Will Your 110th Birthday Be Happy? The Financial Risks of Longer Life.
Did you see the “Killing Cancer” story on 60 Minutes this past weekend? The TV newsmagazine, in a rare move, devoted two of its three main segments to what may turn out to be a major breakthrough in fighting the dreaded disease. Scientists and physicians at Duke University are using a modified polio virus to kill cancer cells, and the results at this early stage appear promising.
And just a few weeks earlier the covers of TIME and BusinessWeek magazines both trumpeted a soft news story about the expected major advances in longevity. Time’s cover featured a tight close-up of a gorgeous baby; the headline said, “This Baby Could Live to be 143 Years Old.” BusinessWeek showed a smiling elderly woman pointing to her birthday cake with the number 173 on top. That headline was “Inside Novartis’s quest for the world’s first anti-aging drug.” That story details how smart folks around the world are working on drugs that will turn off or even reverse the normal deterioration of cells.
All that is great news for us mortals. And it’s also scary for those of us who need money to live. Yes, that would be you.
Any major breakthrough in aging, heart disease or cancer will significantly boost average life expectancy. When, not if, that happens actuaries around the world will be forced to update the longevity tables, and all sorts of industries will need to re-tool their basic business assumptions – everyone from insurance to health care firms, and for sure, investment advisors like me.
Simply, the longer you live the more money you will need.
It seems just about every week we read a news story of some woman or man who is alive and living reasonably well past age 110. But leaving aside those exceptional few super-centenarians, just about everyone now knows someone who has reached triple digits.
The current estimates are that the U.S. is home to around 55,000 centenarians. When I see Willard Scott on the Today show send out his birthday wishes to a 100-year-old woman, I sometimes think, “if that person went to a fortune teller when she turned 75, and if that seer had a perfectly functioning crystal ball, that ball would say, ‘hey, your money has to last another quarter of a century!’”
Yet, based on my thousands of conversations with investors, chances are that woman became quite conservative with her investments as she hit her 70’s – or likely, well before that point.
What this increased longevity means is that most people need to boost the octane in their retirement portfolios. How? By tilting more towards stocks and less towards the so-called “safe” investments like bonds and bank CDs.
For many middle class investors, that could mean perhaps 55% to 65% (or more, if you can stomach the volatility) of your nest egg in stocks, ideally via good no-load, low-cost mutual funds or ETFs, and the balance in bonds or bond funds. Then use the oft-cited rule-of-thumb that says you can safely withdraw 4% of your liquid investments each year and you will be less likely to outlive your money. (These are very broad suggestions; please remember that each person is different with different needs. Professional guidance is recommended.)
So the bottom line to all this good news about living longer is that you are going to have to either work longer, save and invest more, or both. For most people, both is the only reasonable path to financial security in the so-called golden years.
Finally, you may have seen recent news reports that Google Ventures, an offshoot of Google, is also investing in the search for immortality. Bill Maris, that firm’s president said, “If you ask me today, is it possible to live to be 500? The answer is yes.”
Think about that for a moment. Then check your portfolio.