As lifespans continue to increase, the strategies and techniques that drove success for advisors before will not work in the future, said Ric Edelman, the founder of the Digital Assets Council of Financial Professionals.

Along with longer lifespans, there are changes occurring in the economy and with the way people live their lives and spend their retirement that are also necessitating a change in the way advisors talk to their clients and plan their future, he said.

Speaking yesterday during the 11th Annual Inside Retirement: Investment Strategies for Your Clients webinar sponsored by Financial Advisor and the Money Show, Edelman said that taking cues from the past will not work anymore.

“Too often I’ve discovered financial advice is rooted in the past and is rooted in what worked before because it’s comfortable, easy, and familiar and what we all know,” he said. “Unfortunately, as we all know past performance doesn’t guarantee future results.”

The biggest change has to do with the length of time people are living and it could be increasing, he said. Currently, the average lifespan for a person is about 89 years, but Edelman speculated that age could be even higher with breakthroughs in modern science. 

Whereas in the past advisors might have developed a retirement plan that would fund a person’s retirement until a person was 85 to 90. However, with updates projecting a person could outlive that plan and run out of money, advisors must accommodate for that, Edelman said.  

“Rerun the number assuming they’ll live to age 100 or 110 and watch what happens,” he said. “Chances are your client runs out of money [so] you need to re-evaluate the projections of life expectancy for your client.”

Advisors should also plan for income and expenses differently, including inflationary concerns, healthcare costs, pension benefits, and changes to Social Security benefits, and a person’s tax rate, he said.

For Social Security, when the system was first created there were 159 workers for each retiree and now there are only three, according to Edelman. Unless there is a change in the system, benefits will be cut by 25% by 2032 and Americans might see their tax dollars go up to help fund the benefit, Edelman predicted.

"The system wasn’t designed to work this way, and it is forcing the system to turn to the trust fund, which will be depleted within seven or eight years if Congress doesn’t act,” he said. “You need to recognize this and adjust your financial planning projections accordingly.”

The changes will impact asset allocation and investment strategy, Edelman said. There should be an evolution of the traditional 60/40 split to either a 70/30 or even an 80/20 one, he said. Advisors also need to increase their clients’ exposure to equities and to maintain that exposure for longer periods, according to Edelman.

In addition to living longer, the way people live their lives will also influence how advisors work with their clients, according to Edelman. Estate planning is one area that could be significantly impacted. The traditional pattern of two people getting married, having children, dying and leaving their assets with their children is not as simple anymore.

People are getting married later in life, they are divorcing and getting re-married, he said. Some do not get married at all, but still live with someone. People have very complicated family trees, with multiple spouses, children from multiple spouses, stepchildren, foster children, and adopted children. There could be four or five generations living at the same time, Edelman said. 

“It’s a lot of fun at Thanksgiving, [but a] complication for the financial planner,” he said. “You need to be sure that you are focusing on the estate planning that is relevant and necessary for your clients.”

The overall look of retirement is also changing as people are no longer following the so-called linear lifeline where they are born, go to school, go to work, retire, then die. They are adopting a more cyclical timeline where after they work, they may go back to school, then take some time off. Then they might go back to work.

It means retirement might last longer and require more money to fund certain expenses. There could be additional revenue streams coming in from part-time work. It won’t all depend on retirement savings, he said.

Finally, Edelman said that now was a great time to be a financial advisor because demand has never been greater. There is a general aging of the population as years ago, there were about 40 million over the age of 65 and in 10 years, there will be 80 million.

At the same time, the number of financial advisors is diminishing as there are about 300,000 now and projections say there will be about 200,000 in 10 years, he noted.

“The number of people wanting financial advice grows, but the number of advisors available to serve them is shrinking,” he said. “This means it’s a wonderful opportunity to become a financial advisor today because there is a massive population that want your services and relatively little competition.”