Estate Planning 3 key steps to planning for longevity

When it comes to financially navigating your retirement years, wealth plans can play a similar role to road maps on a physical journey. By providing detailed guidance on what you’re likely to encounter along the way, a carefully drawn wealth plan can help you smoothly and efficiently journey toward your destination.

On the open highway, accomplishing that requires a map that covers each and every mile of your trip. But in the world of wealth planning, the distance you’ll travel is mapped out in years, not miles—which makes scaling the time left ahead of you a key part of arriving at your desired financial end point.

Longevity planning is a branch of wealth strategy designed to give your plan that necessary sense of scale. While no one can know exactly how long they’ll live, strategies for retirement planning that factor in longer lifespans are critical. A longevity plan helps ensure your overall financial plan is oriented as closely as possible to the realities of your finances, goals, and life expectancy.

In this article, we’ll explore three key steps to planning for longevity that can help your budgets and goals scale as accurately as possible to the financial distance you have left to travel.

In the investment world, as age increases so does financial risk aversion. While this well-known tendency holds true across income brackets, it can be slightly more pronounced in high-net-worth individuals. This inclination can have a significant impact on your ability to create longevity plans that stay resilient in the face of market turbulence while also efficiently transferring a steadily accruing legacy to your heirs.

For example, if you retire early with a nest egg that enables you to live off its income without touching the principal, there’s a strong chance you’ll reinforce any tendency toward a more conservative investment approach. That’s because an unwillingness to touch the principal can limit your access to capital and lead to setting inflexible distribution levels and schedules. This intensifies any conservative mindset you may have and can make establishing, recalculating, or adjusting your longevity plan much more difficult.

“An advisor can show you how even the most minor increase in your willingness to initially dip into that principal can open up a world of possibilities,” says Redfern. “Partnering with a wealth advisor can help you identify strategies designed to find the balance between your current lifestyle and maximizing your wealth transfer.”

Adjustments of this sort won’t involve a drastic change in your fundamental investment mindset either—just a revision of your approach by degrees. A qualified wealth advisor isn’t going to try and turn a conservative investor with a proven track record of successful financial decisions into an aggressive one. Instead, they’re going to help carefully adjust the degree and tactics of your financially conservative approach through general methods like portfolio diversification or specific tactics like hedging against longevity risk with fixed-income portfolios.

With a surplus of assets that’s likely to cover your wants and needs from ages 65 to 100, it’s understandable if you’re beginning to wonder exactly what the fundamental advantage of longevity planning is. For many of those in a high-income bracket, the prime benefit has less to do with considering trade-offs and much more to do with leaving an enduring legacy for their loved ones.

“For most high-net-worth individuals, it’s uncommon to worry about having to give up the dream of purchasing a vacation home in retirement to afford long-term care,” says Chip Hughey, managing director of Fixed Income at Truist. “Your primary concern is going to be calibrating your estate plan to optimize benefits to your family members and loved ones.”

One of the first steps in that calibration process is your wealth advisor running your longevity-adjusted budget through various financial models. This comparison analysis enables them to tabulate your projected “max spend”—which is the measure of all available assets not devoted to essentials, planned amenities, or inheritance through wills.

With a max spend figure, your wealth advisor can better discern the size and shape of your potential asset surplus across all holdings. From there, you can both begin plotting smarter estate planning decisions that ensure your loved ones receive optimal care and support in your absence.

What qualifies as “smarter estate planning decisions”? They’re strategic financial choices that use your budgeting surplus to help minimize estate tax burdens to your heirs. Some of the methods that can help accomplish this include:

• Purchasing life insurance policies to enhance your wealth transfer strategy
• Creating annual and lifetime gift tax exemption strategies
• Restructuring any preexisting trusts to increase lifetime distribution rates for beneficiaries
• Establishing a spousal lifetime access trust (SLAT) or other trusts that are specifically geared toward increased longevity
• Deploying strategies like estate freezes that help limit the future growth of an estate’s value, thereby reducing potential tax burdens
• Using Roth IRA conversions to transfer wealth through tax-free distributions to heirs after the first five years of the account’s life
• Transferring real estate like second homes and other material assets to your children ahead of your passing to reduce estate taxes

Not every option listed above will fit your circumstances. What matters is choosing tactics that will strategically increase your personal financial resilience and flexibility—and a max spend figure combined with a budget based on a realistic longevity projection provides the foundation for accomplishing that. With estate planning choices fine-tuned to your present and projected financial circumstances, you may be able to focus on maximizing the value of—and minimizing the tax burdens attached to—what you intend to leave behind.

For example, your wealth strategist may find it’s more tax advantageous to leave your heirs’ money in a trust with a specific distribution structure. In that case, they can take your max- spend adjusted budget and suggest a type of trust and fixed amount, like $6 million. With your approval, that scenario can then be run through specialty software that predicts the probability of it working within the parameters of your anticipated lifespan. Should that probability come back at 85% or higher, the likelihood is that it won’t impact your retirement plan out to your readjusted life expectancy baseline of age 95.

“Whatever we implement isn’t going to be an off-the-shelf solution—it’s going to be tailored to your circumstances and designed to mitigate the risks associated with the uncertainty that longevity can create,” says Hughey. “Whether those risks pertain to markets, interest rates, or inflation, with a realistic view of life expectancy we can build a budget and clarify estate planning goals. And with both of those in place, we can create customized, flexible longevity planning strategies that are designed to allow you to live comfortably, your resources to outlive you, and your heirs to live their best lives.”

Any comments or references to taxes herein are informational only. Truist and its representatives do not provide tax or legal advice. You should consult your individual tax or legal professional before taking any action that may have tax or legal consequences.