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Cognitive decline
Old 12-02-2009, 03:49 AM   #1
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Cognitive decline

I saw this article on Yahoo:

peak-age-of-financial-reason: Personal Finance News from Yahoo! Finance

Over the last few years, the newspapers/internet have been full of stories about (often) elderly people who have lost substantial amounts of their wealth and their ability to support themselves in retirement by making bad investment decisions. Investors who were persuaded to invest significant amounts of money in Lehman products and, of course, some of the Madoff victims who gave too much of their money to one person.

At the same time, I can point to a number of older investors who are still extremely sharp.

How real is the risk of deteriorating financial judgement (not a mental illness) wrecking a well planned retirement?
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Old 12-02-2009, 06:02 AM   #2
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Quote:
Originally Posted by traineeinvestor View Post
How real is the risk of deteriorating financial judgement (not a mental illness) wrecking a well planned retirement?
A really good question! And part of the risk assessment process most people should consider... and, probably, in the end, as real as inflation...

From the article: "When it comes to handling your money, do you get smarter every year? Do you get smarter for a while and then level off? Or do you get smarter for a while, hit your peak, and then get less smart every year after that?"

I honestly hit my peak 10 years ago, and thank myself every day for that. I live in the shadow of my own self. I'm really grateful for being willing to split off from the herd back then. Thank you, young ultimo!

I'm 53 now and still not willing to listen to investor-speak... still willing to consider the alt view.... still open to bad news, because I've got nothing to lose in that and everything to gain... just want to know that everything makes sense...

But the tough decisions were made back in 2001, and I thank myself every day for being the wise-ass young thing I was back then!
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Old 12-02-2009, 06:19 AM   #3
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Humpfh!
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Old 12-02-2009, 06:54 AM   #4
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People are more vulnerable to confidence men (read: financial advisers, salesmen, etc.) as they get older , especially if they live alone. Often it is the man who has taken the responsibility of finances, leaving the widow to figure it out at a time in life when they are most vulnerable. Over the years, we have known of several widows in that situation. My mother-in-law is in no condition to handle any of her finances any more.

It helps if one learns financial skills early. Some never learn at all: Canadians lack financial education, literacy - Yahoo! Finance

This is one area where it is best to learn from other people's mistakes. This is how you have the chance to get smarter as you get older. Just read the newspaper for a few decades.

Back to the OP, I think it would be smart to anticipate that one may not be able to actively manage one's own finances in old age. It is a good reason to set up an automatic system for distribution of income eventually. To me, it is the strongest argument in favour of an annuity. Fortunately, one can set up an automatic system with Vanguard, for example, without resort to annuities. Eventually, we will be subject to the MRD rules for our IRAs by the IRS, too, which can be set up automatically many places.

As far as making ongoing investment choices as one ages, it is a good reason to become more conservative and move into vehicles that don't need to be watched or bought and sold at some point--less volatile income producing vehicles.

Just my opinions.
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Old 12-02-2009, 06:58 AM   #5
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Laibson and his co-authors measured people's financial performance by looking at how they fared with 10 financial choices: use of credit-card balance transfer offers, home equity loans and lines of credit, auto loans, credit-card interest rates, mortgages, small-business credit cards, credit-card late-payment fees, credit-card over-limit fees, and credit-card cash-advance fees.
Let's see, how would I fare?
  • use of credit-card balance transfer offers -- don't use them
  • home equity loans and lines of credit -- don't borrow, pay cash
  • auto loans -- don't borrow, pay cash
  • credit-card interest rates -- who cares, pay'em off every month
  • mortgages -- don't borrow, pay cash
  • small-business credit cards -- what are they?
  • credit-card late-payment fees -- who cares, pay'em off every month
  • credit-card over-limit fees -- don't borrow, pay cash
  • credit-card cash-advance fees -- get cash from bank or ATM
I doubt that this would win any prizes for 'financial awareness' but would it get me into financial trouble?

The title of the paper is "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation,". This suggests a bit more than use of credit. Surely the authors know there is more to "Financial Decisions" than use of credit?

I suspect the geezer crew (since according to their definition geezers start at 54) would do better with questions like:
  • difference between CD/GIC, bond and stocks
  • risks/rewards of CD/GIC, bond and stocks
  • costs of investment products
  • yada, yada

I think I might do a bit better there.
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Old 12-06-2009, 04:14 PM   #6
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Some elders know they aren't into caring about finances enough to study it.

Mom is 83 and has no interest in finances. She won't use a debit or ATM card, pays her credit card bill in full. Her money is in the bank in CDs or the credit union. My brother has her checkbook, she has been out of town for a few months coming home a day every month or two. I went to see her last week and my brother sent her mail accidently sending her check book. She looked at the checkbook and said he forgot to put in her pension and SS income but it looks like he paid her credit cards and put in the income from the house she sold on contract. It had about 7 entries since it was totalled. We gave the checkbook back to my brother, she will be home for Christmas so can worry about it then. She doesn't need to worry about money her income is way more than her expenses and she takes no risk. Her granddaughter pays her 1,250 a month for her old house and my brother charges her 1,500 for housing and food, since she isn't staying there now he lowered it. She gets two pensions, interest income, and a little SS so about 30K besides the mortgage income. Her expenses are only car insurance, and a little spending money. She doesn't like to shop because her hips hurt. She doesn't need to buy food or household items it is included in her rent, she doesn't pay utilities. Where she is staying now with her sister they won't let her pay for anything, they buy her favorite foods and even clothing. She is taking care of her sister and BIL 24/7 for free so they insist on paying for everything. She hadn't even been off the property for 5 weeks until we took her to lunch last week. She said she isn't buying Christmas gifts this year or writing checks so no wild spending.

Why does she need to be financially sharp? It is pretty simple spend less than your income and don't worry.
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Old 12-06-2009, 05:18 PM   #7
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Quote:
Originally Posted by Ed_The_Gypsy View Post
People are more vulnerable to confidence men (read: financial advisers, salesmen, etc.) as they get older , especially if they live alone. Often it is the man who has taken the responsibility of finances, leaving the widow to figure it out at a time in life when they are most vulnerable. Over the years, we have known of several widows in that situation. My mother-in-law is in no condition to handle any of her finances any more.

...strongest argument in favour of an annuity. Fortunately, one can set up an automatic system with Vanguard, for example, without resort to annuities. Eventually, we will be subject to the MRD rules for our IRAs by the IRS, too, which can be set up automatically many places.

As far as making ongoing investment choices as one ages, it is a good reason to become more conservative and move into vehicles that don't need to be watched or bought and sold at some point--less volatile income producing vehicles.

Just my opinions.
And very excellent opinions, indeed. You are right on target with your observations about widows and vulnerability. I was 46 when I was suddenly widowed, however I was the money person in the household and very much on top of things.
And I am a true cynic about people's motives, so I was unscathed. I will even admit to being the catalyst for some salespople's back ends running away, tails between the legs.
It was amazing how many creepy crawlies came out, trying to "help" me. The smell of life insurance money is way too tempting.
I cannot imagine what a more mature and inexperienced lady would do. My late MIL was a prime example of the expensive practice of continuing loyalty to 1 investment firm, even in the face of some pretty serious portfolio churning.
I am 51 right now, FIREd but still accumulating using survivor pension income to invest. I am planning to reduce the number of funds I own by age 60 latest. I now have everything under 1 roof at VG and will be looking at automatic income distribution plans for later on.
Conclusion: Make sure your spouse knows what to do if daisies start pushing. It is too important to gloss over with a handwave or stay in denial.
END of speech...
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Old 12-06-2009, 10:48 PM   #8
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At 75 I see it all the time in friends, family and myself. It happens to all of us eventually if we live long enough.

When I took early retirement 20 years ago, I was a moderately agressive investor of individual stocks. Over time as the fund industry developed and I became more aware of the folly of investing in individual stocks I gravitated from managed funds to mostly index funds to mostly balanced funds.

The last five years I have been deliberately simplfying things and trying to put things on autopilot as much as possible. I am even considering converting my wife's IRA to a SPIA when she reaches RMD age in 2 years.

One thing I fear the most is leaving her with a mess when I pass on or start needing a drool cup.

Cheers,

charlie
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Old 12-06-2009, 10:55 PM   #9
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