attorneys at Oast & Hook are frequently asked to assist clients with
financial planning for their retirement or the payment of long-term care.
Unfortunately, we find that clients have often made significant mistakes in
their investment planning. Having a clear-cut, simple financial plan in
place is a good idea for everyone, regardless of age; however, a growing body
of research suggests simplicity takes on added urgency as we move into our 70s
when our ability to make wise investment choices begins to decline.
According to a recent Wall
Street Journal article, increased age often causes many seniors to
make poor financial decisions.
the article, about one-half of individuals in their 80s experience some
dementia or cognitive decline. The article cites recent research into our
financial decision-making skills which suggests they begin to slip after the
age of 70 years and suffer more rapid declines after the age of 75 years.
George Korniotis of the Federal Reserve and Alok Kumar of the University of
Texas business school studied thousands of stock trades made by investors in
the 1990s. Their research revealed that although older investors traded
less frequently and held less risky portfolios, they began to lose their knack
for selecting stocks beginning in their early 70s, enough so that their average
annual returns were 3% to 5% less than expected. This can be extremely
problematic for investors in their 70s and 80s who are unable to return to work
and have fewer years to recover from poor investment choices.
study discussed in the article examined the findings of four economists who had
reviewed bank data on several types of loan transactions. They found that
individuals in their 20s and those over the age of 70 years were much more
likely than those in middle age to make financial mistakes, such as accepting
higher-than-necessary rates on home-equity loans or owing fees for paying a
credit card late or going over a credit limit. The economists attributed the
mistakes of the younger individuals to inexperience, but those of older
individuals to declining decision making abilities. The economists note that
this is especially troublesome because older individuals have much larger
assets, and thus have much more at stake.
virtually impossible to know what challenges we may face as we age, the best
defense against poor decisions or fraud is a good offense ─ a simple, easy to
manage financial plan, put in place well before the age of 75 years. The
article suggests the following steps to consider:
Simplify your investments. Consider doing away with individual stocks in favor
of easier choices like index mutual funds. Avoid alternative investments
and private partnerships that might be hard to sell. Many investment
firms will calculate and automatically send you mandatory IRA distributions and
offer services that, for a fee, automatically rebalance your investments.
Consolidate accounts. Many of us have a dozen or more banking and brokerage
accounts or certificates of deposit at several banks. Consider reducing
the number of investments you must monitor by consolidating your
accounts. Consolidation makes keeping track of your money much
Get your paperwork in order.
Although your Social Security payments are probably
direct-deposited and you may have already designated someone to make major
decisions for you if you become incapacitated, you should still locate and
organize all of your important documents such as account statements and stock
4. Eliminate debt. The Federal
Reserve's 2007 study of consumer finances found that almost one-half of
households headed by individuals 65 to 74 years of age had a mortgage, and 37%
carried credit-card balances. Paying off these debts will free up cash
and lessen the worry of forgetting to pay bills.
Hook has been providing quality legal services in Southeastern Virginia and
North Carolina for more than 80 years. The attorneys at Oast & Hook can
assist clients with their estate, financial, insurance, long-term care,
veterans' benefits and special needs planning issues. Visit their website at www.oasthook.com
for more information.
Smith joined the firm in 2003. She practices primarily in the areas of elder law,
estate planning, estate and trust administration, special needs planning, asset
protection planning, long-term care planning and Veterans' benefits. Ms. Smith
is certified as an Elder Law Attorney (CELA) by The National Elder Law
Ms. Smith was named as a Rising Star by Virginia Super Lawyers magazine. Rising
Stars names the state's top up-and-coming attorneys.