Close

Aging and Investing: The Risk of Cognitive Impairment

by David Laibson

Aging And Investing: The Risk Of Cognitive Impairment Splash image

David Laibson is a professor of economics at Harvard University, Cambridge. I spoke with him about how the risks of cognitive impairment and dementia impact investing decisions.

—Charles Rotblut, CFA

Charles Rotblut (CR): You have said that there are two key categories of cognitive function. Could you explain what they are?

David Laibson (DL): The two categories of intelligence are fluid intelligence, which in essence is our ability to solve a novel problem, and crystallized intelligence, which is our ability, through life course experience, to accumulate knowledge and ultimately solve familiar problems. Fluid intelligence would be the kind of intelligence used to solve a typical IQ question: Take a two-dimensional object, fold it along the lines, and tell us what three-dimensional object it becomes. Crystallized intelligence would represent things like the experience that would enable someone to understand what an expense ratio is because they’ve been reading prospectuses for 30 years.

CR: And how do those change with age?

DL: The good news is that as we progress through the life course, we gain more and more experience and wisdom. And except for dementia, which comes late in the life course, basically it’s a story of improvement: As you get older, you have more experience, you have a greater knowledge of the world, and that makes you a better investor. Again, except for dementia.

The bad news is that fluid intelligence, which is our ability to confront a new problem and figure it out—say, to look at a new financial product and understand whether it’s good for us or bad for us, a product that we’ve never seen before or an investment that we’ve never thought about before or a company we’ve never analyzed before—that ability is declining, and it’s declining from age 20.

So we have these two countervailing trends. As we gain more experience, we become better investors. But our ability to solve novel problems is declining. And that makes us worse investors.

Now, you might say: Well, which trend dominates? Mostly, we’re getting better as we age, until about the 50s. And then, after the 50s, on average, we’re getting worse. After the 50s, the decline in fluid intelligence becomes the dominant force and our ability to make sophisticated decisions, for most people, declines. This does not mean that we fall off the cliff at age 55, but rather that we’re peaking around 50–55, and then we’re gently declining thereafter (Figure 1). The decline tends to become steeper as we age, and by the time we’re in our 80s, for many of us, the ability to make good decisions is significantly compromised, particularly decisions that involve complicated new problems.

CR: So it’s really our ability to analyze that we lose—we have the knowledge, we just can’t apply it correctly—is that what’s occurring?

DL: That’s one way of thinking about it. What I would say is this: We have knowledge, which enables us to do well on familiar problems. For example, if I gave an investor a prospectus and I said, “Find the expense ratio,” and she or he had been doing that for 40 years, they could still do that at age 80 (unless they had dementia). So solving a familiar problem—in this example, finding the expense ratio—they can do.

But suppose I gave an older investor a novel problem, like a new financial product he’s never seen before. Let’s say it’s a complicated variable annuity with some kind of guaranteed income rack. He has never seen that product before (in this example). So the ability to read the fine print, figure that out, understand this thing that they’ve never analyzed before is basically compromised, not for everyone, but for many older adults. That’s the issue that we need to be wary of: The novel problem, even for a healthy older adult, is going to be a challenge.

Now, I want to emphasize that for everyone, dementia is an issue, and dementia hits every aspect of intelligence. It hits our memories, it hits our experiential intelligence, our crystallized intelligence, our fluid intelligence. To the extent that we’re now talking not about just normal aging but about dementia in particular, that’s a problem for every aspect of our decision-making, and there’s no sense in which somehow we’re safe from the challenges of dementia when it comes to a familiar problem. Familiar problem or unfamiliar problem: Dementia is a devastating blow to our ability to make good choices.

Gain exclusive access to all of AAII.com, PLUS our market-beating Model Stock Portfolio — currently trouncing the S&P 4-to-1!

TRY US FREE for 30 DAYS!

CR: What percentage of the population is experiencing dementia?

DL: Basically, the likelihood of dementia illness doubles every five years that we age. It starts out at tiny levels in the early 60s. But every five years that we age, the chance of having dementia doubles (Figure 2). By the time we get to our 80s, the likelihood of having dementia is about 20%.

But it’s a little worse than that, because dementia is a severe case of cognitive impairment. There’s another diagnosis, which is called “cognitive impairment not dementia” (CIND), which describes a set of symptoms that are characterized by cognitive decline that is significant, but not so significant that we’re into the realm of dementia. And about 30% of the population in their 80s has the symptoms of CIND (Figure 3). Now, those individuals are also in a very poor position, really an inappropriate position, to make important financial decisions. If you add up the two groups, 20% of those in their 80s with dementia and 30% of those in their 80s with cognitive impairment not dementia, then we’re talking about, in total, half the 80-year-old population that is not in a position to make important financial decisions.

This is not the tail of the dog; this is a huge fraction of the population. We all should recognize that we have to be ready for this. It doesn’t matter if our parents died in a healthy cognitive state; it doesn’t matter how great we feel at 67; the reality is that the probability of cognitive impairment is so great that we need to begin to prepare for this possibility while we’re still healthy in our 60s, if not earlier.

CR: What should an investor do to protect financially against cognitive impairment?

DL: There are five legal documents that the young, healthy investor should execute. And then there is a set of other behaviors that I would recommend that go beyond just filing the right legal documents in preparation for cognitive impairment.

Of the five documents, the first is the will. You want to write the will when you are still completely cognitively high-functioning. It’s not a good idea to wait until decline sets in; these are complicated, subtle issues.

The next important document is a durable or springing power of attorney, which in essence appoints someone to manage your financial affairs in the event of your incapacitation. You know, I’m 45 years old, and it could happen to me tomorrow: I could have a stroke and need someone to make those decisions for me. So it’s not just an issue for people in their 80s, it’s an issue across the entire life span.

The third important document for households with significant assets is a living revocable trust. A living revocable trust in essence protects your assets by putting them into a legal entity that prevents you from disbursing them inappropriately if you’re experiencing decline. It basically puts a trustee in position to protect your assets in the event of your incapacitation.

Those are the three financial documents. There are also two health documents that I would strongly recommend; again, all this needs to be done before cognitive decline sets in, ideally no later than the 60s. Frankly, I would recommend this as soon as you form a family in your 30s or 40s.

One health document is a living will, which in essence is a set of instructions to your family members and physician suggesting how you want health care to be implemented. If you’re in an intensive care unit, do you want every effort to be made to sustain your life, even if the quality of life is abysmal, or do you want palliative care? What kind of health care do you want? How long do you want to stay in an intensive care unit, sustained by machines, etc? That’s a living will, and it can be extremely detailed or extremely vague, basically outlining your philosophy of health care at the end of life.

You also want to appoint a health care proxy. The health care proxy is someone who is basically empowered to make these important medical decisions for you in the event of your incapacitation.

Those are the five documents that I would set up at any age once you’ve formed a family, or at any age if you have significant assets. I mean, if you’re 25 years old and you have $20 million, it would not be a crazy idea to create these documents.

That’s the legal side of preparation. Then there’s, let’s call it, the psychological side of preparation. And I think what you have to do is come to terms with the reality of this kind of data and recognize that you just can’t count on cognitive functioning to be at a high level over your entire life. And you need to begin to plan for that possibility. And there are a few ways to plan for it that are really important.

First, you want to discuss with your family members what should happen in the event of your incapacitation. Of course, not everyone is comfortable doing that, so this is not a global recommendation, but it’s one that I would make strongly to most people, those with well-functioning family ties.

Then you need to think about how to organize your assets so that you don’t end up getting ripped off by con artists or just salespeople with inappropriate products to sell—they may not be illegal products, they may just be inappropriate late in life.

I would urge investors who dabble in securities that are not traded on public exchanges to think about stopping. For example, when I buy and sell a stock on the New York Stock Exchange or NASDAQ, I’m buying a stock that’s set at a market price. I don’t get a bad deal relative to everyone else. I get the same deal that Goldman Sachs gets, basically, when I buy and sell that stock. But when I buy an investment or make an investment that’s not traded on an exchange, well, I’m at the whim of the salesperson, and they might give me a terrible deal, and I wouldn’t know whether it was terrible or not, because there’s no public exchange on which that investment is traded.

For example, imagine your accountant comes to you and says, “Hey, there’s this guy who’s offering shares in a real estate development in the next town; he wants you to plop down $100,000 and you can be a part-owner of this new mall and condo that he’s developing.” Well, there’s no public price for that. And it’s just basically the developer’s word that this is a good investment. So I would suggest that older adults are in a very poor position to evaluate the merits of this type of investment. And I think that even in our 60s, we should curtail the habit of considering investments like that and instead focus our energies on investments that are less likely to go awry.

What are those less-likely-to-go-awry investments? Well, mutual funds. Diversified mutual funds with low fees. That is a much safer place to invest once one is in the position of not being cognitively very high-functioning, because in essence you’re delegating the decision to the mutual fund company. And with a mutual fund company, if the fee is low, there’s not a lot that can go wrong in that relationship, particularly if it’s a passive portfolio. But even if it’s an active portfolio. I would urge older investors to switch from the mentality of “anything goes” to the philosophy that staying in a more regulated, safer space of securities is the right philosophy. And doing that early rather than late is the way to go, because we’re often not in a good position to know whether we are in fact experiencing cognitive decline.

CR: You also like annuities, correct?

DL: Well, that’s complicated. I like them in principle. They have a lot of very appealing properties. For example, the most appealing property is the longevity insurance. It’s amazing how much longevity risk we face: We might die at 60, we might die at 105. An annuity basically passes that risk to the insurance company: If I live a long time, they keep paying out to me; if I die young, well, they get to keep the money. I don’t face the risk, they do, and now I can rest assured that no matter how long I live, there will be a monthly check coming. That’s terrific, great, and it’s the reason economists love annuities.

However, the American public does not love annuities. And whenever the public says “no” and economic theory says “yes,” my gut is to question the economic theory. Maybe we economists have missed something that the American public, deep in their hearts, knows, and maybe that’s why they don’t want annuities, and maybe it’s legitimate that they resist annuities.

I don’t want to tell people that annuities are an absolutely right choice. I do want to say to investors: Consider longevity risk. Consider the fact that you might live a very long time, and if you are spending your money at a normal rate, there’s a risk that you’ll run out if you live to 105. And consider the fact that an annuity is a way of insuring against that bad possibility. But at the end of the day you may decide you still don’t want an annuity—maybe you don’t like the loss of control of your assets, maybe all that fine print in the annuity contract gives you heartburn, maybe you just can’t sleep at night if you can’t lay your hands on your money the next day. Maybe the thought of dying at 70 and losing your money is so terrible that it overwhelms the thought of living to 105 and being a big winner from the annuity. I can’t speculate confidently about why the American public doesn’t want annuities, but I would urge people to think about annuities as an intriguing alternative before they glibly reject that path.

CR: What about getting people to actually do things like take charge of those documents? Any suggestions on how to get somebody, if they’re not working with an adviser who’s pushing them to take some of these steps, to stop procrastinating and actually do some of the things that are important?

DL: Well, the easiest way to get that done is to get an estate lawyer. What I would say is this: Don’t think of this as signing five complicated documents and getting an estate lawyer and talking to your family members and making all these decisions. That’s a lot to think about. Break it into pieces. The first piece is very simple: If you don’t have an estate lawyer, you’ve got to find one. It’s as simple as that. How do you find one? You talk to people who are sophisticated and whom you trust, and you ask them for recommendations. Very, very simple. And then you vet estate lawyers and you ask them about their fees and you ask your friends about their experiences with these attorneys. And hopefully, that process ends pretty quickly with an estate lawyer relationship. That’s one piece.

Once you have that attorney, things can move pretty quickly, because all you’ve got to do is tell the person, “Look, I have trouble, I’m a procrastinator like everyone else on the planet. Let’s set up an appointment to make sure that this process proceeds in a timely manner.” And once you have that appointment, well, there you go: You’re off to the races. It can be four months away; it doesn’t matter. The appointment will provide the discipline. And then you’ll go in, you’ll discuss everything with your attorney, they’ll draft documents, they’ll mail them to you. You should then set up another appointment—even before you’ve read the documents—that will be the signing appointment. You use appointments as deadlines to forestall procrastination.

CR: It seems like loss of control is the hardest thing—particularly for seniors, if they have deteriorating health or some other matters that are coming along. Any suggestions on how someone can deal with or accept the loss of control?

DL: The first thing I would emphasize is that a lot of these things may seem like a loss of control, but in fact, the real loss of control is very minimal. For example, with an annuity, yeah, it’s true that you can’t turn around tomorrow and buy a house in the Caribbean, because your money is locked into the annuity. But I’m not sure that you would want to turn around tomorrow and buy a house in the Caribbean; you need that money to pay your expenses. So yes: It’s true, you lose some optionality. But it’s not clear that you’re losing options that you would want to take anyway.

Moreover, even if you ended up passionately deciding that you must have that house in the Caribbean, your annuity payments can be used as mortgage payments. So you could take out a mortgage, buy that house in the Caribbean, and make your mortgage payments with your annuity. It’s not exactly clear that you’re even precluding anything. I would say that most of what you’re losing is psychological and not really options that should matter to you very much.

CR: Is there anything else that I didn’t ask that should be brought up regarding this topic?

DL: I think the one other thing that I would highlight is that we all—not all, but many of us—make two big mistakes that I want to urge people to avoid making. The first mistake is to think that, for some reason, dementia won’t happen to us. We’re special, we’re different, we’re going to somehow protect ourselves in a way that maybe is unclear in our minds, but will somehow be successful. I think we have to accept the reality that, whether the odds are 30% or 70%, there are significant odds, there is a significant chance, that substantial cognitive decline will affect our own lives, will affect our own cognitive function. That’s the first thing I want people to appreciate. It is a reality for all of us. Not a fate that we’re doomed to accept, but a probability that is substantial for all of us.

The second mistake that I think people make is that they falsely believe that somehow they’re going to magically notice significant cognitive decline setting in, and then at exactly the right moment do all these things, before the cognitive decline is too significant. They’ll somehow time it perfectly. At age 82, they’ll wake up one morning and say, “You know what? I’m losing a lot of cognitive function”; they’ll walk out that day, sign all these documents, and it will all be fine. That’s a grave mistake. We don’t have that ability to suddenly recognize it and do the right thing just before we lose the capacity to make these decisions well. I urge people not to think that cognitive decline only happens to other people, and also not to think that you’re going to be able to somehow time your response perfectly, responding to cognitive decline in real time in your 80s when you see it setting in.

David Laibson is a professor of economics at Harvard University.


Discussion

William from GA posted over 2 years ago:

This is an excellent artical. If nothing else it got to thinking that at 72, my time to make these decision is running out.

I have a Will and a living Will but i never geven any thought to the other document in the artical.

I am also a skeptic about annunities, maybe I reached the stage of decline to where i can't understand new investment products. They just do not appear to be my best option, or i have reached the stage of incomprehension.


Victor from CA posted over 2 years ago:

A very wise article. Fortunately I have done all of the above, but many of my friends that are now 80 plus have not. So get busy you youngsters . Now is the time. I turn 80 in 2012. this is a wake up call for all that have put planning off.


Barry from TX posted over 2 years ago:

I SEEN THAT DECLINE ON MY OWN DAD. I TOOK OVER HIS FINANCES. WE GENERATED THE ABOVE DOCUMENTS WHEN HE WAS 88. HE IS NOW 99 AND HE HAS COGNITIVE PROBLEMS. NOW THAT I READ YOUR ARTICLE I WILL GET THE DOCUMENTS DONE.
THANKS FOR THIS GOOD ARTICLE.


L from MD posted over 2 years ago:

Years ago, I had to take over for my aging parents and learned the importance of those documents. Now, I am 81 and signed all those documents about 10 years ago. It is a very good article, covers most of the important issues, but it doesn't cover the need to keep reviewing and possibly revising the documents as situations change and laws change -- even though you tried to cover as many contingencies as possible originally. My lawyer told me that some documents need to be resigned regularly to stay valid.

I need recommendations how to transfer what is my privately-managed portfolio to professional management without incurring an illogically large capital gains tax. More specifically, what is the logical way to consider life expectancy with regard to relatively large accumulated capital gains? References and thoughts would be appreciated.


Donald from MO posted over 2 years ago:

Be careful in the selection of the Trustee. If your spouse and aproximately the same age, he/she, may face the cognitive impairment risk.
If your children and they are less than functionally capable, be even more careful. If a bank/trust department be extremely careful to provide unassailable termination clauses. Your best bet might be to work hard at spending it!


Eric from VA posted over 2 years ago:

Spot on article! We need to see this thing coming!
I've been cleaning up a series of bad investment decisions by an older relative for whom I received POA about 3 years ago. He's 87. When 75, he bought into a real estate venture (small resort) that he and others (many aging professionals, btw) kept pouring good $ after bad. At about age 79 he was diagnosed with Alzheimers, which seemed in early stages. But in hindsight, his dementia had started and he was in investment-gambling mode. Long story short he's fairly well progressed and probably lost 0.5 mill in that venture. I also had to steer him away from a run at options trading (age 84) which he was sure was an iron-clad way to "get rich." He did NOT, could NOT understand how it works.But was very stubbornly sure of himself, there's the danger. Then when Haiti earthquake and the Tsunami struck, he wanted to donate "everything" to help. Wild ride we've been having.

Point is - best to accept where dementia is leading you - or loved one, earlier rather than later. I'm going to put something in place for myself "soon." I'm 67.

Thanks, good wake-up call article. Eric


Fred from KS posted over 2 years ago:

hOW DO i SET UP A HEALTH CARE PROXY?


Bryan from OH posted over 2 years ago:

How much payout per month you get for an annuity for a certain premium today, is much lower now due to extremely low interest rates. If you want to to start buying annuities, you may want to not put all your money into one today, until interest rates go up a couple years from now. See
Vanguard when shopping for one.


Ray from MI posted over 2 years ago:

Great, Great article. Best to be prepared, and to have documents reviewed at least every 5 years (if you are 70) then turn control over to others when you are 80. Just a thought, my wife is 13 years younger.


Donald from PA posted over 2 years ago:

I am 85 in Oct and need to concentrate on getting appropriate documents formed and signed. I do have a standard type of will and some older medical orders made about four years ago before a colon operation. The article is a reminder to get cracking on renewals. I manage my own portfolio and have learned much from living through several deep recessions starting with the 1929 and remembering men coming to our home asking for food. So far I have been holding my own in the current market; maybe I am still holding on well to cognition ~ but who knows if I really know what I'm doing. My neurologist said, that if I am looking for car keys and finally find them but then I do not know they are for ~~~~~~~ .


James from TX posted over 2 years ago:

The young may; and the old will die! The shifting sands of time will separate you from things; therefore, love people, use things--not the otherway around!


Bruce from MA posted over 2 years ago:

A thought provoking commentary. There was no comment about executor selection. If one wants to find a non-family executor in lieu of a family member, how does one do that and what are the problems and costs.


William from AZ posted over 2 years ago:

There are measurement data in this article that measure characteristics that I doubt are that measurable. To a fraction of a percent can you distinguish people with and without "CIND".

W Hutchinson


Jim C. from CA posted over 2 years ago:

I believe there is a reason people shy away from annuities (even sensible ones) and, for example, long term care insurance. Older successful investors are conditioned to not trust corporations or financial investment sales persons. We have learned that it is better to do one's own research, and make your own decisions. Most likely, we have also learned that transparency is good, and complicated investments are not to be trusted. This probably sounds like a typical AAII member!

Unfortunately, a fundamental point of the article is that we may be better off trusting others to make or assist in our key financial decisions (as we age). I am 73, and must say this was a very beneficial article. It certainly got me thinking!


Thomas from CA posted over 2 years ago:

Some of these documents may have different names in different states. The "living will" may be called an "Advance Health Care Directive".

One document that I feel is missing from the discussion is a Statement of Investment Policy in which you describe your current investment approach and how it should be modified in case of your death or incapacitation. All too often our spouses/executors are ignorant about our investing plans and goals because we haven't told them what they are. A written and up to date statement of investment policy can tell them what you want done and why. If you are struck down at an early age and your spouse is equally young, he/she may be capable of carrying on with your current policy. If your failure happens later in life, it can guide your guardian or executor in how to transition your investment activities from that of an active investor to that of a passive one. The policy should be updated annually to keep it current. It should be specific regarding what you're doing now and what you want done should something happen to you.


Elaine from OR posted over 2 years ago:

Well written and timely article - for all ages. I have done all these things - now, at age 75, I find myself with stage 4 cancer and a daughter (my only child), in total denial that I am ill. She is, of course, my heir. Interesting problem!?!?!? - which I must solve.


Edward from UT posted over 2 years ago:

This is a very informative article, it quantified what we know about our own aging and cognitive decline, but don't want to face. I am a CPA, and have made many investment mistakes over the years. I shy away from professional investment advisers due to the way they are paid, hence encouraging the focus on asset gathering rather than taking care of me financially. Compensation by salary would be worth considering for the industry to shift the adviser's emphasis toward servicing the client.


Jeff from NJ posted over 2 years ago:

We avoid thinking about mental decline almost as much as we avoid thinking about death. Planning for these events is as important as earlier in life efforts to plan education, careers and families (it's really the same thing, but the focus is on different life stages). Glad I started on all this excellent advice before retirement.

To Edward, Utah: the compensation mode you suggest for advisers already exists as fee-only firms. Sure, they have a significant upfront cost (salaries are like that in any profession), but they are cheaper in the long run. I paid out much less for much better fee-based advice than the previous commission person lost for me - a perfect illustration of that crystallized intelligence growth through the years.


GFD from IL posted over 2 years ago:

I am 83, a retired P.T. in excellent health, plays golf and tennis and managing our portfolio. Your comprehensive and important article is very informative. I now know about crystallized and fluid intelligence. I am very aware of MCI and concerned with our risks for it. We have all our documents in place. However, will our children have the interest, knowledge or time to handle our financial affairs? Difficulties with finding financial advisors and lawyers appropriate for our circumstance have delayed "handing over" the management of a conservative and diversified portfolio of bonds, ETFS, mutual funds and stocks. My husband feels we are doing OK. However, spending hours reading financial publications and keeping up with the macro and micro economic news, I find time consuming. The global markets and the U.S. market present with uncertainty and extreme volatility confounding the investment "pros" as well as the do it yourselfers like me. I am worried that when CIND or dementia sets in that we won't know we're there and perhaps that's the saving grace that life will go on even tho we are no longer in control.


Robert from IL posted over 2 years ago:

Good article for all to be prepared for an uncertain future. There are wide variances in all of us example: Warren Buffet, and young folks wasteing their lives on drugs.


Gerald from CA posted over 2 years ago:

I do not see why I need both a durable power of attorney and a revocable living trust since both give the agent or trustee the ability to manage the finances if needed.

Who makes the legal decision to take charge if I am unable to do so?

Excellent article.


Bruce from CA posted over 2 years ago:

Wait a minute, I’m 72 and I peaked 19 years ago? Well, perhaps in some ways but not intellectually! This is a well written article that introduced me to Crystallized and Fluid as adjectives of intelligence, thanks. I plan to research this subject further. Thanks again.


Fred from CA posted over 2 years ago:

Several readers asked the question of where do you find a trustee/executor. If you are approached to be a trustee/executor, take a serious look at your potential responsibilities. You may have to manage finances, prove to a court that all your decisions were perfect, protect a cognitively impaired person from themselves -- and the IRS will hold you personally responsible for taxes due. Bank trustees are not the answer. I recently invested in a company that is trying to provide services to answer these needs on a fee-only basis. The board discussions reveal that this is a very complicated business.


Mary Boylan from IL posted about 1 year ago:

I would like to see an article by or interview with David Laibson on what age he believes it's appropriate to purchase an annuity and why.
I have read articles by advisors who believe that annuities are very useful for purchase when a person reaches 80, precisely for the reason Mr. Laibson mentions: longevity risk. But prior to that age, it seems like you are subject to significant inflation risk that annuities do not take care of.
It would be a shame to have a multimillion dollar annuity whose payout diminished significantly over time because of a declining dollar value. You would get to that age of 105, and would have just barely enough money for the necessities of life, when you could have had significant comfort and even some minor luxuries if you had simply let your portfolio grow, and waited until your 80s to buy an annuity.


R Kelly from AZ posted about 1 year ago:

I am 86 and have run my own portfolio for about 50 years but your advice is well taken and right in line with the problems I am now working on. Will keep a small portion of my holdings under my management because its my fun and keeps me reading the AAII
Journal. ( now which key do I push to send this ???)


Lorraine Coccaro from CA posted about 1 year ago:

I have done all the things you suggest for those who will eventually get POA and inherit all, but I have not written an explanation of how and why I have invested in the portfolio that I have now. It seems a formidable task. How about an article that gives some guidelines in writing this? Perhaps questions that should be answered as you have done here. It would give us a place to start. I certainly need it.


Arthur Bernhardt from WI posted about 1 year ago:

I am 88. I have had and still have some life threatening health problems. When this began about 10 years ago I put our portfolio with Vanguard Asset Management Services because I did not think that my wife would have the moxie to take over if I died. However I lost my dear spouse in August and have begun to think that I or my very capable daughter could just as well do the conservative management of the portfolio which was my way before VAMS was involved and save quite a few thousands of dollars in management fees. Reading the article again has caused me to think maybe it would be better to change nothing now. The five documents mentioned have long been in place and a good accountant and attorney are advisers.


Thomas Grzymala, CFP from VA posted about 1 year ago:

I'm a 72-YO retired CFP, registered investment advisor and securities expert witness. I founded and served as the CEO of a $100 million fee-only wealth management firm for 17 years. Your advice is well-taken. Those five documents you mentioned above are most important.

About eight years ago I sold my firm when I realized that, although the time was right for the company’s next step up, I wasn't. I was just plain tired every day and I rather envied my concert-going, golf-playing contemporaries. I sold the firm, gave up the Beltway hassling and moved to a lovely suburban area in Central VA. However, I wasn’t ready for total surrender yet! For the next six years I managed my own portfolio but, after testing showed that I had two minor cognitive dysfunctions, I accepted the fact that "I ain't what I used to be". I turned my portfolio over to a CFA/CFP my children's age, one who I had helped a bit as he created his own firm about 12 years ago.

I'm delighted with what I've done, monitoring my portfolio and checking in with him periodically. I now spend about 10% of the time I used to spend number crunching and moving-average charting. The investing fire has not gone out but life is a lot more pleasant watching from the sideline rather than quarter-backing from your own 10-yard line on the 3rd down.

And oh yes, my wonderful wife is a retired CPA and CFP and all I have to do is sign where she tells me come income tax time each year.


Jack Condrey from CA posted about 1 year ago:

i ALSO HAVE THE FIVE INSTRUMENTS - i AM 87 YEARS OLD AND DO REALIZE THAT i THERE IS SOME COGNITIVE IMPAIRMENT -I plan to show this article to my son and daughter (both are professionals) and see if we need to do any thing more


Jay from CO posted about 1 year ago:

Annunities always seemed expensive compared with other options. Had I purchased one 11 years ago when I retired I would have lived on less and had less net worth than I did by managing my own investments. And this was during a decade when the market did not do real well. Of course I am 73 now and my performance may not be as good the next 11 years.


Rudolph Heider from MO posted about 1 year ago:

Good article. I have taken care of the main documents listed since 1980 and I am now 99 years old. I have been investing "on my own" for many years, but your article has convinced me I should be using more caution. I agree that mutual funds or the equivalent ETFs are the safest way for oldster to go. Buying individual stocks or bonds requires too much from oldsters.


Charles Goetz from NY posted about 1 year ago:

Another Good Article - I'll be 65 next year and this is my wake-up call. My wife and I have talked about it but have not acted yet ,as I suspect is not all that uncommon?
Joining AAII is something I should have done long ago!


Soleil Thornton from CA posted about 1 year ago:

My husband and I have had these five documents since 1995 and updated them twice. We are both in our 80's and realize we are not as astute as when we retired and so have given a major part of our portfolio over to Schwab for management. We will consider writing a letter to our executor detailing why we have positioned our other investments.


Ray Robison from VA posted about 1 year ago:

We have the necessary documents. I still manage our finances at age 88, but am aware that some further measures are in order. I have never wanted to be involved with a lawyer, but am thinking about using an estate lawyer soon.
Thanks for the helpful article.


Charles h Wadhams from CA posted about 1 year ago:

I'm Charlie age 87. I have a master's in Financial Services. I have been an manager, teacher and investor for close to 60 years. This business is SO individual that handing off that "nest egg" is very hard and often the subject of huge procrastination. You can do it with grace or ignore it and let the state tell your family what to do.
Say you have 1/2 mil. the trust company will pay little attention to it after they get it. They will put it in their common trust which is expensive and poorly managed. Better you pay attention to making those plans now before the mental issues crop up.


M Pirotte from CA posted about 1 year ago:

I, too, would like to have someone else manage our portfolio - but who to trust and how careful would they be with the big capital gains inherent in such a transfer?


You need to log in as a registered AAII user before commenting.
Create an account

Log In