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23 June 2024

The Double-Edged Sword of Longevity


June 23, 2024

We’re reading the NY Times bestseller Outlive: The Science and Art of Longevity by Peter Attia, MD.

“In Outlive, Peter Attia explores the science of not just prolonging life, but also prolonging aliveness.”

Dr. Attia advocates for a shift from a “Medicine 2.0” paradigm, which treats disease after it manifests, to “Medicine 3.0”, which prescribes a wide range of interventions earlier in life to extend our healthspan.

Attia wants us to trade in the conventional wisdom of the misattributed Hippocratic oath – “do no harm” – for a philosophy that instead asks “what are the risks and what are the benefits” of any behavior or intervention.

This philosophy mirrors our own in wealth management. Our job is not to maximize numbers in accounts, but to help our clients live life to the fullest by mobilizing their wealth as a tool to serve them.

In health, as in investing, there is no such thing as “doing no harm”, as the avoidance of risk has consequences, too. Early intervention often leads to large long-term payoffs.

Here are some important considerations at the intersection of health and wealth.

1. Wealth without health is not very useful

One intervention we focus on is to maximize our clients’ tax-advantaged retirement savings. Especially for those in early to mid-career, this often means forgoing consumption now for much more after-tax wealth in a few decades.

Our default assumption is that there will be much life left to live after age 59 ½.

Sometimes these interventions fly in the face of a “do no harm” philosophy. On several occasions, we’ve advised clients to pay taxes on previously deducted retirement contributions and convert them to Roth.

Other times, we increase tax-deductible capacity by opening other types of accounts or small business retirement plans or help navigate around the income limits on direct Roth contributions.

We’ll do anything we can to punt wealth into the future and harvest the associated tax benefits.

However, we must balance the benefits of these interventions with the cost. After all, money is required for the life happening now, too, and tomorrow is not guaranteed.

We’d prefer our clients invest in their long-term health as conscientiously as they invest their long-term wealth with us. That way, the money they invest has a good chance of being put to great use in later years.

2. The triple tax advantages of Health Savings Accounts (HSAs)

Attia’s advice on proactive health management can potentially reduce your long-term healthcare expenses, freeing up more of your resources for other pursuits.

But even still, we may expect significant health-related expenses as we extend our lives into old age. Here, Health Savings Accounts (HSAs) are a powerful tool. They offer a triple tax advantage—contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. There is no other account like it.

We’ve had several clients underestimate the benefits of HSAs and opt for other health plans before we intervened. For one client, we modeled out the benefit of investing in an HSA versus a taxable account from age 31 to 60, and found that the cost of forgoing the benefits of an HSA could be around $368,000 in their particular situation.

One helpful tip that might be relevant for some: don’t spend from these accounts – even on qualifying medical expenses – if you can help it. Simply invest the contributions and let them grow tax-free until age 65, using other cash to pay medical bills in the meantime. Withdrawals made after 65 will be penalty-free and taxed as ordinary income if used for something other than medical expenses – essentially behaving as a traditional IRA.

3.  Planning for a 40-year retirement

We may be facing longer time horizons than ever before in the wealth planning business. On the margin, this raises the importance of outpacing inflation, and reduces the importance of avoiding short-term volatility.

This may also call for dynamic risk management protocols throughout retirement. Assets may peak at retirement where protection from market pullbacks is most important. It may take a few years to settle into a rhythm where lifestyle matches sustainable portfolio returns, requiring another re-calibration of risk.

As retirement progresses, the risk of outliving investments might wane. Time horizons and therefore volatility tolerance may start to increase again, because then much of the wealth may be destined for the next generation.

This is where estate planning and longevity intersect.

4.  Proactive estate planning becomes more important with longevity

As we wrote about last month, those with estate tax issues (“Level Three”) should act sooner rather than later to identify excess wealth and get it out of their estate.

Getting these assets out now confers two benefits:

  1. You’ll take advantage of the abnormally high lifetime gift tax exemption limit (which matches the estate tax exemption limit) before it halves in 2026, and
  2. It shifts the future growth of your wealth out of your estate as well. Depending on the time horizon, the associated tax savings could be truly gargantuan.

“Depending on the time horizon” – meaning, the longer you remain alive after implementing these interventions, the more future growth you can expect will avoid estate taxes.

Health and wealth go hand in hand

On the one hand, longevity introduces new risks to long-term wealth management, perhaps requiring higher, more consistent returns to fund a longer retirement without running out of money.

But it opens so many other possibilities to enjoy life deeper into old age, making the payoffs of investing over a hard-working career that much greater.

It may mean that many more people enjoy a second productive career in their 60s, 70s and 80s that earns some money but is more focused on personal fulfillment and social purpose.

We’re here to help you chart that course and deliver on these dreams for yourself and your loved ones. You’ll have to find other partners to help manage your healthspan, though!