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mickeyd 07-28-2012 10:42 AM

‘What Do I Do When I Get Stupid?’
 
My Mom had cognitive impairment prior to her death 10 years ago. Because of this fact, I am always tuned in to these kind of articles about cognitive impairment of investors. I have always felt very capable of making our familly financial/investment decisions and believe that I have achieved a good bit of success in doing so. When will my ability begin to falter? Will I recognize it? Will DW recognize it?

Very thought-provoking article.

Quote:

Scientists no longer view cognitive impairment in old age as simply a misfortune that strikes some who suffer from a random event such as Alzheimer’s or a stroke. There is increasing evidence that cognitive decline in old age is natural and inevitable. In fact, the rate of decline in old age does not appear to be slowed by education or intelligence, and is unaffected by solving crossword puzzles or reading Russian novels. Our brains, like the rest of our body, lose their ability to respond quickly and precisely over time.
In a series of academic studies on cognitive aging, Timothy Salthouse, director of the University of Virginia Cognitive Aging Laboratory, tests mental functioning by asking respondents to perform tasks such as naming a synonym to a random word, detecting patterns or recalling a list of words. Coming up with a synonym is an example of a task that requires crystallized intelligence, or the ability to process a stimulus (the word) and relate it to an item in memory (the synonym). Tasks requiring processing and some knowledge or experience tend to peak in the late 50s. The other tasks require speed, reasoning and memory. These skills test fluid intelligence, which tends to peak in the 20s. Einstein’s so-called magic year occurred when he was 26 years old.
Quote:

http://media.advisorone.com/advisoro...alLiteracy.jpg


Like the synonym task, financial decision-making requires both the ability to respond to a stimulus and to place it into context through knowledge. Recent academic studies find that respondents make their best financial decisions when they are in their mid 50s. Sumit Agarwal, a senior financial economist at the Federal Reserve, and his co-authors found that effective financial behavior, such as limiting credit fees and interest rates paid on home equity loans, peaked in the late 40s and early 50s. Studies of investments confirm this financial performance peak in late middle age. George Korniotis and Alok Kumar, professors at the University of Miami, find that risk-adjusted investment returns decline with advanced age. Investors over 70 underperform by about 2% annually compared to younger investors.

A recent study using data from the Texas Tech Financial Literacy Assessment project shows that the decline in our ability to make basic financial decisions mirrors the results on investment and credit performance. The study found that the ability to understand financial concepts and apply them appropriately peaks in the early 50s and declines by about 2% per year after age 60. The rate of decline is no different at older ages, and a score at age 90 is about half what it was at age 65. Like other research on cognitive aging, this study found no increase in the dispersion of scores later in life, indicating a gradual decline among all older respondents rather than a few seriously impaired subjects dragging down the average.



Investing and the Aging Brain:

zinger1457 07-28-2012 01:06 PM

When it comes to investing I think most people start reducing their risk (decision making) as they enter retirement age. One of the triggers for me to ER was knowing that I would have guaranteed income to get me through my retirement. I still have some 'play' money that I invest with but if the investments turns out bad it won't impact my retirement plans.

Animorph 07-28-2012 01:13 PM

So maybe that 1% fee pays for itself if you're over 70...

Chuckanut 07-28-2012 01:33 PM

Another good argument for the simple approach to investing via an AA and rebalancing plan.

Midpack 07-28-2012 01:36 PM

Quote:

Originally Posted by Animorph (Post 1216995)
So maybe that 1% fee pays for itself if you're over 70...

I get your drift, but I'd hope I'd put my money in a Vanguard Managed Payout Fund at 0.40-0.46% instead, and/or maybe some in a SPIA to provide floor income for life. But the OP's point about recognizing I've become stupid in time is a good one, something I'll have to face some day...

unclemick 07-28-2012 02:57 PM

Getting ready for age 70 1/2 have retirement money in Target Retirement setup on auto deduct to checking. Come 'the' age RMD kicks in my friends at the IRS (and Vanguard) will 'help me' do the right thing.

Hopefully I will have enough marbles left to be wild and frivolous as long as I can.

heh heh heh - and yes I have a small stash of a few good stocks in case football season gets boring - for the hormones. :coolsmiley: ;).

P.S. Hindsight over the decades has shown doing nothing was the best investment strategy for me. And to my misfortune I did experiment with a few others.

NW-Bound 07-28-2012 03:36 PM

I eventually will put it all in Wellesley and instruct them send me a check every month.

The title of this thread reminded me of a song lyrics in the 70s.

"What do I do when lightning strikes me?
What have I got to do?
It's sad
It's so sad
It's a sad, sad situation
And it's getting more and more absurd."

CyclingInvestor 07-28-2012 04:00 PM

The day I decide to buy any sort of annuity will signify when I need help making rational financial decisions.

ERD50 07-28-2012 04:44 PM

Quote:

Originally Posted by CyclingInvestor (Post 1217028)
The day I decide to buy any sort of annuity will signify when I need help making rational financial decisions.

I think that is over-stating it. I'll definitively look at annuities as I approach 70, it might make good sense for longevity insurance, and then you don't have so many years to worry about the solvency of the provider.

I won't be surprised if I consider them too 'expensive' at that time, but I will look. I don't think it is irrational at all.

-ERD50

Midpack 07-28-2012 04:45 PM

Quote:

Originally Posted by CyclingInvestor (Post 1217028)
The day I decide to buy any sort of annuity will signify when I need help making rational financial decisions.

Assuming you can't predict your life span, if your portfolio drops to a $ amount equal to or below the cost of a SPIA that would provide the floor income amount you need after whatever other income streams you have (Soc Sec, other) - what would you do then?

ERhoosier 07-28-2012 07:33 PM

Let's not get so blue. No one can predict what will happen to financial decision making of a specific person as they age. I seem to recall a certain well-known fellow from Nebraska who's had a fair bit of success in this area into his 9th decade.

Texas Proud 07-28-2012 11:02 PM

Quote:

Originally Posted by Midpack (Post 1217003)
I get your drift, but I'd hope I'd put my money in a Vanguard Managed Payout Fund at 0.40-0.46% instead, and/or maybe some in a SPIA to provide floor income for life. But the OP's point about recognizing I've become stupid in time is a good one, something I'll have to face some day...


My wife let's me know I have gotten there all the time.... :rofl:

Funny thing is I took a IQ test on my Tab and scored a 165.... to bad she is out of town and I could not show it to her....

Texas Proud 07-28-2012 11:06 PM

Quote:

Originally Posted by Midpack (Post 1217042)
Assuming you can't predict your life span, if your portfolio drops to a $ amount equal to or below the cost of a SPIA that would provide the floor income amount you need after whatever other income streams you have (Soc Sec, other) - what would you do then?


This is just me thinking.... but I have read a number of people who say they would buy an annuity if their portfolio dropped so much etc. etc. etc...

But I think that if someone did not buy one when they had a bigger portfolio, they would not buy one if they only had half... IOW, people would think 'it will come back'... and if they bought the annuity, you have have fixed your portfolio where it can never come back... kind of in line with the other thread about annuities... why people do not buy them now...

Amethyst 07-29-2012 05:53 AM

Uh-oh. A check?? You do mean electronic transfer, right? Living in the past...bad sign....:laugh:

Quote:

Originally Posted by NW-Bound (Post 1217025)
I eventually will put it all in Wellesley and instruct them send me a check every month.
"


brewer12345 07-29-2012 07:41 AM

Quote:

Originally Posted by CyclingInvestor (Post 1217028)
The day I decide to buy any sort of annuity will signify when I need help making rational financial decisions.

Yep, standard drill: put underpants on head, start drooling and buy a VA or EIA

NW-Bound 07-29-2012 09:14 AM

Uh oh is right!

See, senility starts to set in already.

Quote:

Originally Posted by Amethyst (Post 1217119)
Uh-oh. A check?? You do mean electronic transfer, right? Living in the past...bad sign....:laugh:


CyclingInvestor 07-29-2012 04:53 PM

Quote:

Originally Posted by Midpack (Post 1217042)
Assuming you can't predict your life span, if your portfolio drops to a $ amount equal to or below the cost of a SPIA that would provide the floor income amount you need after whatever other income streams you have (Soc Sec, other) - what would you do then?

The market value of my portfolio is pretty much irrelevant - I am interested in the health and growth of the dividends (which I live on) and the underlying earnings. These dividends have grown substantially faster than inflation (as stock dividends generally do) since retiring in 2006 and now include a significant cushion over what I need.

The cost of a SPIA is even more irrelevant to me, since I would never get one. While I invest in companies that offer annuities, I refuse to be on the other side of the equation.

MichaelB 07-29-2012 05:04 PM

When someone's cognitive function is declining why would anyone expect them 1) be aware that this is happening, and 2) know to make the choice of annuities, or Wellesley, or whatever the plan is. As I see it the only effective plan is the one that is implemented before the onset of cognitive decline. Once the decline begins rational behaviour no longer assured.

NW-Bound 07-29-2012 05:37 PM

That's right!

How would I remember to get in touch with this Walsingham outfit or whatever they call themselves?

But hey, there was this nice man I just met who told me of a safe place to put me money, guaranteed, safe, high return and all that. It's called CIA or something as such. He paid for my lunch too. Real nice folks they have there.

Oh, and the song that I mentioned earlier, I found it too. Listening to it almost made me cry.

Elton John - Sorry Seems To Be The Hardest Word - YouTube

redduck 07-29-2012 06:51 PM

Quote:

Originally Posted by ERhoosier (Post 1217074)
Let's not get so blue. No one can predict what will happen to financial decision making of a specific person as they age. I seem to recall a certain well-known fellow from Nebraska who's had a fair bit of success in this area into his 9th decade.

Yeah, but for every old Oracle coming out of Nebraska, there are 7,000* redducks coming out of who knows where.

*7000 is just a guess and therefore is not be be used in the wager: "How many redducks does it take to equal one old Oracle?"


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