The Most Important Personal Finance Message, Part 1: Longevity

Huge implications for everything from your family tree to planning your next chapter 

Ric Edelman: It's Monday, December 23rd. My last three broadcasts, podcasts on this long running series are this week. Today, then we're going to take off tomorrow for Christmas Eve and on Wednesday for Christmas day so our team can celebrate, with their families. But I'll be back with you for my final two podcasts on Thursday and Friday, December 26^th & 27^th. As I was trying to figure out what do I say after 35 years as my swan song, as my final missive to you, what's the last topic I ought to discuss with you? What matters most as a going away sentiment in terms of your focus for your personal finances, over the rest of your life?

And since we're not going to have these conversations on a daily basis any longer after this Friday, and I've decided that there were three topics that matter more than anything else of all the subjects I've covered in all of the decades that I've been providing financial advice and education through my national radio show, and now through this podcast series, three subjects that matter more than anything else. And I'm going to give these to you in the order that they matter most. And starting with today, the topic for today is aging. We are experiencing, as I have shared with you many, many times over the past many, many years, a change in our demographics. Our population, in short, is getting older.

And the reason for this is due to astonishing advances in technology, in public policy, in health care. And in our knowledge of how we need to take care of our bodies and our brains. The result is that while humans for thousands of years lived to their teens and twenties, only as recently as 1900, 125 years ago, at birth in America, life expectancy was 47.

Today, life expectancy is 86. And by the time you are 86, life expectancy will be even higher because of the continuing advances in medical innovation, technology, healthcare, and social and public policy that are supporting all of that. For example, when I was a kid growing up in the 60s, cigarette makers were allowed to advertise on TV.

Public policy has changed, and you haven't seen a cigarette ad on television in decades. All of this kind of illustrates the changing knowledge, the changing public viewpoint, the changing environment that is all leading to us living longer, healthier lives than ever. That translates to longevity.

The first humans to ever reach age 100 all did it in the past century. When I was a little kid, it was so unusual that you lived to age 100 that Willard Scott wished you a happy birthday on his broadcast every morning. It was so unusual to reach age 100 that the President of the United States would send a birthday card to you. My grandmother got one of those when she turned age 100 in the year 1999. So, that's very different. We now frequently come upon people in the media or among social circles, family relations, who live long, long lives. That means you can probably expect to as well.

I have been on the advisory boards of the Milken Institute's Center for the Study of Aging, the Stanford University's Center on Longevity. I've done work with MIT's Age Lab. And the scientists are all pretty much in agreement that if you're alive in 2040, odds are really good that you're going to live to age 100 and beyond. So, we need to recognize that we need to anticipate that.

And it means lots of things. Number one, it means you need to change your investment thesis, your entire investment strategy. The traditional approach that has been in use for the past 40 years has been the so called 60-40 glide path. It’s routine. Every advisor's familiar with it and a great many subscribe to it.

You have a portfolio that is 60% stocks, 40% bonds, a 60-40 mix of assets. And as you age, you reduce the 60-40 to reduce the level of risk that you're experiencing. It's been routine that somebody aged 50 would have a 60-40 portfolio. But by the time that they're 70, they would shrink it to 50-50. By the time they're 80, it would be 40-60 or even 30-70. The theory being that as you age, you can't afford volatility. You can't tolerate risk. You can't wait decades for markets to recover. So, you need to take less market exposure, reduce the potential for devastating losses in a stock market crash.

And so the, this is called the glide path. How do you reduce your allocation in equities from 60% allocation when you're younger to a much lower allocation as you age? That all has to be rethought, because in the old days, when you retired at 60, you were dead at 65. Well, that's not the case any longer. Now you retire at 65, you're alive to 95. Even 105. You've got 30 or 40 years to go.

Would you tell somebody age 30 that they need to have only half their money in stocks because they're going to be retiring in 40 years. Of course not. Same thing today for somebody who is in their sixties and seventies, they have 20, 30, 40 years to go. Why on earth would we have them reduce their equity allocations merely because they're in their sixties. In fact, by that notion, you need to rethink not merely the absence of decreasing your allocation to equities, but increasing. That 60-40 perhaps may need to be 70-30. You need to own more of your money in equities and for longer periods of time.

The 60-40 glide path needs to be seriously rethought or you run a very real risk of running out of money before you die. The odds of running out of money. before you die weren't very big when you were going to retire at 65 and be dead by 80. But if you're going to live decades longer than humans have ever lived, you need to make sure that your money lasts as long as you do.

And that means maintaining an exposure to equities where you can be more likely to offset the impact of inflation. and taxes, which are the two biggest threats to your financial survival. So that's the first thing. We're going to talk a lot more on Thursday about the investment strategy, but I wanted to mention the 60-40 glide path here. We'll tackle that in greater detail the day after Christmas.

Another huge area where life is going to be changing for you pertains to your family. If you're going to live to age 100, think about this. When you're age 100, your kids are going to be 75, your grandkids are going to be 50, your great grandkids will be 25, and your great, great, great grandkids will be toddlers.

Five generations, all of you alive at the same time. And for a lot of families where women get pregnant as teenagers or around age 20, six generations will all be alive and well. this means a very dynamic family tree and a need for you to consider that the notion of raising your children to age 18, sending them to college to age 22, and then being done with their financial support, other than paying for the wedding if it's a daughter? Those days are gone.

Today, half of 18-35 year olds are living at home with their parents. I think you can say I get it for an 18 year-old. But a 35 year-old? Yeah, as you are aging, your children are as well, and they're going to marry, they're going to buy homes, they're going to have children, they're going to have good paying jobs, and then life will get in the way.

Half of those marriages will end in divorce. Two-thirds of those jobs will result in unemployment. causing the need for new jobs. Your children will face financial issues as they struggle with student loan debt from spending too much on college. They're going to struggle with the incredibly high cost of housing and the need to have $50,000 or more merely as a down payment on a house.

They're going to need your help not only with college costs, wedding expenses, and housing, but they're also going to need help when they themselves incur their own health care issues. Addictions of all sorts. Children who find themselves in relationships that are abusive. Not to mention the increased challenges of raising children in an internet society.

All of this means that for you, the likelihood that you will no longer be engaged in the raising of these children from your own, to their own, to the grandchildren's own, this is going to be an active environment.

And it leads to the final issue of inheritances. Traditionally, mom and dad passed away and, left the money to their children. It was really pretty simple because if mom and dad died in their 40s, which is typically what happened as recently as 100 years ago, the children got the money when they were in their teens or 20s.

But today, if you're going to live to age 95 or 105, your children won't get an inheritance until they're in their 70s or 80s. You think they're going to need the money by then? Not very likely. Odds are they need the money now, while they're buying homes, raising families, dealing with the incredible costs associated with all of that.

And so the notion of how do you dispense your wealth? Who do you give it to? How much do you give? When do you give? And tied up with all of this is not merely giving money to family, but also to charity, the philanthropic element of distribution of wealth.

There's going to be an amazing wealth transfer, the biggest ever in human history, over the next 30 years. Here in America alone, $70 trillion is going to pass from the baby boomers to their children and grandchildren. You need to think hard about who you're going to give money to when you're going to give it to them, what conditions, criteria, or limitations you're going to assess when you give it to them.

And what lessons you want them to learn, what strategies you want them to implement and what charities you might want to support along the way as well with a big notion of, should you wait until your death for them to receive money, or should you distribute some of it now instead? These are important fundamental issues.

And one of the reasons that so many people tend to hesitate in distributing money to heirs prior to their death is the concern they may need the money during their lifetime. I don't want to give my money to my kids now and end up broke. I better hold on to my money in case I need it for my own health care or long-term care services or living in a nursing home or what have you. It's the importance of preserving your income and generating an income for yourself. Not just from your investments, but from Social Security and pensions as well.

A third of Americans still receive pensions. Almost everybody who's retired receives Social Security benefits. Both of these are under attack, and again, it's because of our longevity. When these pension systems were established, when the social security system was established, it was all done in an era when people didn't live very long past employment. You retired at 62, were dead at 65. Not so any longer.

The result of all of this is that pensions and social security are both under threat for simple demographic reasons. We don't have enough workers in America today compared to the number of retirees. In fact, that's part of the problem too. Too many retirees because the problem with old people is that they keep getting older. In the old days, old people died. Frankly, relieving society of the burden of their care. That doesn't happen the way it used to happen.

And the result is that we've created a pension system and a Social Security system that depends on workers contributing a portion of their pay into the program to be able to provide benefits either to other people now, like with Social Security, or to provide benefits to you later upon your retirement, like with a pension. The problem is that the actuarial data has proven to be incorrect. We are living longer than ever before, and we're producing fewer children than ever before. Translation? Too few workers paying into these systems. Too many retirees pulling money from these systems.

And then there's a third piece. In the world of pensions, the pension fund managers have assumed that they would earn a higher return on their investments than, in fact, they have earned. Meaning, the pension funds are not growing in size as fast and as much as had been projected, and yet they are on the hook, legally, for the pension benefits that they had promised to all of the now retired workers.

The bottom line is this. People who are expecting to get Social Security benefits, or pension benefits, you're right to expect them, and you will get them. The question is, will you be able to get those benefits in the amounts you've been expecting, and in many cases have been promised, for as long as you are now likely to live? It's one thing to promise you a pension benefit if everybody thinks you're going to be dead at 85, but if you live to 95 or 105, will that pension fund be able to continue sending you that check on a monthly basis? Will the Social Security system be able to continue sending you those checks of as high an amount as has been promised for as long as you are now expected to live?

It is essential that you discount in your financial planning the amount of income you are expecting to get from Social Security or pensions. Yes, the programs will be there, but probably not as generously as they exist today. Nor are there likely to be as many tax benefits associated with them as there may be today. It's increasingly likely that taxes are going to rise, not only on the money you earn, but on the incomes you receive from Social Security and pensions.

Again, all in an effort to keep these things solvent. And then there's one final massive issue associated with longevity. And that is Alzheimer's disease. As you know, my wife and I have been involved in the fight against Alzheimer's for decades. We now own a Neurological Diagnostics Testing Company, as part of our fight against Alzheimer's. We'll have a couple of really exciting announcements about our first couple of products in early 2025.

The fact though is that Alzheimer's is, according to all of the surveys, everybody's biggest fear from a healthcare situation. We fear Alzheimer's more than we fear cancer, more than heart disease. We fear it more than we fear death. And we all understand why. Now, 6 million Americans have Alzheimer's already. That number is projected to grow to 50 million on a global basis over the next 30 years.

The problem is that Alzheimer's disease, despite the $30 billion that has been invested in research over the past several decades, we still don't have a diagnostic tool. We don't have a treatment. We don't have a vaccine. We don't have a cure. Alzheimer's is 100% fatal and it is the most expensive disease to treat because patients from onset of symptom to death, averages 12 years and many of these patients require 24/7 care because Alzheimer's patients generally are physically fine, which means they're ambulatory. They can walk around a house, they can turn on a stove, they can drive a car, they can pick up a firearm, making them a danger to themselves, and those around them. And this is why 24/7 care is often essential for Alzheimer's patients.

Over the last few years, there have been a few areas of progress made. I'm happy to be a member of the board of the Alzheimer's Drug Discovery Foundation, which funds a lot of the early stage research in this area. And we do now have a couple of drugs on the market that have been shown to be effective treatments. They do reduce and delay the symptoms of Alzheimer's. They're not 100% effective, and there are often some very negative side effects.

These drugs are also often extraordinarily expensive. One of them was $50,000 a year before it was pulled from the market for not, frankly, doing a very good job of improving the situation. But the good news is we are expecting a dozen or more drugs to enter the market over the next several years that, based on, clinical tests so far are looking good, that they are going to make big improvements in our ability to treat patients with Alzheimer's disease. Meaning delay the onset of symptom and reduce the severity and reduce the continued decline in your abilities.

So we are hopeful that over the next few decades we will ultimately get to cures and vaccines for this dreaded disease. But in the meantime, you need to recognize that one out of ten Americans at age 60 develops Alzheimer's symptoms. Then by age 85, it's one in three Americans. And if you're going to live to 95 or 105, your future means you will either be a patient or a caregiver.

This will have huge financial implications for the family, not to mention the incredible human toll that this terrible disease takes. Pay attention to Alzheimer's disease. Focus on how you can delay the onset of symptoms. And the good news is, we now know, lifestyle's the answer.

Proper diet and nutrition. No drinking. I mean, no drinking. No smoking or vaping. No drug use or abuse of any kind. Plenty of sleep, 8 to 10 hours a day. Low stress. Healthy relationships. Frequent and effective exercise. Everything that you already know you're supposed to be doing. Everything that you know that does work to keep your heart healthy also keeps your brain healthy.

Engage in these activities and you will go very far to delaying the onset of Alzheimer's, and if you are diagnosed, to reducing the severity of the symptoms and slowing the progression of the disease.

And then my final point, in this big, broad topic of aging. Reinvention. In the old days, when you retired in your 60s, you had a few years to go. Maybe you'll go to Europe for a, that once in a lifetime trip, hang around with the grandkids to spoil them in your final years. And then that was it. You were done.

Today, you leave that career in your 60s. You've got 40 years. years to go. That's as dramatic as when you graduated college in your 20s getting ready to embark on a new 40-year career. You now have that exact opportunity. For the first time since you began your career 40 years ago, this is an opportunity for you to reinvent yourself, to go back to college, get new skills. Seriously, go to law school. It'll take you three years to do it. You'll be in your late sixties and you can have a law career for 20 or 30 years.

Go study a subject. just for the sake of studying it. Not because you want to go work in the field, but because you want to enrich yourself and grow your horizons. Develop new hobbies. Decide who you're going to travel with and where you're going to travel. Figure out what your next chapter is going to be. Because your next chapter is exactly what we're talking about it being.

I'm in the process of doing that myself, by having walked away from the financial planning firm that Jean and I founded way back, almost 40 years ago and turning that into the biggest, most successful financial planning firm in the nation. Walking away from that several years ago, walking away now from our podcast and broadcast career and focusing on Alzheimer's. Focusing on our philanthropic activities at Rowan University with the Edelman Planetarium and the Edelman Fossil Park and the Edelman College of Communication and Creative Arts. Focusing on Alzheimer's research, focusing on financial literacy and education with the Museum of American Finance.

This is an opportunity for our own reinvention. We're just getting started. Do you realize that the number one age group for the creation of new businesses are people 50 plus? People in their 50s and 60s have money that you didn't have in your 20s. You have knowledge and skills and experience, none of which you had in your 20s. And you have time, which you haven't had since your 20s. The opportunity for entrepreneurship, business building and starting a new venture has never been easier.

The opportunity for you to create your next chapter is bigger and better than ever. That is the most important message that I can share with you today. And this week, as I wind down my podcast series, your next chapter.

Have a Merry Christmas this week, and I'll be with you again on Thursday with the last of my two podcasts, the most important messages that I can convey to you today. It's hard to believe that it's been 35 years on the air. I've done more than 1,500 radio broadcasts over the last three decades, more than 500 podcasts in the last three years alone. And my podcasts are winding down. My last one, as I've told you is December 27. I'm so glad you've been with me all these years.

If you want to stay connected with me, be sure to join my distribution list. Just click on the link in the show notes. I'll make sure you continue to get the latest that I offer on exponential technologies, crypto, Alzheimer's, longevity, investing, all the topics that matter most to us all. Thank you for being with me all these years. I'm looking forward to many more with you.

Please subscribe today so we can stay connected.

I'll see you tomorrow.

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Links from today’s show:  

1/15 Webinar - Your Crypto Questions Answered: https://dacfp.com/events/your-crypto-questions-answered

12/10 Webinar Replay - The Retirement Revolution: ETF Solutions for Modern Retirement Planning: https://www.thetayf.com/pages/the-retirement-revolution-etf-solutions-for-modern-retirement-planning

12/9 Webinar Replay - What the Election Results Mean for Crypto:  https://dacfp.com/events/what-the-election-results-mean-for-crypto

2/24-2/26 Wealth Management Convergence-2025: https://www.thetayf.com/pages/convergence

11/13 Webinar Replay - An Innovative Way to Generate Income in a World of Declining Rates: https://www.thetayf.com/pages/november-13-2024-an-innovative-way-to-generate-income

10/9 Webinar Replay - Crypto for RIAs: Yield, Staking, Lending and Custody. What’s beyond the ETFs? https://dacfp.com/events/crypto-for-rias-yield-staking-lending-and-custody-whats-beyond-the-etfs/

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