The following is a list that has many of the desired characteristics of “age friendly” communities.