Baby Boomers' Biggest Financial Risk: Cognitive Decline

[question everything]

For baby boomers who manage their own nest eggs, a risk is looming that has nothing to do with stock prices or interest rates. The risk is cognitive decline, which can rob them of their judgment, often without much warning. One big mistake—or a series of smaller ones—can go unnoticed by loved ones, and potentially ravage a lifetime of hard-earned savings. To mitigate these risks, there are things baby boomers and others can do now to prepare for any problems. In addition, big do-it-yourself investing and trading venues like Vanguard Group, Fidelity Investments and Charles Schwab Corp. are strengthening some of the ways they detect possible signs of decline. Among other things, all three firms check for clients’ difficulty navigating security protocols or need for frequent password resets. In such cases, a designated family member might be informed.

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Do-it-yourself boomers may be more vulnerable in some ways because they’re calling the shots solo, without help from wealth advisers. So if they go off the rails, no one else may know. “That’s the danger with do-it-yourself investors—they may be overconfident,” says Michael Finke, a professor of wealth management at the American College of Financial Services.

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For those investors, the risk might be veering away from some “set-it-and-forget-it” stock-and-bond allocation into, say, risky margin debt. Or it may be that they have a stack of unpaid bills that they lose track of and somebody has to intervene to sort things out. Or it may be just that their finances are a chaotic mess. Meredith Stoddard, Fidelity’s vice president of life events planning, says she knew of one investor who died holding “56 accounts at different firms.”

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Unfortunately, there’s no one-size-fits-all plan to deal with cognitive decline. People’s family situations and estate size and complexity vary. Some people may distrust their own children, complicating a power-of-attorney designation. Since February 2018, brokerage firms have been required to ask customers to designate a “trusted contact” who can be notified of possible problems. But a survey released last October indicated that less than 25% of firms’ clients have provided a name. Another rule adopted then gives firms greater power to step in and temporarily halt disbursements when fraud is suspected.

Baby boomers themselves also can take steps to prepare. One key element of a plan is identifying a person or service provider who can help manage one’s financial affairs, preferably under the kind of legal authority embodied in a power-of-attorney or trust. Another is collecting for that person—either in a binder or an internet vault—a list of goals and all the relevant financial account numbers and passwords, as well as regular monthly bills and important records.

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Allan Roth, a financial planner who is treasurer of the John C. Bogle Center for Financial Literacy, recommends that boomers try to simplify their finances before possible decline sets in. They can tell their advocates to shift assets into a low-cost robo-advisory service, or a single fund with a preset mix of stocks and bonds, if tax consequences allow. Mr. Bogle himself recommended shifting from 60% stocks to 50% later in retirement. Or they can suggest the advocate choose a financial planner or registered investment adviser for money-management help.

More..

https://www.wsj.com/articles/baby-boomers-biggest-financial-risk-cognitive-decline-11622942343 (subscription)

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Yes, reading this scared me..

[TheRealNorth]

1. cognitive decline and an internet connection...

are not a good mix.

[PoindexterOglethorpe]

2. I have the good fortune to have an excellent financial planner.

He's been with me for about 20 years. Before him, I depended on the mercies of a major financial corporation. This guy was originally with that corporation, and then was lured away to a small financial firm. Which meant he was able to service me individually in a way he couldn't when with the major financial corporation.

This man has done very well for me. He's made good, appropriate investments, including two annuities, which are a significant part of my current income. Also a policy that will pay generously if I need assisted living or a nursing home. And if I never need any of those, a good payout after I'm gone. He also got me into a life insurance policy that will provide some nice security to the two beneficiaries.

I am still quite capable of managing things, but I know that if I live long enough, that will not remain the case. Which is why I have various things in place. Not just what I mentioned above with the financial planner, but a will and a trust. Really, really, all of you who read this need a will. You might possibly need a trust also, depending on your actual assets. Discuss it with the person helping write your will. He or she will know and can tell you if you need trust work.

Something else to consider. If you die intestate, meaning without a will, your state's laws determine where your assets go. Which may or may not coincide with what you'd like to happen. But here's something else. My son died in 2017. He was 30 years old, and he did have a will, mainly because as soon as he'd turned 18 I took him off to our attorney to write a will. He had certain financial assets, thanks to generous grandparents, which I know isn't typical. Anyway, when he died, he had a will in place. It was very simple and left everything to his brother. It still took nearly a year to complete probate. Oh, my.

My point is that settling an estate, with or without a will (and without is truly stupid since writing a simple will isn't that hard or expensive) takes a lot longer than you might think.

And DON'T take the attitude that "I won't be here, why should I care?" That's beyond selfish. You need to have the experience of settling someone's estate. After that, you would never think that way.

Kind of like clearing out someone's house after they've died. I have a friend whose wife died about two months ago, and I and a couple of other friends have been helping him clear out her stuff. She had a sewing room with a TON of cloth. And notions. Another friend cleared out a walk-in closet. Yesterday a friend and I cleared out her part of the bathroom. Why on God's Earth would someone save dozens and dozens of plastic caps utterly escapes me. But that was part of what we tossed. Oh, dear lord that woman saved everything. My advice to everyone who might read this is to get rid of crap. Really. Most of what you are saving has zero value, so get rid of it.

[A HERETIC I AM]

3. Excellent points

It becomes even more complicated when the decedent is found to have accounts (old 401(k)’s, for instance) that they haven’t paid any attention to in a long time.

People can tend to accrue accounts over the years, from savings to IRA’s and whatnot, and if the beneficiaries are not kept up to date, or the accounts consolidated, it can be a nightmare for the executor.

The lesson? Update beneficiaries on a regular basis when appropriate, because divorces happen, relationships sour, etc and someone you named 20 or more years ago could be someone you now don’t want to get a dime.

[PoindexterOglethorpe]

4. Yes. Updating beneficiaries is crucial.

I get furious at people who blow off making a will, saying, "Why should I care? I'll be gone anyway." They should have to handle the affairs of someone who dies intestate just to see why they should care.

[question everything]

6. First, my deepest condolences for the loss of your son. This must have been hard on the family

And while wills are advisable if there are assets, a power of attorney also should be signed by adult children. In case a child is in an accident and is rushed to a hospital, without a power of attorney parents will not necessarily be allowed access to the child and to make decisions.


As for your other comments about junk. Some years back there was a book by someone from Scandinavia - Sweden or Denmark
making a similar points that you raised. Don't burden you heirs with clearing your junk. Some heirlooms do not impress the younger generations.

We have been going through our junk. Spouse likes to keep stuff - "you never know." And in the past couple of years I refused to listen to this comment. No, we have not used it, will not use it donate or throw away.

Funny, in the last year I was going through all of our VHS tapes. Yes, there is still a tape player but these tapes, from more than 30 years ago either have classic movies that are now available on better formats, or TV programs that I have already watched or am not going to.

Also with many papers, financial, statements, etc. Tearing simple bills, shredding financial ones.

Still a lot go go.

[bucolic_frolic]

5. It's not just financial risk, it's estate risk

I've had these discussions with folks older than myself, and read a little here or there.

Your heirs need your passwords. Your accounts. The titles to your cars. Any deed you may have. Contracts. Tax records. Because in a paperless age, these things can be unknowable in a non-digital form. Don't leave your phone passcode? Will anyone be able to cancel monthly service? Replacing vital documents is slow and expensive.

There are professional managers of incapacitated people, and there are standardized fee organizations which may or may not apply, but even there the fees are steep. And usually to make it worthwhile for you and for them, a large bundle is needed - like $250k and up as a minimum. So little people are left with standardized managed accounts at financial institutions, brokers, banks, mutual fund companies.

Beware too: everyone has a fee. Expense ratios add up and compound over time just like your after tax returns. So 1% on your first $500 at age 20 is still 1% on your bundle at age 40 and 55 and 75. And 1% on $200k is $2,000 a year! No wonder mutual fund companies fight like cats and dogs to bag new customers! Fees can total 25% of accumulated return over your lifetime!