Aging & Financial Decision Making

It is widespread knowledge that people are living longer and the U.S.population is getting older.  According to the Administration on Aging by 2030 there will be over 72.1 million people age 65 and older in the U.S.  This is twice the number from 2000 and the group will represent 19% of the population as opposed to 12.4% in 2000.

Making sure that one’s assets are sufficient to last a lifetime is hard enough without adding further complications due to aging.  According to Gregory W. Kasten, M.D., CFP® in the Journal of Financial Planning June, 2011 article “The Impact of Aging on Retirement Income Decision Making” analytic cognitive function has been found to decline dramatically over an investor’s lifespan, starting at age 20.  It is worth noting that age-driven declines in analytic function are partially offset by age-related experience (i.e. wisdom).  Around age 50 appears to be the sweet-spot where practical experience can offset any decline in cognitive function.  Beyond age 50 performance tends to fall.

Does this mean that you should give financial power of attorney to someone the day you hit the half-century mark?  Absolutely not.  However, it is important to recognize that we must take precautions when we get older to avoid making decisions that can adversely affect our financial future.

Here are some things to consider:

Get family or trusted individuals involved

This is easier said than done.  Talking about money with family members is often taboo, but at a certain point you should consider have interested party involved with your finances. 

For some this is simply is letting their children know where to go or who to contact in case of death or incapacity.  Others may want to consider bringing someone with them before financial decisions are made or review the plan they currently have in place.  Another set of eyes can often bring an objective view to the table and often help protect you from mistakes being made.

Protect yourself from financial predators

Get registered on the Do Not Call registry (  Too many trusting seniors fall prey to telemarketing scams.  This is one way to mitigate some of those phone calls.

Be careful of the “free lunch”.  There are many good seminars out there, but be cautious of sales pitches that are disguised as educational opportunities. The routine often is to talk about a subject to feed into your fears (e.g. running out of money in retirement) and then end the presentation with the perfect financial product to solve your problems.  The telling signs here are if you are pressured to set up an appointment afterward or given some type of “limited time only” offer. 

Be proactive

Having a contingency plan put in place now helps prepare and protect you for a time when your decision making may be impaired in the future.  A good estate planning attorney can guide you through this process.

Tap into resources to help you “maintain your brain”.  The Alzheimer’s & Dementia Alliance of Wisconsin is one organization that can be very helpful in this area.

Follow simple rules

If something is too good to be true it probably is.  Financial products that promise the world with no risks are non-existent.  Everything has some level of risk.  Even a FDIC-insured bank certificate of deposit (CD) comes with liquidity risk (depending on the term) and especially now, inflation risk (dollars worth less in a real return context when taking inflation into consideration).

Any reputable financial planner/advisor will cover the pros and cons of all investment choices, if they don’t it is a huge red flag.


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