Living to 95? Your Retirement Plan Isn't Ready

Well, Jay, it's so great to see you. Thanks for joining us in the program this morning.

Awesome. Yeah, I'm super excited to be here.

I well, we're excited to have you and and um, you know, I really uh appreciate you. I know how busy you are. um, at Abacus. So we appreciate you coming on. Uh you recently wrote a really thoughtful piece

on longevity. and uh it's no surprise to any of us that watching the show or probably to you that we're living longer.

Right.

And longevity is a good thing. I I'm happy to live as long as I can as long as it's a healthy uh healthspan is good. But this also presents a financial challenge.

It sure does. And it's one of the things that we've decided to try to address head-on. The facts are this is that yes, we are living longer, but what's really happening as well is that you've got this massive wealth transfer that's eventually going to occur too. And when we think about the wealth transfer, we think about longevity and living longer, how is someone's financial plan capturing that?

If we assume most people are going to retire at age 65, you know, you're familiar with this, Jeff, is that you've got target date funds for 401Ks. What do you have in retirement? Now, you can argue annuities, you can say some of these other things, but you're really limiting your upside, understanding how long you're going to be in retirement. We don't really call it lifespan as much as we call it someone's life arc because it's an arc of probabilities. will have a fundamental difference in how you allocate when you retire.

We think people go conservative far too early. They should be investing more aggressively when they're 65, not going into fixed income day one.

So, uh, let me ask you about age 65 because do you think that's do you think that's that do you think that's kind of the old way of thinking? I mean, I think, look, I think 65, I'm closer to that than I am to 25. I got to tell you, I think 65 is the new 20. So I mean, are people are people really thinking about retiring at 65 or do you think they're thinking about working longer or doing something different?

You touch on something so important, but if you bring it up to somebody who's 65 and says, don't retire, it becomes, right? It becomes just no, no, I have earned my right here. It's the same thing with social security. There's a big debate as to whether people think they should defer or not. What I always say is, before you make that decision, better understand your lifespan.

What Abacus does is that we have aggregated over 20 years of medical data and resulting mortality data so that people can have a clear understanding of what their forecasted lifespan might look like, I their life arc to ensure they don't run out of money. But if they understand that, if you're 65 with a 15-year lifespan, you should not defer social security.

Right? And that's going to be based on your current health conditions, your family history, your genetics, where you live, all those things weigh in. The challenge is, no one's even asking that question.

That's what's, that's what's crazy. We should take a second and understand that the most important piece of data we're going to face when we retire is how long you're going to be there. And what we're trying to address head-on is capitalize on all the data we have and then utilize these tools so that people can make better, smarter decisions and improve their outcomes.

Social security is looking to draw negative somewhere in 2030, 2032. Those are the numbers we've heard. If a larger percent of the population better understood how long they were going to be in retirement, a large part of the population would probably defer and wouldn't step into the retirement. Let's call it the biggest impact to longevity and increased life lifespan, health span, all those things is remaining working.

Yeah, I think, look, I I'm right there with you and I I don't mean this to be an indictment on the retirement industry because I that's not my intent. But don't you think some of the and and I understand the the rationale because I've been in the business for 30 years. You've been doing it for a long time.

Um but don't we need to rethink the 4% withdrawal rule and some of these other things that I think they made sense in a in a world where people lived shorter lifespans. But also we live in a world uh Jay where we're talking about personalization. Everybody's, you're different, Jeff Snyder's different, my wife's different. We're different. We need personalization.

Every single person is different, you're not averages and what happens is that 4% was derived from the average. So the average US lifespan is 78 years old. However, you have a 50% probability once you live to 65 to living to age 90 now. So that is 4% is 100% broken.

I think that if you're just going to be 65 and step into annuity, think about what you're giving up. If you had $2 million walking into retirement, that's what 100 grand a year. Certainly maybe for the rest of your life and if you're going to live there 15 years, we'll see, but you should be drawing 200 grand a year. Staying in equities, right? Staying in Alts. Don't give up some of your ability to withstand risk because you've got 20, 24 years left. If you have a 21-year lifespan, that's three doubles on $2 million dollars.

That means your two can grow to 16. By the time you take out withdrawals, you could be having $10 million instead of either zero at the end of the annuity or being in in a fixed income instrument where you just have 2 million. So this is a massive, massive impact. The challenge is, nobody really had this conversation. We all kind of kind of knew it underneath and now you can get an instant output to help you do that. I think the secret to this too is you're dealing with fear.

When you start to talk about people's number, right? A lot of people get scared. They say to themselves, I don't want to know. It's like saying, I don't want to get an MRI test because I don't want to know I have stage one cancer. Well it's better than stage four. But if let's make people greedy.

If I can double your retirement income, would you like to know now? Of course I would. I would. It makes perfect sense. Let's get your meds, let's get these things going. And so that's what we're kind of working through right now and we're putting this information out to everybody. It's going to fundamentally shift how people allocate in retirement. 4% is broken, every financial advisor knows it. They just don't have the tools to make the better decision for their clients.

I read recently, Jay that people are just retirees in particular are very uh, reticent to spend their money and you know, I think that was from another organization that put that research out, but it really is telling that given all these things we know, the extended lifespans, you know, you didn't save money just to pass it on. I mean, maybe some people did and I have nieces and nephews that I'll probably pass on money too. Please hopefully they're not listening to this right now. But in all seriousness, um, why do you think that is that people are so reticent to spend their their hard earned retirement dollars?

It is an absolute fear of running out of money. It's the number one fear. It's next to death. Is that they don't want to run out of money, they don't want to move back in with their kids. and they fear is driven by the fact that they don't have the data to make the decision. If they have the data, then they wouldn't have that fear.

We actually show people to say, hey, this is your expected lifespan. Now look, there's a probabilistic outcome that could change here. But the other things that we do is we re-underwrite them every year. How do you address the fear? Well, Jay, what if they things change? Great, no problem. Let's re-underwrite you every single year and make those adjustments based upon your current health profile. It might be longer, it might be shorter, so that your fear is duly acknowledged, right? And not thrown into the average.

This is a crazy stat that I think everybody should pay attention to. I went in and got my own financial plan. I won't say who it was with, but it's a really large bank. And they ran it to age 95. Now, I'm 6'5. Have yet to find another human who's lived an age 95 at 6'5. It's very rare. Honestly, height has a huge impact. Like there's very few centurions ever over 6 foot tall. Dick van Dijk is one of them now. Very rare.

Yet, you're going to tell me I have this probability and you're planning to age 95? That's broken. That's just absolutely not based on fact, right? And that's because they have a fear that says, well jeez Jay, I'm going to go this ultra conservative route. The ultra conservative route is you actually get the data and make the right decision. And that's what people are starting to do now because it's going to literally double their retirement income, maybe triple some of their outputs when it's regards to how much they're going to leave.

120 trillion in a wealth transfer. You allocate appropriately, it's 150 trillion.

Let me let me ask you about annuities because we you mentioned that earlier. Uh you can't help but read, uh you know, there's a big push among the insurance providers and again, I'm not indicting anyone. I can understand it. you know, you're in business to make money. I I totally for your shareholders and for yourself. Totally respect that. But are annuities appropriate for everybody and should they be if they are appropriate, should they be inside the retirement plan, which is what is being discussed? Or should it just be like, hey,

I'm just going to roll instead of rolling to an IRA, I'm going to roll a portion of my balance to an annuity. So, does it still fit into that equation of that withdrawal equation?

Well, as we all know, everyone's different. And I think that there are scenarios where there's no chance someone should go to an annuity day one. Um, particularly somebody who's ultra healthy, right? You're just if you've got, you know, a very high probability to living it, you know, past age 85 and you're 65 and you have 20 plus years, you should remain allocated. The way that I think about it is this.

Warren Buffett made 98% of his wealth past age 65 because he understood the power of compounding. That's what you're taking away from yourself if you just give all your assets over too early. I think an annuity can make sense as maybe a portion of your portfolio on a go forward basis, but not that's not your retirement. That's not your self-funded pension, the way that they're advertised today.

If you have the data, why would you give up all the upside? You wouldn't do it on your home, you wouldn't do it in any other asset that you own to say, oh, I'm just going to give this over to you and not have any upside for the security of having the income. People do that because they don't know how long they're going to be in retirement. They have this fear of running out of money. Give them the data and then what will happen is be like, yeah, it makes sense for maybe a small part of what I do, but overall I should remain allocated.

And I think that's the biggest message people should take. With information, you're no longer limited based upon the asset allocation and the success you'll have in retirement. Don't there's no reason to put money in your mattress anymore. If you have it, you should spend it. It's it'll cover your medical costs. Our program actually factors all of that in.

Let me ask you about the role of long-term planning because this is something uh we did a show recently on the fact that there are not enough senior living centers or beds, I guess nursing home beds for people. The cost of long-term care is exorbitant and I think another financial firm even said that as you get older, the cost of health care and that is the last five to 10 years are going to be through the roof. So, how do you factor in long-term care into what we're talking about this morning?

Sure, when you look at someone's life arc, one of the things you need to do is actually look at their updated medical profile. Like I said, you actually what we do is we go and retrieve all their medical files, look at their family history. If they have a family history of let's say early onset dementia and Alzheimer's and you have a genetic profile to meet that, you want to factor that into that arc of planning to where, you know, memory care can cost as much as $15 to $20,000 a month when somebody reaches a certain age and and understanding when that comes in is how you should be allocating to compensate for that.

So, you know, in in in our model, we actually get to particularly past age 83, 84, if somebody has uh potential for Alzheimer's, we want to factor that into that plan. along with, you know what else it means? that if you just put it into 5% earning products, you're not going to have enough and you're going to start dipping into your capital accounts. It's why you should be allocated into equities, into alts, into things that produce better yields than just giving that money away and all your upside away so you can factor in that increased cost related to your medical.

But you may not have that risk. And if you don't have the risk, you don't need to allocate as much for that, right? What's what's really fascinating about people who live to 100, it's not that they don't get cancer, they just get it much later. Yeah. And that's the health span you're talking about, right? We want to show people not only how they can improve their financial incomes, but how how can they improve their health outcomes? And we're seeing this happen.

Jay, um, I want to ask you a question. It's not necessarily on the subject matter, but I think it directly relates to that. And that is the role of artificial intelligence into what we're talking about. And also, how does it work, how are you seeing AI or super intelligence depending on who you talk to. How are you seeing in all seriousness, how is it being incorporated into the world that you and I are in, retirement and financial planning? Is it a big part, a small part? Is it getting bigger? How's it working?

It's getting bigger. and one of the things I think where AI is super helpful that no one will debate is that it will help improve health outcomes. There is a real positive trigger to artificial intelligence, super intelligence, however we frame it to help improve health outcomes. We know this. and that's one of the things that unilaterally everybody thinks is going to be a great outcome. If you're improving your health outcomes, that should translate directly to your financial plan.

And that means that if you're going to live longer in your financial plan, how you allocate your financial plan is going to be that much more important. And we capitalize on AI so we can translate those medical files instantly. What used to take days and weeks to retrieve and read someone's medical files, we can now do in a minute. What an amazing update, right? And now you give those medical medical information back to people and they can then start to make thoughtful decisions around their health and around their financial planning.

Yeah, I mean, like you, I I kind of see it not as a threat to the world that we're in. I think see it as a compliment. I think you're always going to need, you know, I I just think that the ability to relate to other people, to be empathetic, that is certainly a human quality. It's not that one that is not easily replicated, but I guess time will tell. Jay, we're going to have to leave it there. It's always great to see you. Thanks for joining us and we look forward to having you back on the program again.

Absolutely, can't wait. Thank you so much.

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