The Changing Longevity Landscape

die young late

Living beyond age 100 may become commonplace.

Now, before I go down this rabbit hole, a disclaimer: Extending lifespan beyond known biological bounds is still sci-fi stuff.

However, also consider modern innovations that were also once considered sci-fi:

  • Airflight (planes/jets/helicopters/jetpacks)
  • Space travel
  • Landing on the moon
  • The International Space Station
  • Driverless cars
  • Mobile phones
  • The internet
  • Lab-grown meat
  • Machine learning
  • Video calls
  • 3D printing
  • Smart homes
  • Underwater exploration
  • Online metaverse
  • Wearable tech
  • DNA sequencing

So with an open mind, let’s dive in.

Aging = A Disease

Research focused on the root causes of human mortality is increasingly pointing towards one common denominator: aging.

Aging? As the cause of mortality? Yes, bear with me.

At it’s most basic level, aging is nothing more than an accumulation of damage: breakages in the machinery of your cells combined with build ups of metabolic waste which lead to the failure of biological systems. With the exception of acute accidents, the most common causes of death (heart disease, cancer, neurological disease/degeneration) all increase as we age.

On June 18, 2018, the World Health Organization even added a new disease code which every country in the world is encouraged to use. The code was MG2A: old age.

Aging From 30,000 Feet:
  • Lifestyle and genetics influence cellular health.
  • Cellular health determines our rate of aging.
  • The process of aging leads to biological misfires, cellular breakdown, and disease/death.

Two Theories of Aging:

While slowing down the process of aging could help in forestalling disease, it’s still unclear to what degree aging can be slowed, paused, or reversed.

As it stands now, there are two basic theories surrounding aging/lifespan:

  1. Biological Limit on Life: According to this theory, humans (along with all other species) have a natural limit to their lifespans that cannot be exceeded. Using mathematical modeling, researchers from the journal Nature Communications predict that after 120 to 150 years of age the human body loses its ability to recover from illness and injury.
  2. Longevity Escape Velocity: Also known as age escape velocity and actuarial escape velocity, this is the situation in which technology extends a person’s life expectancy at a faster rate than they are aging. In other words, the potential for immortality. Some gerontologists believe that the odds of LEV are as high as 50% and that we could learn the answer within the next 15 years.

Regardless of which theory ultimately ends up proving correct, it is quite likely that lifespans will continue to be extended (perhaps dramatically) beyond the averages of today. According to the CDC, the average life expectancy for a female in the US is 80.5, for males it is 75.1.

Odds of living to 100 (with vitality)

Simply making it to the triple digit milestone is currently out of reach for many. Per data from the Social Security Administration, for a married couple where both spouses are 65 years old, there is a 8.7% chance that at least one member of the couple will live to 100.

Now, while the US does have the highest number of centenarians globally (approx. 97,000 people, or 0.03% of the US population), they are a rare bunch.

Getting to 115 is currently a 1-in-100-million proposition. And reaching 130 is a mathematical improbability of the highest order. At least it is right now.

However, for those able to invest in their health and maintain physical and cognitive function over these next 10-15 years, the future is looking bright.

According to Dr. David Sinclair, author of Lifespan and co-director for Biology of Aging Research at Harvard Medical School, “if even a few of the therapies and treatments that are most promising come to fruition, it is not an unreasonable expectation for anyone who is alive and healthy today to reach 100 in good health—active and engaged at levels we’d expect of healthy 50-year-olds today.”

The Science

You may have heard the following:

Genetics load the gun, but lifestyle pulls the trigger.

Studies of family genealogies and identical twins place the genetic influences on longevity at between 10% and 25% which, by any estimation, is surprisingly low. Conversely, your lifestyle accounts for 75%-90%.

In other words: Our DNA is not our destiny, lifestyle plays an outsized role.

With recent advancements in both technology and medicine, our longevity rates may be increasing faster than many realize.

Perhaps the greatest leap forward occurred in 2012 when Shinya Yamanaka discovered what he referred to as the “elixir of life.”

And no, the “elixir” was not a trendy food or supplement. It was the discovery of a process called “reprogramming” – that is, in a crude oversimplified sense: using genome-editing CRIPR technology to revert mature cells into younger cells.

This discovery would earn Yamanaka the Nobel Prize of Medicine.

Following Yamanaka’s discovery, we’ve entered a period of exponential medicine: genome sequencing, RNA transcriptomics, Wnt pathway modifiers, vaccines, liquid biopsies, CAR-T cells, gene therapy, exosomes, and stem cells are just a sampling of the technologies (many of which the world’s billionaires are fast-tracking).

The ability to reprogram cells along with these other interventions could prove revolutionary in delaying biological decline.

For instance, when it comes to cancer, the body is always producing cancer it’s just that our immune system zaps the cancer 99% of the time. Early stage cancers, those in stage 1 and stage 2, are highly curable. It’s when a cancer metastasizes beyond those initial stages that the fight typically becomes more difficult.

In the case of cancer, as opposed to being reactive to the symptoms before it’s too late, there is now proactive screening for 60+ different cancers to catch them in the earlier, more treatable stages.

Proactive care, as opposed to reactive treatment, is the future of healthcare.

Lifespan vs. Healthspan

In a previous blog on the Centenarian Olympics, we discussed the idea of “backcasting” – or reverse engineering – the tasks that you would need to be able to complete at age 100 to maintain independence and how you could begin training for them today. The reason for this is that, for many of us, the goal is not to simply increase the quantity of years lived. Instead, it’s to increase the quality of our years by decreasing the number of years nursing disease.

Between 1950 and 2020 the world population swelled from 2.9B people to 7.8B people. During that same window of time, average (global) life expectancy rose 26 years, from 47 to 73 years of age. While life expectancy has risen, maintaining health, function, and overall quality of life has lagged.

Unlike the average lifespan, which is now 79.3 years in the US, the average healthspan (i.e. period of one’s life that one is healthy) is only 63.1 years old. In other words, roughly 1/5 of an individual’s life is now spent managing end of life morbidity.

With new medical advancements and lifestyle improvements it’s looking more and more likely that there are solutions to close the gap between the quantity of your years (lifespan) and the quality of them (healthspan).

Financial Planning & Playing the Long Game

At wHealth Advisors, we view the traditional definition of “wealth” – your investments, salary, net worth etc. – as a bit limiting and one dimensional. Like the term “success”, true “wealth”… ehmm wHealth… is more nuanced, nebulous, and unique to each of us. What is optimal for me may not be optimal for you.

Therefore, the wHealthy person is the one with a uniquely optimized balance of financial independence, health (mental/physical/emotional/spiritual), rest, and social connection. They are also likely to have sufficient degree of autonomy and purpose in their professional and/or personal life.

All the returns in life – whether in finances, health, knowledge, or relationships – are the product of good decisions being compounded over long periods. Therefore, improving our overall wHealth is not typically something we can change dramatically overnight, it’s incremental.

Final Thoughts

As financial planners, we feel immense responsibility – and gratitude – in applying our technical expertise to empower our clients to be the people, and live the lives, they’ve always dreamed of.

The maxim of “health is wealth” is all too cliché and oftentimes not met with action. Like with finances as is the case with health – the best time to have started investing in it was 10 years ago… the second best time is today.

So, assuming that you could live with vitality to (or beyond!) age 100 – how might that change the way you make decisions today?

Would you make any changes to your current lifestyle?

Would you invest more into (or divest from) certain relationships?

Would you dedicate more attention to any areas of your overall health (mental, physical, emotional, spiritual etc.)?

Would you make different career decisions/transitions?

Would you invest more time, energy, and intention into closing the gap between who you are today and the best version of yourself?

Let us know so we can begin planning for that future today!

S&P Gains 100% from March 2020 Low: Now what?

S&P 500 marks 100% gain since March 2020

After hitting “rock bottom” following global shutdowns related to the coronavirus in March 2020, the S&P 500 has roared ever since delivering a 100% return. You read that right: 100%.

SIDEBAR: Someone out there is highlighting this past 18 month window in their investing masterclass, illustrating that in times of financial crisis, the best action for your portfolio is inaction. Don’t sell. Be patient. Ride it out. But we digress…

What now?

After living through the shortest bear market in history, we’re now witnessing company valuations being pushed to new heights only surpassed by the dot-com bubble of the late 1990s. While this may sound unsettling, also consider that with interest rates so low, it would be equally worrying if equities weren’t expensive (reason: low interest rate yields push investors to equities).

So, at this juncture and with cash to invest, should you a) lean towards low interest fixed income that’s not (or barely) keeping up with inflation, or b) buy potentially overvalued equities? Pick your poison.

From our vantage point, choosing low interest debt or expensive equities is not an either/or proposition – everything comes back to diversification. Instead of chasing returns, we prefer the approach of aligning portfolio decisions to your unique life: your upcoming cash needs (and/or life transitions), your tax bracket, and your tolerance + ability to take risk.

While we’re not ones for reading the tea leaves, we did appreciate reviewing the latest JP Morgan Long-Term Capital Market Assumptions report. In it, they had a stark quote that stuck out:

“The price for dealing with the pandemic today comes at the cost of tomorrow’s returns in many conventional asset markets.”

Not exactly a glass half-full outlook for the road ahead.

The biggest challenges outlined by the report included:

  • Whether governments/business can rise to the climate challenge
  • Increased sovereign debt balances and an expectation for fiscal stimulus to continue
  • Stagnating globalization, companies shortening their supply chains
  • Era of US “exceptionalism” possibly coming to an end, leading to a weaker dollar

While we certainly believe that all challenges present opportunities, we feel equally strong that investors should prepare for muted annual returns over the next decade. We touched on this topic not long ago.

According to the same JP Morgan LTCMA report, over the next 10-15 years, inflation is anticipated to flatten at an overall rate of 2.0%. This is a tough pill to swallow when the same report projects compound return rates for the same period to be 1.10% for cash, 1.50% for intermediate Treasuries, and 2.50% for US investment grade corporate bonds.

For equities, the LTCMA report outlined the following predictions for the next 10-15 year investment time horizon:

  • 4.10% for US Large Cap
  • 4.60% for US Small Cap
  • 6.20% for US Value
  • 6.50% for US REITS
  • 5.20% for Euro equities
  • 6.10% for UK equities
  • 5.10% for Japanese equities
  • 6.80% for emerging market equity

Compare these expected returns to the 10% average annual return that the stock market has delivered over the last century. Not ideal.

Instead of guessing which asset class will perform best, or searching for the next Amazon to invest in, legendary investor and founder of Vanguard, John Bogle (who’s 3-fund “boring” portfolio outperformed the largest endowments in 2020, yet again), said it best:

“Don’t look for the needle in the haystack. Just buy the haystack.”

As evidence-based investors, we wholeheartedly agree with this approach.

Should I Be Worried About Inflation?

Inflation

The topic of inflation is getting lots of attention these days.

Inflation, for starters, is defined as the decline in purchasing power of a given currency. So, as an example, if the US Dollar experienced 2% inflation over a given period, the purchasing of $1 gets reduced to $0.98. Because a dollar is worth less, you must spend more to fill your gas tank, buy a gallon of milk, get a haircut etc. In other words, inflation increases your cost of living.

Is inflation good or bad?

Inflation can be a tricky economic indicator: If it is too high, it erases the purchasing power of consumers; if it is too low, it can reduce economic growth. Inflation can also be bad for stock markets as it often leads to higher interest rates, meaning big firms have to pay more to service their debts which can then erode their earnings.

What is causing inflation now?

Over the past 10 years inflation has basically held steady, averaging a bit under 2%.  However, over the past year, inflation has increased at a rate of 5%, well above the ten-year average.  While it is easy to point the finger at the Federal stimulus plans that pumped money back into the economy as the world came to a halt, the real cause of inflation seems to be a bit more nuanced.

Members of the Federal Reserve, along with a chorus of economists, argue that most of the inflation we are experiencing now can be attributed to bottlenecks in a variety of supply chains as demand surges with a reopening economy.

Translation: Consumers have cash to burn and suppliers are struggling to meet demand! The overwhelming majority of recent inflation is derived from spikes in industries that were hammered by the pandemic. Demand has skyrocketed in a few notable areas: raw materials, energy, metals, food, used automobiles, appliances, and travel.

Where does inflation go from here?

Whether inflation is transitory (i.e. brief, short-lived) or not is a common question being asked. If employment reports start to outpace analyst estimates, or, if inflation gets too high, the Federal Reserve may pull back on their $120B monthly bond purchases and eventually raise interest rates.

At their June meeting, the Fed moved up their targeted interest rates increase from 2024 to sometime in 2023. There are some members of the Federal Open Market Committee (FOMC) that believe the U.S. should start raising rates as early as 2022.

What’s it mean for you?

There is a possibility, not a certainty, that inflation may impact the everyday investor. Even if inflation moderates, as the Fed anticipates, it is still expected to run at almost 2.5% over the next five years, resulting in a negative inflation-adjusted return on Treasuries. With all that said, though, the economy is an incredibly complex and unpredictable system.

Should you be concerned? For those in, or nearing, retirement who live on a fixed income, any reduction in purchasing power can be unsettling. While there is no way to truly “inflation-proof” your portfolio, there are strategies that can lessen the blow:

  1. Maintain a globally diversified portfolio!
  2. Hold a portion of fixed income in Treasury Inflation-Protected Securities (TIPS)
  3. Consider Real Estate Investment Trusts as a hedge against inflation and underperforming equities (rents and values tend to increase when prices do)
  4. Avoid fixed income assets that have long durations (5+ years)
  5. Prioritize fixed rate debt > adjustable rate debt, and/or consider converting adjustable rate debt to fixed rate where practical.

Estimating Returns: Hope for the Best, Plan for the Worst

Between 1926-2020, the US stock market return was basically 10% per year.

While it’d be great to bank on 10% per year, it unfortunately does not work that way. For those that want consistency over the long haul, they will have to accept lower returns (think: CDs, bonds). For those that truly want higher returns over the long haul, they’ll have to accept more volatility (i.e. the stock market, other speculative investments). Either way, you can never fully escape risk.

Interestingly, though, is how infrequent annual US stock market returns actually fall within the long-term 10% average.

If we look at the calendar year returns +/- 2% from the 10% average (so 8% to 12%), this has happened in just five calendar years (1926-2020). So around 5% of all years since 1926 have seen what would be considered “average” returns. In fact, there have been just as many yearly returns above 40% as returns in the 8% to 12% range. Just 18% of returns have been between 5% to 15% in any given year.

The only way to truly take the randomness out of the stock market is to have a multi-decade time horizon. The best 30 year return was 13.6% per year from 1975-2004. And the worst 30 year return was 8.0% per year from 1929-1958.

 What you can do about it:

It’s impossible to say if the next 30 years will be as kind to investors as the previous 30 were. For those that are still on the journey towards financial independence, it would be best to assume lower returns going forward. Instead of relying on continued 8-10%+ average annual returns (something beyond your control), personal savings and frugality are parts of the money equation that are more in your control and have a 100% chance of being as effective in the future as they are today.

As Morgan Housel, author of the “Psychology of Money” writes, “You can build wealth without a high income, but have no chance of building wealth without a high savings rates, it’s clear which one matters more.”

Minimalism: Financially prudent, environmentally responsible… the shortest route to happiness?

What could eschewing the non-essential mean for your life? A quicker path to financial freedom? A reduced environmental footprint? More joy while living and less regrets on your deathbed? Yes, yes, and (hopefully) yes.

In the most basic sense, minimalism is about intentionality: promoting the things that matter most while discarding the distractions. It’s a way to help us identify and actually prioritize what we deem to be of utmost importance.

Finances: A minimalist lifestyle is less expensive and creates room to either earn less or increase savings – both paths that speed up the journey to financial independence. A less expensive lifestyle means it’s also easier to create, and alter, an intentional/purposeful budget and to payoff bad debts (i.e. credit card debt).

Environment: Financial minimalism and environmental stewardship are often (but not always) intertwined. When you need less, you buy less. By buying less, you consume less.

A minimalist lifestyle should naturally lessen your environmental footprint, however completely abstaining from new purchases is not realistic for most. So, when buying, consider prioritizing quality over quantity and purchases that are energy efficient. While not always the case, these buying strategies can also be f inancially prudent ones over the long haul.

Happiness: You can’t buy your way to happiness. Minimalism is simply a tool that can assist you in finding freedom. Freedom from avoidable stresses, burdens, and fears. Freedom to prioritize your health and relationships. Freedom to reclaim your time, or to live in the moment. Freedom to create more, to grow as an individual. Real freedom.

Final Thoughts:

Minimalism is not about searching for happiness through things, but through life itself. Thus, it’s up to you to determine what is necessary and what is superfluous in your life.

Additional Reading:

5 Things People Regret Most on their Deathbed

Lessons from 2020

Lessons from 2020

2020 will be a year we will never forget. From a global pandemic and civil unrest, to an economic downfall that we continue to battle through today, it has been a challenging year that has impacted millions of individuals around the world. For investors, as we reflect on the past year, it’s critical we revisit some lessons learned to better ourselves moving forward. While it’s unlikely we’ll ever experience a year like 2020 again, many of the principles outlined below are timeless, and can serve as foundational reminders that are applicable every year.

 Having an investment philosophy you can stick with is paramount

While there is no silver bullet, understanding how markets work and trusting market prices are good starting points. By adhering to a well-thought out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty. 

Create an investment plan that aligns with your risk tolerance

You want to have a plan in place that gives you peace of mind regardless of the market conditions. Over time, capital markets have rewarded investors who have taken a long-term perspective and remained disciplined in the face of short-term noise.

Don’t try and time the market

The 2020 market downturn offers an example of how the cycle of fear and greed can drive an investor’s reactive decisions. Back in March, there was widespread agreement that COVID-19 would have a negative impact on the economy, but to what extent? Who would’ve guessed we would’ve experienced the fastest bear market in history in which it took just 16 trading days for the S&P 500 to close down 20% from a peak only to be followed by the best 50-day rally in history?

Stay disciplined through market highs and lows

Financial downturns are unpleasant for all market participants. When faced with short-term noise, it is easy to lose sight of the potential long-term benefits of staying invested. While no one has a crystal ball, adopting a long-term perspective can help change how investors view market volatility.

Focus on what you can control

To have a better investment experience, people should focus on the things they can control. It starts with creating an investment plan based on market principles, informed by financial science, and tailored to your specific needs and goals.

The SECURE Act: What you need to know

The SECURE Act

Written by: Dennis McNamara

Congress just passed a year-end bill known as the SECURE Act (i.e. Setting Every Community Up for Retirement Enhancement Act of 2019). While the name suggests both promise and opportunity in solving our nation’s retirement crisis, we at wHealth Advisors dug into the weeds and wanted to use our last blog post of 2019 to share some thoughts.

Let’s start with the GOOD:

  • Retirement deductions for those over 70.5 years old: For those who have earned income and happen to be over age 70.5, you can now contribute to an IRA.
  • Required minimum distributions bumped back from 70.5 to 72: For those who are not yet 72, required minimum distributions from qualified retirement accounts will now begin at 72 rather than 70.5.
  • Multiple Employer Retirement Plans: Allows two or more unrelated employers to join a pooled employer retirement plan (Dental and Medical practice owners/partners: This is for you!). These plans will need to be administered by a Registered Investment Advisor firm (like wHealth Advisors). If done correctly, this provision can create significant savings for both owners and participating employees.
  • Kiddie tax rates: Unearned income for a child under 18, or under 24 and a full-time student, to now be taxed at the parent’s marginal tax rate (as opposed to the previous trust tax rates which in most cases were higher than the parent’s tax rates).
  • 529 plan expansion of qualified expenses: Allows 529 funds to be used for registered apprenticeships, home/private/religious schooling, and up to $10,000 of qualified student loan repayments.

And now the BAD:

  • No more “stretch IRAs” for inherited retirement accounts: Before the SECURE Act, if you passed away and left a qualified retirement plan to your descendants (think: 401k, IRA, 403b etc.), the beneficiaries could take distributions from the inherited account over their own personal life expectancy (calculated by IRS). For example, suppose a 30 year old inherited an IRA from their parent. That 30 year old was previously able to take annual, piecemeal distributions and “stretch” the distributions from the qualified account until their death. After the SECURE Act, non-spouse inheritors of qualified retirement accounts must now have the funds distributed within 10 years of inheriting (note: this change begins for accounts inherited in 2020).
    • This is extremely detrimental to the average investor. REASON: Forces larger income distributions to beneficiaries even if the income is not needed. This will not only minimize the tax deferral benefits (having to take the money sooner prevents the funds from having a longer time horizon to grow tax free) but will also trigger many investors to be bumped into higher tax brackets. From a behavioral standpoint, forcing distributions over a 10 year period will likely result in more folks squandering inherited retirement accounts (thus giving annuity reps another mouth-watering opportunity to sell annuity products).
  • Employer retirement plans can offer “Lifetime Income Providers”: TRANSLATION – annuity companies and their advisors can now place more of their high-cost annuity products into employer retirement plans. Additionally, and according to the SECURE Act, there is no requirement for a fiduciary to select the least expensive option.

OTHER provisions worth noting:

  • In 2021 the IRS will make slight tweaks to it’s life expectancy tables (which will impact required minimum distributions). A small change but a positive one.
  • Increased tax credit for employers starting a retirement plan and for employers that setup a plan with auto-enrollment (again, a nice perk for the Dental/Medical practice owners!).
  • Penalty-free withdrawal (up to $5k) from retirement plans for individuals in case of birth of a child or adoption.
  • Federal medical expense deduction reduced to 7.5% of AGI (down from 10%).

As is often the case, what legislation gives with one hand it takes with the other. While we’re happy with some of the improvements, the most impactful changes (elimination of stretch IRAs, annuities in 401k plans) make it clear that the real winner of the SECURE Act is the insurance lobby.

For any questions or clarifications please feel free to contact us hello@whealthfa.com.