The Risk of Living a Long Life

by Benjamin Beck, CFP® Benjamin Beck, CFP® | December 16, 2021

When I think about my children, my family, the fact that I am able to move my body at will, it’s not lost on me how fortunate I am. Throw in a guitar, and you have the happiest person on Earth. Of course, it’s wonderful that I can financially afford to live a certain way. I’m not naïve about the fact that money eases a lot of things. But I’m equally lucky to have arrived at a perspective on my life, where I can make distinctions between the things I truly need and the things that are simply nice to have. 

I bring this up because the financial planning world – actually the financial sector in general – tends to speak to consumers in terms of what they don’t have, or what they may lose. If you consume the marketing produced by our industry, one of the main messages you’ll encounter is: whatever you do, don’t run out of money. There is, in my view, an excess of attention placed on what we call longevity risk. And that, of course, got me wondering about why they would look at it from this vantage point? 

It occurs to me that the reason the industry places such emphasis on longevity risk is because fear sells. Why are variable annuities so prevalent in terms of sales? It's an easy sell. Mr. And Mrs. Jones are retirees, and it’s easy to imagine a conversation between them and their financial advisor, who’s saying something like: “Look, you’re retired now. You can't expose all your assets to (gasp!) stocks, or anything that could potentially lose you money. Let's put these million dollars in an annuity. It's going to guarantee you a nice, flat 5% withdrawal rate for the rest of your lives.” And so, it goes, even though the couple still has decades of good living ahead of them. 

Then Mr. Jones passes away, and the advisor counsels Mrs. Jones to continue with it. What's wrong with that? She trusts the advisor’s guidance that she doesn’t need exposure to the stock market, and she’s effectively guaranteed not to outlive her assets by staying invested in the annuity. But just because that income stream is still going doesn’t mean it’s in her best interest; what $5,000 a month can buy her today is going to be dramatically different seven to 10 years from now. Sure, she’s not going to run out of money, but her spending power is being eroded year after year, day after day. And what if she lives a long while yet?

Say I buy a 10-year T-bond at 3% that will pay me $30,000 a year. Given that this is a government sponsored bond, I’m not at risk of default unless the US government defaults. For the purpose of this conversation, let’s say it's not going to default. By definition, this is an investment that cannot lose me money. The trouble is that inflation is ticking away at roughly 3%, as well. I’m breaking even on the “income,” but after ten years when I get my par value (the original investment) back and I go to invest in something else, now my million dollars is probably worth somewhere in the realm of seven hundred thousand dollars and change. I didn't lose money, but damn, did I lose money. I lost purchasing power. Same thing.

The moral of these two anecdotes is a question: “How did you end up in this annuity or Treasury bond or other investment in the first place?” I don’t know for sure what it was for you, but my guess is you were fixated on risk, and not on opportunity. I recall my early days as a financial advisor at the wire house, when the mutual fund wholesalers would come to visit. Over the lunches to which they treated us, they would tout the benefits of some “hot” new growth fund, highlighting all its bells and whistles, and inevitably pointing out that it had “downside protection.” I have to laugh every time I think of it: the thought of a growth fund having downside protection makes absolutely no sense. If you want something to grow, why would you put brakes on it? The whole definition of a growth fund is to take risk in order to capture opportunity. Clearly no one got the memo.

People are surprised when they come to our firm and realize that we spend as much time talking about health and wellness as we do about finance. The reason for this is simple: what’s the point of saving all this money if you’re not healthy enough to enjoy it? For us, financial wellness is inextricably intertwined with physical health, nutrition, and wellbeing in all areas of a person’s life. How about we focus first and foremost on living as long as we possibly can? 

Because if we focus on living a long life, then we can start looking at risk differently. Focusing on longevity (as opposed to longevity risk) allows us to shift our focus to opportunities for growth, to planting seeds that will yield long from now. Not to downplay the importance of a financial advisor, but I think you’d struggle to find a person who, if they have everything lined up health wise in their life and they're happy and living a purposeful and meaning-filled life, I doubt that you’d find that person in fear of running out of money. At the very least, I'm not so sure they’d feel the pressure of running out of money. You see, the real risk of living a long life is that it will force you to focus you on living. And what a wonderful risk that is!

At Beck Bode we take a bold stance on this business of living. We don’t just say it to say it. We attract advisors who believe in healthful living, and that in turn attracts clients who want more out of their life. Fitness and finances must go together for things to work out for you. It has to be about more than the money, or else, what’s the point of all this work? 

The great thing about the many parallels between fitness, nutrition and finance is that on the fitness and nutrition side there is an obvious display of lives being changed as a result of a more disciplined approach. Whereas on the financial side, it is something that happens slowly but surely over time. What gets me pumped is that as a firm we are helping people literally get better every day. This is an idea so exciting and life-affirming that some nights I can barely sleep as I think about it. It is with humility that I say: we are in the business of changing their lives. The weight of this work is something we do not take for granted.

At our firm, we like to think that our work serves a purpose that’s bigger than the number on your month-end statement. There’s a certain level of freedom that comes from thinking this way. It unshackles us from fear and allows us all (this includes you!) to live, and I mean really LIVE, in a bigger, bolder way.

Ben Beck is Managing Partner & Chief Investment Officer at Beck Bode, a deliberately different wealth management firm with a unique view on investing, business and life.

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