60-40 portfolio is dead, but it’s not the bond market that killed it

The classic 60-40 market portfolio — with 60% in stocks and 40% in bonds — has come under serious scrutiny in recent years, with major changes in the bond market leading to fundamental questions about the traditional approach to long-term retirement income planning. But for investors with the goal of financial security as they age, this year’s stock market volatility sent some to take another look at the concept. That’s a mistake, says Ric Edelman, the former head of Edelman Financial Engines.

Edelman says it’s not the bond market that killed the 60-40 portfolio. Rather, it’s us humans. And this year’s market volatility shouldn’t send investors running back to the concept as a long-term fix.

With the average lifespan increasing, and breakthroughs in health and science expected to increase in the years ahead, too, Edelman says that the 60-40 portfolio cannot possibly provide investors with enough money for a longer life.

“It’s dead because of longevity,” Edelman said on this week’s “ETF Edge.”

“We are living longer than ever before as a species. Nowhere in human history have humans lived this long,” Edelman told CNBC’s Bob Pisani. “Run your financial planning model assuming you live to 100,” he said. “The odds are good you will run out of money.” 

It all means that investors planning for the long-term need to have more money invested in the stock market than ever before. Edelman says 70% to 80% in equities is reasonable for many investors who don’t want to risk outliving their savings.

“If you die at 80, it’s not a problem,” he said. “But you live to 90 or 100, or 110, it’s an issue.” 

Financial numbers for super-ager era

The number of Americans aged 65 and older is projected to reach 95 million by 2060, according to the World Health Organization, comprising nearly 23% of the national population, an aging trend with profound implications for financial security, according to the Milken Institute.

According to Fidelity Investments, an average retired couple aged 65 in 2024 may need as much as $315,000 saved (after tax) just to cover health care expenses in retirement. According to Federal Reserve data, among older Americans, the amounts held in retirement accounts are far too low for the overall costs associated with a longer life.

Edelman is most focused on the implications of humans living to 100 and beyond, rather than merely beyond age 65, due to breakthroughs in technology and biotech, from neuroscience to bioinformatics, 3D printing, robotics and AI.

This view is not universal, and some research suggests that barring major breakthroughs, the recent gains in longevity will level off in the decades ahead for U.S. citizens.

But Edelman is bullish on the outlook for health tech and what it means for investors. “Over the next 30 years, humans will routinely live to the age of 100 and beyond,” he said.

Alzheimer’s and the cost of living longer

The fight against Alzheimer’s is one example. Edelman and his wife have been involved in the effort for decades and they acquired a diagnostics company that is planning to soon launch a blood test that will be able to tell you ten years prior to symptoms if Alzheimer’s is in your future, with 90-95% accuracy, he says.

Edelman is hoping to bring the test to market “within the next several months,” and he added that the company discovered through research the test is applicable to other neurological diseases, for example, Parkinson’s, and has potential in cancer as well.

While that may seem scary — and 10 years ago Edelman said you probably didn’t want to know the result of this test because there was nothing you could do with the knowledge — a lot has changed.

“10 years ago, I would have said I don’t want to know,” he admitted, but he added that we now know fundamental lifestyle changes can help delay and reduce symptoms, from diet to stress, sleep, and exercise. “All the things we tell you to do for your heart are applicable for your brain,” he said. And even simple tech like hearings aids reduce stress on brain and can also delay Alzheimer’s.

The cost of Alzheimer’s is massive. On average, those diagnosed with Alzheimer’s live 12 years on average from diagnosis to death, and need 24/7 care. “It bankrupts millions of American families,” Edelman said.

Bond ladder for long-term income

There is an option in the bond market to deal with the biggest issue related to longevity: fear of running out of money. It’s called the bond ladder and it has recently been introduced in an ETF format.

Edelman says bond ladder ETFs are good options for the issue of increased life expectancy because they provide guaranteed lifetime income. These ETFs generate income from buying U.S. treasuries and paying out the interest across a wide range of maturity schedules, from…