Aging and Investing: The Risk of Cognitive Impairment

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.

posted about 1 year ago by William from Georgia

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.

posted about 1 year ago by Victor from California

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.

posted about 1 year ago by Barry from Texas

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.

posted about 1 year ago by L from Maryland

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!

posted about 1 year ago by Donald from Missouri

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

posted about 1 year ago by Eric from Virginia

hOW DO i SET UP A HEALTH CARE PROXY?

posted about 1 year ago by Fred from Kansas

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.

posted about 1 year ago by Bryan from Ohio

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.

posted about 1 year ago by Ray from Michigan

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 ~~~~~~~ .

posted about 1 year ago by Donald from Pennsylvania

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!

posted about 1 year ago by James from Texas

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.

posted about 1 year ago by Bruce from Massachusetts

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

posted about 1 year ago by William from Arizona

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!

posted about 1 year ago by Jim C. from California

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.

posted about 1 year ago by Thomas from California

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.

posted about 1 year ago by Elaine from Oregon

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.

posted about 1 year ago by Edward from Utah

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.

posted about 1 year ago by Jeff from New Jersey

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.

posted about 1 year ago by GFD from Illinois

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.

posted about 1 year ago by Robert from Illinois

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.

posted about 1 year ago by Gerald from California

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.

posted about 1 year ago by Bruce from California

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.

posted about 1 year ago by Fred from California

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.

posted 3 months ago by Mary Boylan from Illinois

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 ???)

posted 3 months ago by R Kelly from Arizona

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.

posted 3 months ago by Lorraine Coccaro from California

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.

posted 3 months ago by Arthur Bernhardt from Wisconsin

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.

posted 3 months ago by Thomas Grzymala, CFP from Virginia

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

posted 3 months ago by Jack Condrey from California

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.

posted 3 months ago by Jay from Colorado

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.

posted 3 months ago by Rudolph Heider from Missouri

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!

posted 3 months ago by Charles Goetz from New York

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.

posted 3 months ago by Soleil Thornton from California