‘What Do I Do When I Get Stupid?’

[mickeyd]

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.

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.

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]

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]

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

 

[Chuckanut]

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

 

[Midpack]

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]

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. .

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]

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]

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

 

[ERD50]

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]

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]

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]

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....

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]

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]

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

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

 

[brewer12345]

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]

Uh oh is right!

See, senility starts to set in already.

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

 

[CyclingInvestor]

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]

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]

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]

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?"

 

[imoldernu]

Wow.. what a great thought...
"What do I do when I get stupid"

Am there! ret. '89. age 76.

The forum is my last stop before going on the AZ support websites. no kiddin'. A place to go to share the day to day loss of what was a pretty fair functional intellect.

The good things-
- Emphasis on rote. Conscious stabilization of decision type functions. For better or worse, finished all the legal things... Will, Living will, power if attorney, trust items, and changing to low risk investments.
- Teamwork with my bride for everything from social calendar, to driving.
- Prepare my kids and my friends for the change. Hate the whispering about "losing it". Friends understand.
-Work hard to keep what is still there... news, current events, biking, canoeing, and maintaining my camp in the woods.
- A concentrated effort over the past three years, to avoid entangling alliances... (contacts with old, distant friends)
-Courage to accept what I cannot change..

The bad things-
-Too many "things"... Camp on lake, Florida senior community, Illinois senior community ... three older cars,
-Still too much paper... address changes screw up electronic billing, TV, internet, utilities, insurance, credit and debit cards, bank accounts etc.
-Everything takes more time. Learning and staying abreast of changes in Medicare, Medicare D, Doctors appointments and the inevitable problems that occur when USPS forwarding is too slow.
- Time wasted in looking for "things"... Ending up in the garage, or the den, knowing that I came in for "something" but forgot "what".
- Coming to grips with not just memory, but physical things... aches, pains, neuropathy, and (just this year)... noticing a loss of physical strength.


So much more, but the forum is for fun and enjoyment... so will leave it there. Fascinating trip into another part of life.

 

[kyounge1956]

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.

I don't know about specifically financial literacy, but in my limited experience--a choir mate who was developing some type of age-related dementia--she knew perfectly well what was happening. But even with actual dementia, one doesn't become totally incompetent overnight. The graph shows a steady but rather gradual decline in financial literacy, not a sudden drop off the top of a cliff. Up until the mid-70's, one is still semi-literate, and I would think still able to carry out plans one had made earlier in more competent days.

To me it all seems like one more reason to develop a personal Investment Policy Statement (and no, I haven't done mine yet ) before age 60 or so when financial competence is still high, so all you have to do when older and not so savvy is follow the path you've already marked out for yourself. Maybe in view of this article, that path should include having everything on autopilot by age 80.

 

[Nords]

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.

My Dad was aware of "slipping memory" but didn't believe that it could affect his independence until well after it was too late.

He was living very cheaply, spending less than half of his pension & Social Security, so finances weren't an issue. He knew he had trouble balancing his checkbook so he kept $25K in his checking account in case he forgot to carry a digit.

He kept buying more investments with his excess cash and he let his mutual funds reinvest, so by the time I took the reins his AA was 85% stocks and 10% bonds.

But the insurance agent managed to talk him into doing a 1035 exchange on some whole-life policies that had been giving him trouble. His files had a rejection for some other kind of insurance so he might have been trying to buy more life insurance. And he really didn't have the cognitive ability to do more than say "Yeah, that sounds like a good idea" or "No, I don't think I want to do that". Unfortunately you can't predict which response is going to come first... and it can change.

Today I still don't think he realizes the extent of his cognitive decline, but he says that his chores were getting too hard and taking too long. He's happy to let the care facility handle the cooking & laundry, but he still thinks that he's doing OK.

I'm turning all the financial management over to my spouse when I'm 60. And when our daughter turns 60, our spouse is going to put her name on a joint checking account to make it easier to start the turnover.

 

[MichaelB]

My experience with someone suffering from declining cognitive abilities is similar to that which Nords has generously (and I'm sure painfully) shared. There is awareness of failing short term memory and also that "some things are now harder to figure out" but no real understanding that the ability to reason and deal with complex matters is also going away.

In this situation an investment policy statement sounds like a good idea, because it creates a written plan that can be followed. My fear, however, is that the plan gets lost, or set aside and forgotten, or discarded as unnecessary. With the change in brain function long term memories and habits are strong as ever, so people continue (well) doing the same things they have been doing for decades. So, the carefully thought out plan may never see the light of day.

Put the daughter on the accounts is a great option. At the same time give her an investment policy statement or plan is even better. I would add a third item: a letter to myself that they can have custody of and hand back to me when I am suffering this terrible condition that affirms to me it is real and I need to step aside and let them take over the finances.

 

[travelover]

..............I'm turning all the financial management over to my spouse when I'm 60.......... .

Gulp! I just turned 60.