THE LONG VIEW

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fa-mag . com / subscribe / newsletters . html future . It involves many moving parts — financial instruments , legal structures , government programs , and so on .

Yet the fundamental approach to planning is still based on the shaky concept of a stable world and a uniform , three-stage pattern : that you should accumulate , then retire , then unwind assets . We could rely on these rules before because we could often anticipate where someone was going to be at a certain age . But those life stages have changed , and the target ages aren ’ t as informative as they were . Age 65 is no longer the North Star of retirement .

It ’ s difficult to withdraw money from annuities earlier than you expected and it can actually be expensive .

People have changed lifestyles in other ways that change the math on investing . What about the 30-year-old who takes a career break ? Suddenly they ’ re in a decumulation phase , too . Or imagine the retiree who is working part-time . They still might be accumulating ( or at least bringing in more than they ’ re spending ). In other words , the rigid age-based approach has lost its relevance in many situations .

The best alternative approach I ’ ve seen is inspired by professor Moshe Milevsky and his idea of regarding people as financial instruments in and of themselves ( the name of one of his books is Are You a Stock or a Bond ?) In his mind , we shouldn ’ t necessarily be looking at a person ’ s age and then trying to deduce what they should be doing in terms of insurance , saving , risk exposure , etc . Instead , we should be looking at the mix of human capital to financial capital — the left-hand side of the personal funded ratio — covering current assets and expected additions .

Intuitively , someone with a lot of human capital will be more focused on accumulating , and someone with a lot of financial capital is going to be closer to unwinding assets . Most people will be somewhere between the two extremes , with age playing less of a role than before .

The Final Problem

Not everyone can — or wants to — keep earning indefinitely , and so the question of how to handle decumulation remains , no matter how uneven the downward slope turns out to be .

The main thing that has changed is our uncertainty about the length of our lives . It isn ’ t a trivial thing to add two or three ( uncertain ) decades to a model ’ s assumptions . Many of us have grown accustomed to an ever-booming stock market , but that might not be sustainable . I think that we need a new solution .

My personal view is that annuities are not completely up to the task of addressing this dilemma . They ’ re expensive for insurance companies to sell , reserve against and administer . The payments normally aren ’ t protected against inflation . And where annuity payments are fixed , people ’ s expenses are often lumpy . It ’ s difficult to withdraw money from annuities earlier than you expected and it can actually be expensive . In my book I talk about one possible solution — tontine funds , which involve paying into pools . Such vehicles give us hope that the problem can be solved .

As these and other new vehicles emerge , individuals and advisors should apply extreme caution in assessing not only whether a product is viable in theory but also practical in someone ’ s personal circumstances .

The Road Ahead

How are we going to update financial planning to make sure our clients are ready for longevity ? The answer involves not just finding out how people will manage their finances , but how they will help their own dependents manage their futures and the future of their children .

The stakes are getting higher , which means that the need for solutions is more pressing . But the size of the prize is greater , too . If we do our part as advisors , we can help our clients do more than add years to their lives — they can also add life to their years .

RUSS HILL , CFP , AIFA , is the executive chairman of Halbert Hargrove , which is headquartered in Long Beach , Calif .

26 | FINANCIAL ADVISOR MAGAZINE | MARCH 2025 WWW . FA-MAG . COM