It’s a fact of life. As you age, your physiological systems slow down. You probably notice the physical indications of this every day. You do not go up and down the stairs as easily as you used to. It is more difficult to bend over to pick up things you dropped on the floor.
Although most seniors recognize these physical manifestations of aging, what about the mental manifestations of aging? Can you handle your financial matters as well as you could when you were in your 40’s or 50’s? When it comes to financial matters and growing older, there are two basic truths of life we all have to face. These financial truths of life were summarized in a recent AARP magazine article by Allan Roth.
FINANCIAL TRUTH OF LIFE NUMBER 1: After age 60, there is a decline in our ability to handle our money and our financial affairs.
FINANCIAL TRUTH OF LIFE NUMBER 2: There is a stubborn denial of Financial Truth of Life Number 1.
Just like with your physical abilities, your mental abilities decline with age. This has been the subject of a number of studies. In particular, financial abilities have been studied by the husband and wife team of Michael Finke and Sandra Huston of Texas Tech University, along with John Howe of the University of Missouri-Columbia.
They developed a short 16 question financial quiz to test your money smarts. If you want to see how you well you stack up against others in your age group, you can take the interactive version of this financial literacy test on the AARP website. This multiple choice quiz can be found at http://www.aarp.org/money/budgeting-saving/info-01-2014/test-your-money-smarts.html or you can just Google “AARP Test Your Money Smarts”.
I took the test and scored 100%, but I am still in my 50’s and I am in the business. I did not find the age scores on the AARP website, but I found them in the study papers. If you take the test, here are the average scores for the age groups of the study:
Age 60-69 Average Score: 59%
Age 70-79 Average Score: 45%
Age 80 or above Average Score: 31%
What the study found is that after age 60, your financial ability declines about 3% each year. So just like going up and down those stairs, your financial ability decreases with age. No big surprise there.
Confidence in your financial abilities, however, does not decrease with age. If you are a senior, you likely believe you can handle your finances as well as you could in your 40’s or 50’s. The study revealed that a senior’s confidence in financial abilities stays the same or slightly increases with age. So starting at about age 60, there is a growing gap between what you can do with regard to your financial matters and what you think you can do.
Because of this gap, seniors are particularly vulnerable to financial mistakes and exploitation. Swindlers and con-artists often target seniors for this very reason. Oftentimes, after a senior has been scammed or makes a financial blunder, he or she doesn’t tell the family because he or she is too embarrassed. So what can you do to protect yourself or a loved one?
Ask for Help. Don’t be embarrassed. Don’t be stubborn. Wouldn’t it be nice to have a personal assistant? Donald Trump has one. If one of the kids wants to be your personal assistant to help out with bill paying and balancing the checkbook, so long as he or she is trustworthy and has money management skills, why not go for it? If you have a personal assistant, there is less likelihood you will be scammed.
If you are a child and want to help out Mom or Dad, don’t just tell to Mom or Dad that you’re taking over because they can’t do it anymore. This often just buttresses Financial Truth of Life Number 2, the denial, and can damage family relationships. A better way to approach is to offer to be a personal assistant to help out with those matters with which Mom or Dad appear to need assistance. Maybe start with organizing bills or preparing checks for Mom or Dad’s signature.Discuss such a situation with your loved ones before you need help. Have meaningful conversations with Mom or Dad. That usually is more productive than a confrontation or intervention.
Update Your Estate Plan. Review your estate plan on a regular basis, at least annually. At a minimum, you should have a will, a financial power of attorney and a healthcare power of attorney. If you are missing any of these three basic documents in your estate plan, then your estate plan needs updating. In addition to these three basic documents, many people would also benefit from a trust.
Do you have disability provisions in your powers of attorney and trust to allow non-probate transfer of control of your affairs to trusted successors in the event of your mental disability? Have you discussed this transfer of control to those successors?
Is your estate plan up to date for changes in your personal and financial situations, changes in the law, both tax and non-tax, and changes in your estate planning attorney’s experience? Do you have the right instructions in your estate planning documents? If your estate plan was drafted by an attorney who does estate planning as opposed to an estate planning attorney, your plan likely needs updating. A qualified estate planning attorney should have a working knowledge of six areas of the law: estate planning, elder law, probate, taxation, real estate and business.
Is your trust fully funded? Fully-funding your trust is critical in making your trust work and having the results that you intend, including avoiding probate and distributing assets in accordance with your wishes. Funding includes the proper titling of assets in the name of your trust or individual names and/or proper naming of your trust and/or individuals as beneficiaries and additional insureds.
Simplify Your Financial Life. Keeping track of bank accounts, mutual funds, retirement plans and other investments can be a real chore. But it may not have seemed as difficult in years past. Keeping things organized so you can find things again when you need them was so much easier before and took a lot less time.
Now may be the time to simplify your financial life. How many checking or saving accounts do you really need? It may make sense to just have a few accounts at one bank or credit union. Is there any reason to still hold on to that $500 infant life insurance policy your parents bought for you when you were little? It might be less hassle to cash it in.
Consolidating your stocks, bonds, mutual funds and investment accounts with one trusted adviser will not only be easier for you, it will be easier for your successors in the event of your mental disability or death. Managing your rentals and other investment properties is becoming a real pain. Maybe it’s time to start selling them or having them professionally managed.
By taking the time now to do a little planning while you are alive and well, you can stay in control while you are alive and well, provide for you and your loved ones in the event of your mental disability and when you are gone, give what you have, to whom you want when you want the way you want.
By: Matthew Wallace, CPA, JD
Published edited February 23, 2014 in The Times Herald newspaper, Port Huron, Michigan as: How have your money smarts been?