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COPING WITH FINANCIAL complexity as we age can lead to major problems—and denial isn’t the solution. What to do? One HumbleDollar commenter, in response to a recent article, recommended a book, What to Do When I Get Stupid, by economist Lewis Mandell.
The book has two main themes. First, we should try to create a guaranteed stream of income, preferably one that’s linked to inflation, to cover our core retirement expenses. This could be a combination of Social Security, pension income, inflation-indexed Treasurys, annuities and possibly a reverse mortgage.
Second, we should make our finances as “stupid-proof” as possible to prevent disastrous investing or spending mistakes that could derail our retirement. Mandell presents evidence that, on average, our capability to make financial decisions involving credit peaks at age 53. Our decision-making ability with investments peaks later, at age 70.
It seems that, as we age, we gain experience, knowledge and wisdom. But this is somewhat offset by a decrease in our fluid intelligence, which is the ability to think abstractly and deal with complex information. Fluid intelligence decreases with age, just as vision and hearing do. The rate of decline is specific to the individual but tends to steepen after 70. We would all do well to consider the possibility of cognitive decline.
Mandell gives several specific recommendations for handling these concerns. In addition to the two already covered, here are four suggestions that stood out for me:
I’m sure many HumbleDollar readers have helped older friends or family members manage their finances in their later years. Helping my mother-in-law and my wife’s Aunt Pat was a memorable and fulfilling experience for me. It forced me to ratchet up my knowledge of financial planning, eventually leading me to complete the Certified Financial Planner and Retirement Income Certified Professional programs.
Both women were quite competent money managers through most of their lives. They lived within their means, saved regularly, invested carefully and organized their finances to an amazing degree. Sadly, in their early 80s, cognitive decline robbed them of their interest in managing their affairs and their ability to do so.
One early warning sign was the growing stack of unopened Vanguard Group statements at my mother-in-law’s house. She had been one of the most organized people I knew. The fact that she didn’t immediately open, check and file her statements was a red flag.
A few years ago, as part of my AARP TaxAide volunteer service, I prepared the tax return of a retired teacher. She had a large number of 1099-INT statements. None of them was particularly large, most well under $100. When I asked why she had so many, she explained that one of her retirement activities was researching yields on certificates of deposit. When she found one she liked, she would drive to that bank’s closest branch and open a new account. She did this all over southeast Pennsylvania.
She was well organized, so preparing her return was time-consuming but not technically difficult. Still, I worry that, as she ages, the complexity of all those certificates of deposit may become more than she can handle. More important, she said she didn’t have anyone to take over her finances if she became incapacitated.
Many of us want to simplify our financial life in retirement. Chasing higher yields may be financially rewarding, but it comes at the expense of increased complexity. We all have to decide how we want to balance the tradeoff between simplicity and return. It’s important to think about this early, and honestly, and then decide what makes sense for your situation.
Perhaps, if you need help, you have someone in your life with the skill and inclination to manage a complex financial situation. But you should also consider whether this is a responsibility you want someone else to assume—or whether you should simplify now, while you still have the mental wherewithal to do so.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.
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I bought the book. I have not finished it yet, but so far it is a sales pitch for annuities. I have no problem with annuities, but the single focus makes this a purchase I regret.
Daily Money Managers (“DMM”) in your area provide billing paying, budgeting, review of medical bills including Medicare EOBs, etc services. If you visit the Association of Daily Money Managers website at aadmm.com, you can search in your area for a local DMM.
I’ve been thinking about this a lot, both for my 80-something in-laws and us (we’re 62).
Maybe this is a stupid question, but when you say someone to “manage your money,” are you speaking of someone who advises you on your investments, tax planning, etc.? What about day-to-day bill-paying, checking insurance statements, and things like that? I keep digging around trying to figure this out, and I’m not sure what kind of professional or service I should be looking for.
Specifically, my FIL is 80 and still competent to manage their affairs. But he (a) doesn’t trust online payments and such, so nothing is automated and (b) has health issues that could take him out suddenly at any time. My husband is their executor and has power of attorney for both of them, but he’s at his wits end trying to understand where their money is and what bills need to be paid. We’re talking dozens of photos on his iPhone of papers in a box in their house.
My MIL has Alzheimer’s that is fairly progressed. If something happens to him, or if he starts to decline in his own ability to manage things over the next few years, she would be helpless until my husband can step in and figure things out.
We’d like to suggest that he automate everything or have some kind of bill-paying service, but again, I’m just not sure what kind of professional to be looking for. Any thoughts, Rick or other HD commenters?
I spent 40+ years working in personal finance and investments, and you raise several critical issues. Finding a good, affordable billpaying service is seldom easy. If you have a enough money, a trust company will provide this service, but if not, your options will most likely be limited to a kindly relative or an (unlicensed, unbonded) individual. Selecting a “trusted” party to execute your powers of attorney is an equally daunting task. The usual option may be one or more children, but this is often a bad idea as they may defer too much to a mentally impaired parent or when multiple children are designated, fail to agree on what should be done. Its also a bad idea to nominate someone your own age as they may be unable or unwilling to serve when the time comes. We want to believe that we will be able to make responsible decisions as we age, but the reality for most people suggests otherwise. These are not easy plans to put in place, but if we delay too long, we may simply be creating a mess that someone else will have to clean up.
Thanks for the response.
DrLefty, thanks for the comments and thoughtful questions. I’m not aware of a specific service other than automating the bills. With my MIL and wife’s aunt we became the service. We were lucky that both Aunt Pat and MIL were willing to provide my wife financial POA and turn over their finances. We made sure we communicated regularly with my wife’s 4 siblings so everything we did was transparent. It was a fair amount of work upfront, but we streamlined it eventually and it was well worth the undertaking.
If your FIL is unwilling, I’m not sure what to suggest. In our case I spoke with my wife’s oldest brother and convinced him we needed to do something. He and I sat with my MIL and expressed our concerns and she was open to the changes. It might have been the fact that her oldest son agreed that sold here (might be an Italian thing!). If your husband has any siblings it might help to approach your FIL as a united front. If possible you could suggest a transition period where your husband works with his father and they do the finances together. It might give his father the confidence to hand it over. That is what I did with my MIL on her income tax – she had a paid preparer do them, then i did them independently. When she saw the results were the same she ceded the job to me.
Good luck
Thanks very much for the ideas.
Very pertinent and timely article as I near my 68th birthday. Speaking from experience with managing my Mother’s finances and reading related to same the scariest factor is the loss of judgement and ability to recognize our own decline. Further concern for a spouse that may survive the primary finance manager without the same skill set is of importance in planning for what may happen as well. Richard, Always look forward to you postings for their clarity.
I just want to add that a HECM (aka Reverse Mortgage) is no longer just for the “late night tv commercial” crowd or those with “limited income”. You might be equity rich in your home which can become a very efficient way to access cash. Why sell assets or take out a HELOC to fix that roof when the home HECM equity can do it for you? I highly recommend Dr. Wade Pfau’s book Reverse Mortgages, 2nd Edition. 140 pages. Easy read, even for a retired aviator.
Arthur Brooks has a book Strength to Strength that deals with the loss of fluid intelligence. Highly recommend.
Richardd I would think a service that double-checks that someone still is mentally competent would be of value. While indexing takes care of active management there needs to be some human intervention mnitoring cognitive decline.
A test for cognitive decline is supposed to be part of the Medicare Annual Wellness exam. My husband says his doctor has not tested him for cognitive decline in the three years he has been on Medicare. I won’t have my wellness exam until April, will see then.
My wife and I both have United Healthcare Medicare Advantage coverage. We both get cognition tests conducted by the UHC annual visiting nurse program. Our primary care docs are more sly with some of their questions which I assume are cognition checks. I think the people at greater risk of slipping into dementia live alone, of course, or maybe live with people who ignore it or just accept it.
James, that is an interesting idea. I don’t know of any such service. It seems to be up to family. I know a financial planner who said they need permission from a client to alert family members if she thinks there is an issue. As hard as it may be, the onus is on us to address this concern proactively.
thank you – it may be too late for me 😉 but I need to read this..
my job requires that fluid intelligence every day and I do notice my capacities declining which is rather terrifying..
I’ll echo Edmund with a thank you for posting this. And coincidentally, I’ve got What to Do When I Get Stupid on my reading list. I guess I’d better read it before I get stupid!
Rick, thank you for this article. It’s an important topic. Every work day brings me into contact with men and women who show varying degrees of cognitive decline. I’ve been able to observe many of them over a period of several years, to see them move from vibrant independence to the inability to make wise decisions. This is a part of our future we should all plan for.
I agree. And it’s even worst when cognitive decline happens suddenly and unexpectedly, such as from an accident or medical event (eg. stroke). Then it’s too late for any planning and preparation.