People May Start Living to 150, Creating Retirement Paradox

Some scientists have made the case that the first person to live to 150 is alive today. And though many nearing retirement today may not plan for that kind of longevity, recent market swings may be creating heightened anxiety about how far their nest egg will stretch if they need to withdraw during a downturn.

Salvatore Capizzi, executive vice president at Dunham & Associates Investment Counsel Inc., believes longevity amid market volatility has implications for retirement planning, particularly in the decumulation phase.

“The paradox is this: If people are living longer and we still have inflation—even at 2%—how do you account for that?” Capizzi asks. “Equities outpace inflation and provide growth, but they also create sequence risk. If the market drops right when you retire, it can devastate your retirement savings.”

Sequence risk, or sequence of returns risk, refers to the danger that the order in which investment returns are received can negatively affect the longevity of a portfolio, particularly during withdrawals in retirement. Even with the same average returns, poor returns early in retirement can significantly reduce the portfolio’s value, making it harder to recover and sustain future withdrawals.

Capizzi argues that traditional retirement strategies, such as age-based allocation models in which a person’s portfolio shifts more heavily toward fixed income as they age, were designed when life expectancy was shorter. Back then, retirees could expect to live another 10 to 20 years after retirement. However, with people living longer, financial planning has become much more complex.

Managing for longer life spans has been discussed for years. In May, for instance, provider John Hancock and its parent company, Manulife. announced a multi-million-dollar, five-year research partnership with the Massachusetts Institute of Technology’s AgeLab, in part to build a Longevity Preparedness Index. The index will consider Americans’ readiness to financially support longer life spans and how they can best prepare.

Flipping the Script

To address the conflict of needing growth to combat inflation and longer life expectancies, while also avoiding sequence risk, Capizzi and his team at Dunham & Associates developed a strategy called Dunham DC.

Drawing inspiration from Warren Buffett’s advice—“Be fearful when others are greedy and greedy when others are fearful”—Dunham DC involves selling stocks when market valuations are high and buying when prices drop, often below their intrinsic value. This counterintuitive approach means that at the top of the market, portfolios hold fewer equities, and at the bottom, more equities are added as the market turns downward.

“Most strategies do the opposite,” Capizzi explains. “They hold the most equities at the top of the market, and when things turn south, they panic and sell, leaving them with fewer equities at the bottom.” By flipping this model, Dunham’s approach mitigates sequence risk while accelerating recovery when markets rebound.

Multi-Generational Retirement

Capizzi also raises concerns about the possibility of multi-generational retirement, a scenario in which families must plan for not one, but multiple retirements.

“A 30-year-old couple has a child, and that child retires at age 70,” he says. “When they hit 70, their parents are 100 years old. If we planned the old-fashioned way, just trying to reduce sequence risk but we didn’t have growth, at age 100, [the parents] basically are broke.”

This scenario could even spin into supporting three generations of retirement, with the generations being at age 70, 100 and 130. Unlike the traditional sandwich generation, which balanced care for both aging parents and young children, this new reality could mean managing two or more retirements simultaneously.

Capizzi says this multi-generational retirement scenario is becoming increasingly plausible due to advancements in medical research and DNA therapies that could further extend lifespans. Some people are saving well for retirement, he acknowledges, noting recent research from Fidelity Investments found that nearly 400,000 individual retirement account holders and 500,000 401(k) participants are millionaires.

“For those saving for retirement, they’re doing a good job, but the real challenge comes once you retire,” he says. “What do you do to maintain that lifestyle if you may live into your hundreds?”

To create more innovative solutions that address longevity, Capizzi believes advisers need to take a more forward-thinking approach, focusing not just on managing retirement risk, but also on ensuring long-term growth to support these extended lifespans.

“We need to shift our mindset,” Capizzi says. “It’s not just about getting to retirement anymore; it’s about sustaining it across generations.”