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MY FATHER LOATHED the idea that he would spend his final years in a nursing home. In the end, he never had to confront that possibility: At age 75, while riding his bicycle, he was struck and killed by a speeding car.
Still, I think often about his reluctance—because I share it. Despite exercising every day, I know I’m not as flexible or as fast as I once was, and it takes longer for the stiffness in my muscles to ease each morning. Meanwhile, I’m well aware that two of my four grandparents had dementia at the end of their life.
Perhaps, as I age, the idea of some form of assisted living will grow more appealing. Perhaps I won’t have any choice. But for now, as I make decisions big and small, I think about what it’ll take to maintain my independence and how to make matters easier for my octogenarian self. Like almost everybody else, I want to stay in control of my life for as long as possible and I hate the notion that I might end up heavily dependent on others.
That desire was a big factor in my recent home purchase. I bought a house that’s close to my daughter and where I could live on one floor. While I’d like my new home to be my final stop, I’m not entirely sure it will be. If necessary, I might move to an apartment—perhaps one I’d rent, so my kids wouldn’t have to worry about selling the place after my death.
Now that housing is settled—at least for now—I’m thinking more about my portfolio and how I’ll generate income later in retirement. This is an issue that others are also wrestling with: I get frequent emails from readers who want to make sure their finances will remain manageable, even if they suffer some cognitive decline, or who want to ensure that their spouse can easily take over the household finances.
Worried about either or both of those issues? Here are three steps I’m toying with:
Radical simplicity. Today, I have four bank accounts, four credit cards and 11 different mutual funds—and, in some cases, I own the same fund in multiple accounts, because I have a taxable account, a traditional IRA, a Roth IRA, an inherited IRA and a solo 401(k).
I’m not ready to do it yet, but at some point I plan to cancel all but one credit card and eliminate two of my four bank accounts, so I have just one checking account and one savings account. Meanwhile, I may move all of my fund holdings into a single target-date fund, though I’ll end up owning that one fund in multiple different accounts, because I’ll still have a traditional IRA, Roth IRA and so on.
Lifetime income. As I’ve discussed in earlier articles, I plan to delay claiming Social Security until age 70, while using some of my bond fund money to purchase immediate fixed annuities that pay lifetime income. There’s a host of reasons for this, including hedging the risk of a long life, generating more income in an extremely low-yield environment and giving myself the leeway to invest more heavily in stocks, which—assuming I live to a ripe old age—could offset the money lost to the annuity purchases, thanks to higher overall portfolio returns.
But to this list of reasons, let me add another: If I suffer some cognitive decline, arranging a healthy stream of lifetime income should make my financial life relatively easy to handle. Every month, I’ll get income deposited into my checking account from Social Security and my immediate fixed annuities. The only potentially tricky part is calculating and taking my required minimum distribution from my retirement accounts each year, though even that can be automated.
Hiring help. Instead of going the route of a radically simpler portfolio and buying immediate fixed annuities—or perhaps in conjunction with those steps—I might hire a financial advisor to oversee my finances. I’ve always handled my own portfolio. Hiring an advisor would have struck me as unthinkable a decade ago. But later in retirement, having someone to manage my finances may be the price I’ll need to pay to avoid self-inflicted financial wounds.
What would I look for in a financial advisor? Someone who’s low cost and fee only, legally obligated to act as a fiduciary (and not just part of the time) and who builds portfolios using index funds. He or she will also need to be significantly younger. After all, I’ll need someone who will still be working when I’m at the end of my life. One other criterion: He or she will need a thick skin. I suspect my octogenarian self will make for an ornery client.
Jonathan Clements is the founder and editor of HumbleDollar. Follow him on Twitter @ClementsMoney and on Facebook, and check out his earlier articles.
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Annuities are best if purchased late in life, as you see yourself in decline. Most good insurance companies have a high probability of lasting 10 or so years. If married, annuities can reduce the risks for your surviving spouse.
Also, if you have grasping, untrustworthy heirs, annuities slow their ability to get your money before you pass.
Radical simplicity is good too: one total market stock fund, one similar bond fund, maybe an international fund if inclined, and something for cash, maybe short-term bond fund or money market. And a bank account for monthly living. Still, there are the tax categories: investments, Roths, and various tax-deferred accounts.
Many spouses and adult kids can learn to manage radical simplicity.
Then keep an accountant or financial planner in the wings, someone fee-based, as you say, and wiling to help your family stay the course.
The above is how I’m planning for the future. I’m 76, no family history of dementia, but lots of heart disease. I expect to go quickly, but some years out. So we’re working together as a family to learn the above as best we can. Our son can manage the money for my wife, if I pass first. We plan to use in-home help if needed. A nursing home is a last resort.
Meanwhile, we’re starting to spend a little more than usual. Some trips. Leased a new SUV. Planning to move to a smaller house in the next year or two.
Finally, if all this fails for some unforeseen reason, well, so be it. At least we tried.
All this depends on being able to see your life as it is: to admit your inabilities, your decline when it happens, your spouses real abilities, your heirs as they really are, and so on. Without such honesty, we should probably hire a financial planner even though they are expensive. Finding one can be hard.
What do you think?
thanks Jonathan.. I appreciate your honesty in these articles. Every day brings another ‘retirement seminar’ offering in the mail. I went to one or two and recoiled in horror from the schemes on offer..
As you say, ten years ago I thought I would manage my own finances, now it’s clear I won’t be able to. So looking around..
The problem with annuities is that now you are relying on the annuity provider to stay solvent. I bought several different term insurance policies when my kids were small. Of course I neurotically researched everything to pick the companies with highest ratings, longest records, etc etc. Twenty years later only one of them is still AA-rated, the others have dropped to B.
That same low-yield environment that makes it difficult for us to generate income, is in place for the annuity companies..