The Unexpected Downside of Longevity
According to a 2016 Harvard study, the combination of increased longevity and improved health status has led to a spike in life expectancy among older Americans. The study showed that between 1992 and 2008, life expectancy for people aged 65 increased from 17.5 years to 18.8 years. This means that the average American can now expect to live much longer than their parents due to the wonders of modern medicine.
The fact that Americans are living longer today than at any time in history has created some unexpected side effects!
First, by living longer Americans are putting a real strain on their savings. I wasn't in the business when many of my older clients started saving for retirement, but my guess is their financial plans did not anticipate them living into their 80s, let along 90s or 100s. In fact more than a few scientists are predicting that within the next decade it may not be uncommon for human lifespans to approach a maximum age of 120. I shutter to think what that might do to my client financial plans!
So not only is running out of retirement funds a real issue for Americans, but also for our government. You may have already read or heard that our Social Security and Medicare/Medicaid trust funds are quickly headed for insolvency. Just imagine how fast we get to insolvency if humans are living to age 120 after retiring at today's average retirement age of 62?
Second, is the unexpected toll on the next generation. Let's use my client who will have turned one hundred by the time you read this as an example. We will call her Dorthy.
In her case, she is a very affluent American who has planned well for her retirement and for her heirs. However, when she sits around the table as President of her family foundation, her kids are no longer spring chickens. In fact, they average from the mid-50s to the low 70s in age. Yet here they are still be beholden to mom and still waiting to take control over these assets as much older adults.
Because mom is involved in this organization as well as every trust or entity established to minimize estate taxes, the investment allocations within these entities tend to be conservatively managed. I have to believe that if these assets were already in the hands of her children they would be managed more aggressively and therefore growing more quickly outside of her continued oversight.
I also have to believe that with the mantel finally passed, these children could finally rise to official adulthood and not the children they felt like around mom's table for the past 50+ years.
Third, is the rising effect of health care costs and the devastating effect they can have on the value of the assets passed by those living longer. Let's face it, health care is not cheap! Someone must pay for the revitalizing care that prolongs longevity and increases the quality of life. Right now much of that cost is born by Medicare or Medicaid, but, as we alluded to above, how much longer can Uncle Sam afford to foot the bill for a society that is living much longer than anticipated when such social safety nets were established? The answer is likely not much longer based on the current structure.
So the result will likely be in the future that you, Mr. or Mrs. taxpayer, will have to foot more of the bill. Since just 30% of Americans have some form of long-term care insurance and health care deductibles, outside of Medicare and Medicaid, keep increasing this is likely to have a negative effect on the value of assets passed to future generations.
What this means is not only is junior waiting longer to inherit assets, but he or she is likely inheriting much less.
In our next post, we will give you some specific ideas you can use to overcome the unexpected downside of longevity.