3 portfolio fixes to make now for 100-year-plus lifespans

Medical breakthroughs and AI-driven technology are increasing clients' lifespans, forcing advisors to reimagine the "wealth spans" required to support them.

Most financial planning is built on prudent modeling that assumes a client will live to age 90. But these plans will fall apart if investors start to live to 100 — or even 110 — more frequently, requiring higher and more consistent investment returns. 

We have long heard about "blue zones," areas around the globe where people live exceptionally long lives with low rates of chronic disease. Those in Okinawa, Japan; Sardinia, Italy; the Nicoya Peninsula, Costa Rica; Ikaria, Greece; and Loma Linda, California provide a blueprint for longevity through lifestyles that feature plant-rich diets, high activity levels and strong social ties.  

READ MORE: How wealth shapes life expectancy — and why it matters for retirement plans

Extended health spans require longer wealth spans

The concept of "health span" — how long we remain healthy in life — has gained momentum, drawing attention to the quality of what we consume, the need for lifelong exercise and the importance of personal connection. 

At the same time, we are witnessing a remarkable shift in medical technology, much of it driven by artificial intelligence. Genetic medicines are re-coding how we battle disease; checkpoint inhibitors can ignite the body's cancer-fighting mechanisms, and GLP-1s are improving metabolic health and weight regulation as wearable tech provides health data in real time.

This conversation about health span is essential because for years, the U.S. has been moving in the wrong direction. Our health span has been declining, with the average American spending an average of 12.4 years of life incapacitated or struggling with noncommunicable or chronic disease. 

But the blend of blue zone lifestyle principles and technological capability suggests that we are on the cusp of a significant jump in both lifespan and health span. For clients in or near retirement, this requires a shift away from the classic process of gradually swapping equity for fixed income in the post-retirement years in favor of higher returns and lower volatility.

READ MORE: The stock allocation retirees don't want (but need)

3 portfolio adjustments to make now

Living to 100 might not feel like a "now" problem; for most of us, the century mark is a long way off. That is my point. Portfolios should be adjusted immediately to ensure the wealth span can keep up with the lifespan. 

It's possible to imagine stocks doubling from here. It's equally possible to imagine them being cut in half. Let's not forget that the Nasdaq lost around 80% after the dot-com bust and took 15 years just to get back to zero.

The longer we live, the more we will be exposed to the sporadic, crushing markets because we will live through more of them. The classic move of increasing an allocation to bonds (where growth may be eaten by inflation), while decreasing the allocation to stocks (which bear the full brunt of market drops), all while taking withdrawals, may lead to ruin in later years when one is least able to go out and make up the shortfall.

That makes taking these portfolio actions now essential:
●      Control systemic risk in portfolios by allocating a greater portion of assets to equities with an overt risk management strategy such as options overlay strategies.
●      Shift to adaptive fixed income that will be able to adjust opportunistically and defensively as markets evolve. 
●      Control idiosyncratic risk by taking advantage of strategies like 351 exchanges to shift a portion of equities out of high valuation concentrated positions into more diversified lower risk strategies.

To maintain consistent growth over many decades, the move toward lower volatility equity and adaptable fixed income will be essential to ensure our wealth keeps up with our lifespans.