Second-Survivor Longevity Benchmark
Set the portfolio horizon by the longest-lived person the money must support
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 5
- Confidence
- 96%
Fisher starts benchmark selection with the purpose of the money rather than the client's age or a default retirement allocation. If the primary purpose is to support a client and spouse for the rest of their lives, the relevant horizon extends to the likely lifespan of the second survivor. He estimates that horizon by asking about both partners' ages, the longevity of parents and grandparents, and how current health and lifestyle compare with that family history. Goals to leave money to children or charity extend the horizon further. A horizon of several decades can support an equity benchmark because Fisher associates equities with long time periods. The benchmark is the track against which the portfolio is managed; tactical departures may occur, but they do not change the client's underlying long-duration objective.
Origin
Fisher explained this client-question sequence while defending his view that many clients need an all-equity benchmark because longevity risk has lengthened retirement horizons.
Core principles
- 01The benchmark follows the purpose of the money
- 02The second survivor determines a couple's support horizon
- 03Family longevity and health inform the planning horizon
- 04Legacy goals extend rather than shorten the horizon
How to run it
- 1
Define the money's purpose
Ask what the portfolio is primarily meant to accomplish. Fisher says the common answer is supporting the client and spouse for life.
Pro tip Record secondary purposes only after the primary purpose is clear.
Watch out Do not select a benchmark before knowing the objective.
- 2
Identify the second survivor
Determine whose lifespan is likely to extend the household's funding need. For a couple, planning ends with the second survivor rather than the first death.
Pro tip Evaluate both partners independently before comparing them.
Watch out Using only the older partner's age can materially shorten the assumed horizon.
- 3
Estimate longevity
Review how long parents and grandparents lived, then compare each partner's health and lifestyle with those relatives. Use this to estimate a practical planning horizon.
Pro tip Treat the estimate as a planning input rather than a precise prediction.
Watch out Current age alone is not enough.
- 4
Extend for legacy goals
Add goals involving children or charity. Fisher notes that these purposes lengthen the time horizon rather than reducing it.
Pro tip Distinguish lifetime support from assets intended to outlast both partners.
Watch out Do not treat legacy assets as if they share a short spending horizon.
- 5
Choose the benchmark
Match the benchmark to the resulting duration and purpose. Fisher argues that a very long horizon often points toward substantial equity exposure.
Pro tip Keep benchmark choice separate from tactical decisions to vary the portfolio.
Watch out The method does not eliminate the need to consider other client factors.
In the wild
Fisher describes a 65-year-old client whose own family history and lifestyle suggest a shorter life, while his 60-year-old spouse is healthy and comes from a long-lived family. Because the money must support both, Fisher assigns the household roughly a 35-year horizon based on the likely second survivor.
→ The long household horizon supports an equity benchmark rather than one based only on the older client's age.
Common mistakes
Using retirement age as the horizon
A person's current age does not reveal how long the household needs support. Family longevity, health, lifestyle, and the spouse all affect the duration.
Planning only to the first death
For joint support, the second survivor determines the endpoint. Ignoring that person understates longevity risk.
Is it for you?
Best for
It is best for couples whose portfolio must fund lifetime spending and may also support heirs or charity.
Not ideal for
It is not ideal as a complete allocation plan because Fisher explicitly notes that other factors still matter.
From the transcript
“what's the primary purpose of your money?”
“It's the second to survive that counts in its longevity risk for the second to survive.”
“And what do they need? They need an equity benchmark.”
From the episode
Interview With Ken Fisher: Masters in Business (Audio)