A New Map for Financial Longevity Planning

There is a fast-approaching watershed moment in human history: soon, more people in the United States will be over 65 than under 18. By the time today’s children reach old age, a life expectancy of 100 will be commonplace.

We invited Laura Carstensen to the stage during the 2023 Morningstar Investment Conference to share her longevity research. As the founder of the Stanford Center for Longevity, she provided a bird’s-eye view of the new blueprint we need to better support century-long lives.

For most of human history, life expectancy has inched upward. Five thousand years ago, life expectancy was 20 years old. Life expectancy in 1900 was 47. Then, in the 20th century, life expectancy doubled. “We added more years to life in the 20th century than all years added across all prior millennia of human evolution combined,” Carstensen explained.

Not only are people living longer, but the fertility rate has decreased to 1.7 children per person who can give birth, which is below replacement level. These two phenomena create aging societies. There will need to be policy adjustments—programs like social security were built on increasingly inaccurate life expectancy assumptions that may be reformed—but our aging society will affect investors long before retirement.

Older people are also not the same as they were 50 or 100 years ago.

At this point in history, 4-5 generations may be routinely alive at the same time. Financial advisors should be ready to have conversations with investors who care about supporting their children, but also aging parents as well. And advisors would be remiss not to consider older generations when having conversations with clients around family wealth management.

“Emotional stability, happiness, gratitude, a tendency to forgive, a motivation to help others, all of those kinds of emotional findings appear stronger in older generations,” Carstensen shared.

However, the common perception of aging is still bleak. In a national survey that Carstensen did with the Times, the most common responses to the question “what are your dreams for reaching 100?” were:

• “I hope I don’t run out of money.”
• “I hope I don’t get dementia.”

“I think we need to raise that bar,” Carstensen said. “I think we need to envision new possibilities.” She added, “People are a lot more likely to save money when they have something other than their nursing home care that they’re saving for.”

Beyond implications for savings, the financial advisor has a critical role to play in helping the aging investor plan for a healthy and productive future. By helping aging clients articulate their financial plans, investment goals, and philanthropic ambitions, advisors can inspire their clients to make the most of the years to come.

Continuously educating clients about their finances may even have health benefits. “We don’t really know what education does,” Carstensen said. “But at some point in adulthood, education is a better predictor of life expectancy than age.”

The connection could be that a better education opens doors for financial freedom, or that education changes the brain as people learn to think critically and solve problems. Regardless, the link between education and health could motivate investors to continue learning as they age.

“Imagine if we continue learning throughout our lives,” Carstensen said. “It makes no sense to live and probably work into our 80s if we’re going to end our education in our 20s.”

When it comes to financial wellness in an aging society, Carstensen noted that “we really need to begin to think about new ways of saving and preparing our financial security.” She suggested that instead of the current model, where people work all their lives in hopes of a comfortable retirement, that society adjust their expectations for youth and middle age so people can prepare for old age.

For example, corporations can adjust the workday and improve the quality of work life so that people can “work more years, but take time off regularly throughout their lives,” Carstensen explained.

And if people are going to live longer, and potentially spend more years experiencing chronic diseases such as osteoporosis and dementia, Carstensen urged an increased focus on environmental protection, scientific research, and technological advancement. “At Stanford, there are chemical engineers who’ve developed something called a smart bandage...which monitors the healing process and alerts you to any kind of infection long before it gets out of hand and speeds healing by about 40%,” she said. “These are the kinds of technologies that are being developed that will help us age better.”

Investors have the power to influence society to prioritize workplace treatment, environmental protection, and medical innovation. And as they age and accumulate enough wealth to be comfortable, they may decide that wallet advocacy is a new priority. In this scenario, advisors need to be ready to answer questions and tailor recommendations to their clients’ financial and non-financial goals.

The lifecycle of every investor will ultimately culminate in aging—whether that’s expressed through retirement concerns or goals around legacy creation. Given the research around life expectancy, it’s time to rethink the traditional model for financial longevity planning. Financial advisors can help aging investors dream big, clarify their priorities, and meet goals with the right long-term strategies.

According to Carstensen, a society with age variability is ultimately a bright one. “Imagine what we can do together,” she said, “when we have older and younger people solving problems, when we have the strength and ambition and speed and imagination of youth coupled with the experience and knowledge and emotional stability of older adults...I think the age diversity in our society could end up being one of the greatest gifts of all.”