Currently, only a third of family offices have a clearly defined succession plan in place. In the context of the unprecedented era of global wealth transfer we are entering into, this has the potential to create a range of wealth planning issues. But, people are also living longer, adding even more complexity to retirement and succession planning for wealthy individuals and their families.

Longevity is a matter that is set to become increasingly important in the coming decades. One of the most vivid success stories of the modern era of human development has been the increase in average life expectancy. Across the world, we are all living longer then we would have a century ago. In 1950, average life expectancy in Europe was 62 years. In 2015, it was 78. According to the World Health Organisation, the 5.5 years added between 2000 and 2016 is the fastest increase since the 1960s.

If the current trend continues, a significant amount of people will begin living to almost 100 years old in the coming decades. This increased longevity has the potential to disrupt our traditional ways of thinking about ageing and retirement, as well as create some new challenges for wealth management. Living to 100 and looking to retire on 50% of your final income may mean working into your 80s, or it could mean passing on less to your beneficiaries. Families are going to have to factor longer lives into their strategies or they may face some difficult choices later.

The complexity of modern families

The modern world’s mix of breakneck technological innovation and shifting social and cultural norms is impacting almost every aspect of our lives. With people living longer, lives often have more stages. The traditional view that life is made up of three sections, pre-adult, working and retired, starts to make less sense when a person retiring in their mid-60s could feasibly spend 35 years in retirement. Conversely, London Business School professor Lynda Gratton thinks this new longevity is creating a new stage of life exploration for young people. The trends towards getting married, buying property, starting careers, and having children later in life makes sense in the context of longer lives.

With increased longevity comes the potential for more complexity too. This can be seen in the way marriages and family dynamics are changing. In the US, the divorce rate among adults 50 and over has jumped 109% in the last 25 years. There could be many factors driving this trend but changing priorities in the face of a longer retirement could be one. There is still time to build a new life and take on new adventures. Many people are entering new marriages later in life too, with the possibility of adding stepchildren and additional beneficiaries to their families.

Succession planning in these situations needs to be more responsive and tailored than the traditional model of passing on the family business to a few children. According to UBS, while the current generation of beneficial owners are already in their 60s and 70s, a third have no succession plans in place. This could reflect a desire to continue working, or it could be down to other factors. There may be multiple children from several marriages at different ages, creating the desire to be fair to all heirs and provide large amounts of liquidity to do so. If there is a business to pass on it may need to be broken up, and any land may need to be sold. And, with wealthy individuals living longer, they are also likely to need to keep more of their assets for themselves in retirement.

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There may be multiple children from several marriages at different ages, creating the desire to be fair to all heirs and provide large amounts of liquidity to do so. If there is a business to pass on it may need to be broken up, and any land may need to be sold.

The changing nature of retirement

Perhaps the most significant aspect of increasing longevity is the way it will shift the embedded social practice of retirement. Whether people stop working later into their lives or are simply in retirement for 10 or even 20 years longer than their grandparents would have been, financial planning is going to have to adapt to a new reality. The simple truth is that it will be much harder to work for 40 years to support a potentially 30-year long retirement while maintaining the right lifestyle and passing on wealth to the next generation. The longer our retirements become, the likelihood that they will begin to take precedence over other life goals increases.

Retirement planning needs to bring a range of new options to suit people’s changing needs. Of course, a person’s retirement isn’t just a stable, unchanging block of time. It is full of opportunities and challenges, and the solutions that people will gravitate towards will be those that offer a greater degree of flexibility. People will want to be able to draw on investments as required and change their arrangements to match the new chapters in their story. Longevity also brings the prospect of needing long-term care and medical treatment, so having funds available to meet those costs when they occur will be vital.

The direct effects of this are that succession plans may operate over a longer period as individuals phase out their levels of involvement more slowly, and that more assets may have to be reserved for retirement rather than being handed on. What impact this will have on the way family offices and wealthy individuals choose to operate remains to be seen, although it is clear established wealth management services will have to change too.

The longevity opportunity

The key to living a long and happy life is having financial security and confidence, and increased longevity has the potential to make this more of a challenge for individuals and their families. To make the most of their extra time, people are going to need maximum flexibility from their wealth management. Perhaps it is time that we jettison the concept of retirement altogether and instead focus on longevity planning. As we live longer it is important that we continue to be able to live our choices and enjoy the things that matter most.

 

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