Over Confident in Old-age: Cognitive Decline and Financial Literacy

[Tdubs]

I had planned on getting a Vanguard advisor when I turned 80. Looks like I'd better do it at 70. I might be too confident to get one if I wait.

The decline in literacy isn't as notable as the negative correlation between over confidence and cognitive decline.



From Finke, Michael S. and Howe, John S. and Huston, Sandra J., Old Age and the Decline in Financial Literacy (August 24, 2011). https://papers.ssrn.com/sol3/papers.cfm ... id=1948627

[Sandtrap]

Yep.
Glidepath Looks about right.

Loosing your marbles.
Screws too loose.
Going bananas.

[livesoft]

Got children? Train them ahead of time.

[Tdubs]

Got children? Train them ahead of time.

You can't train someone who doesn't want to be trained.

[Scooter57]

A Vanguard advisor will have no personal relationship with you. My parents had an advisor who didn't do much for their portfolio and charged huge fees. But they alerted us kids when my mom got demented, helped us find people to move my parents out if a NY apartment within a very narrow time frame, and talked my mom out of a very bad real estate investment she might otherwise have made.

You need more than some robo-using, low psid functionary to help you in your old age. I agree with the advice to train up your kids or other heirs. I taught my partner enough that if something happens to me my investments will be well managed. They are keeping an eye on my investing to make sure I'm not doing anything foolish or talking to nice ladies in Nigeria that want me to help get a million bucks out of the country.

Ask the Vanguard advisor how many clients they are advising. I bet you won't get an answer, because it may be hundreds or thousands. You want your advisor to know you as a person enough to tell when you are becoming a danger to yourself.

[Tdubs]

A Vanguard advisor will have no personal relationship with you. My parents had an advisor who didn't do much for their portfolio and charged huge fees. But they alerted us kids when my mom got demented, helped us find people to move my parents out if a NY apartment within a very narrow time frame, and talked my mom out of a very bad real estate investment she might otherwise have made.

You need more than some robo-using, low psid functionary to help you in your old age. I agree with the advice to train up your kids or other heirs. I taught my partner enough that if something happens to me my investments will be well managed. They are keeping an eye on my investing to make sure I'm not doing anything foolish or talking to nice ladies in Nigeria that want me to help get a million bucks out of the country.

Ask the Vanguard advisor how many clients they are advising. I bet you won't get an answer, because it may be hundreds or thousands. You want your advisor to know you as a person enough to tell when you are becoming a danger to yourself.

I glad you have an advisor you trust. Limited sample that it is, I don't see that with the advisors I've talked to or other family members have consulted.

[whodidntante]

Got children? Train them ahead of time.

Too expensive and failure prone. Plus an expectation of inheritance can drain ambition.

Buy a SPIA so they get nothing.

[smectym]

Cognitive decline among older investors does occur, but be wary of buying in to some idea that “I’m 70 so I must be a victim of cognitive decline, guess that means I’m no longer competent to handle the money, guess I better label myself as “cognitively declined” and hand over authority to a much younger advisor (or a robot).” There’s a tendency on this forum to “prove what a true boglehead I am” by rather eagerly rushing to embrace the squishy “science” that solemnly intones that investors who for decades were astute money managers somehow “lose it” in their ‘60’s. Maybe. But case-by-case, maybe not. (Of course, if a 60-something investor protests that he’s still fine managing the money, that must be the symptom of “over-confidence” that raises a red flag, right? Um...no). Remember, both fund companies pushing advice algos and other advisor schemes, and sometimes family members, may have conflicts of interest when addressing this issue.

Sure, if Auntie Mame, who for decades exemplified thrift and financial acumen, all of a sudden starts breaking into the IRA to fund trips to Vegas, there might be a problem. Otherwise, it’s probably best to assume that whoever has been prudently managing the money since the Stone Age, should continue to manage the money.

[heyyou]

I don't even remember being tested for all those symptoms. Can you lose something that you didn't ever have?

[DonIce]

Seems like one could set up a test for themselves that has randomized questions that they take at some regular interval. If/when they start failing the test repeatedly, they should have a clear action plan of what to do, determined in advance.

[typical.investor]

From Finke, Michael S. and Howe, John S. and Huston, Sandra J., Old Age and the Decline in Financial Literacy (August 24, 2011). https://papers.ssrn.com/sol3/papers.cfm ... id=1948627

It's interesting, and I'm only on page 16 but some things do come to mind like many of the participant may not have been investing in their prime earning years. Also, "higher levels of educations are associated with a much lower likelihood of overconfidence as are being male and white".

Obviously that is pointed at the fact that those who invested because they had the money or it was their role in the family (educated white males) perform better. I suspect it's just that they are more familiar in general. I suspect everyone who reads on bogleheads is probably more advanced and familiar with financial topics that even the white males in their study who didn't suffer overconfidence as much due to the familiarity factor.

And other things like "the strongest age effect occurs for the questions on the deductibility of interest and the use of money market accounts". I don't know about you, but I don't think I will have a mortgage in my old age and probably wouldn't spend much time on answering the question. And I suspect that renters or those who own their home might be the same.

Anyway, Bogleheads will knock your overconfidence pretty fast. Try posting something that is not universally considered perfect in a thread and see how it goes.

The area I think I will suffer in is insurance. Health care in America is mindbogglingly complex. Perhaps that is a strategy employed by insurers to take advantage of us.

I don't have perfect use of rewards cards now either. Yeah, I use them them but don't care to try to optimize my spending to earn points. It's just who cares.

I don't see anything about people not doing their taxes right or investing poorly in the study. It says the most overconfident don't optimally refinance or choose a reward credit. Not such a concern that I need an advisor. Should I extrapolate from that to that I can't manage my assets? I am not sure.

Again, getting the right insurance policy seems a nightmare.

[Tdubs]

Seems like one could set up a test for themselves that has randomized questions that they take at some regular interval. If/when they start failing the test repeatedly, they should have a clear action plan of what to do, determined in advance.

The test they used is in an appendix to the article, but you'd be primed to answer them right after the first time. And you would know that expressing too much confidence in your abilities would make for a poor score.

[carolinaman]

Cognitive decline is a valid concern as we age but I wonder if this issue is overblown. It certainly is in the best interest of the finance industry to chum the waters about this so they can get more business. The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true.

I am age 75 and I believe my financial judgment and decisions are as sound today as they were 10 or 20 years ago (maybe I am one of those overconfident ones). I greatly simplified our investments a few years ago and now use only low cost index funds and CDs. However, our financial like is more complicated than it used to be as we have RMDs, QCDs, auto pay and deposit almost everything. I do evaluate my financial actions and decisions regularly to determine if I thought through those matters thoroughly and made good decisions. If anything, I may be guilty of over analyzing things because I now have more time to do so as compared to when I was working. If I think I am no longer making good decisions, I will definitely seek help with my finances. My wife relies on me for our financial matters, so she would not be too helpful. I would most likely call on one of our children or a trustworthy financial adviser from our church.

[Sconie]

A Vanguard advisor will have no personal relationship with you. My parents had an advisor who didn't do much for their portfolio and charged huge fees. But they alerted us kids when my mom got demented, helped us find people to move my parents out if a NY apartment within a very narrow time frame, and talked my mom out of a very bad real estate investment she might otherwise have made.

You need more than some robo-using, low psid functionary to help you in your old age. I agree with the advice to train up your kids or other heirs. I taught my partner enough that if something happens to me my investments will be well managed. They are keeping an eye on my investing to make sure I'm not doing anything foolish or talking to nice ladies in Nigeria that want me to help get a million bucks out of the country.

Ask the Vanguard advisor how many clients they are advising. I bet you won't get an answer, because it may be hundreds or thousands. You want your advisor to know you as a person enough to tell when you are becoming a danger to yourself.

Well said Scooter57----your comments certainly reflect my experience with Vanguard advisers and PAS. That said, the cognitive decline issue is likely to good reason to structure investment to "keep things simple."

[David Althaus]

At 72 years of age here's some observations on cognitive decline:

1. It's biology
2. Try to get vigorous daily exercise. Choose to wear out not rust out.
3. If you worry about overconfidence (actually if you worry about overconfidence it could be a sign you're not) consider the Jack Bogle portfolio--50% equity and 50% bonds. Since it's tougher to sleep as we get older that split allows you to obsess each and every night about your asset allocation.

All the best

[prd1982]

I would most likely call on ... a trustworthy financial adviser from our church.

I think that is a mistake. I'm not trying to say anything bad about religious folks. But I have seen a number of articles where people were taken advantage of by folks attending the same place of worship. I suspect it has to do with letting your guard down when dealing with folks at your place of worship. I would also recommend about not using someone based on being a member of the same country club.

[Nowizard]

For me, the key is to continue simplifying. Though many (Most) here talk about that, it is individually defined, and many follow basic principles but also include some personal decisions based on their interpretation of circumstances. At least that has been our approach. For example, we have over-weighted healthcare, value, under-weighted growth or international at times, purchased a few stocks, had as many as twelve mutual funds, etc. Results have been quite satisfactory and exceeded expectations over the past fifty years or so. With age, we now have a single stock and six mutual funds in addition to cash reserves. We are considering further elimination of at least one fund and moving to a more conservative allocation at the moment due to increasing age and changes in risk tolerance.
The latter is surrounded by questioning whether making a move now would be partially market timing or only reflect changes in risk tolerance. Will the accuracy of when the move is made be affected by cognitive decline? Who knows. I know that short-term memory is mildly diminished, but I also know that we have made generally good-to-excellent choices in the past. As always, investment decisions have many facets and cognitive decline is only one area of potential pitfall. Our children are interested in helping, however, and are consulted.

Tim

[TN_Boy]

Cognitive decline is a valid concern as we age but I wonder if this issue is overblown. It certainly is in the best interest of the finance industry to chum the waters about this so they can get more business. The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true.

I am age 75 and I believe my financial judgment and decisions are as sound today as they were 10 or 20 years ago (maybe I am one of those overconfident ones). I greatly simplified our investments a few years ago and now use only low cost index funds and CDs. However, our financial like is more complicated than it used to be as we have RMDs, QCDs, auto pay and deposit almost everything. I do evaluate my financial actions and decisions regularly to determine if I thought through those matters thoroughly and made good decisions. If anything, I may be guilty of over analyzing things because I now have more time to do so as compared to when I was working. If I think I am no longer making good decisions, I will definitely seek help with my finances. My wife relies on me for our financial matters, so she would not be too helpful. I would most likely call on one of our children or a trustworthy financial adviser from our church.

You said: "The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true."

It absolutely, positively can be true. See for example https://www.google.com/search?client=fi ... ve+decline

And I have personally seen this in action.

It seems unbelievable to me that I could ever decline mentally the way that I've seen some people decline. But, those people didn't see it coming either.

And of the course the person who has declined and cannot believe they have declined are the hardest ones to deal with. To be clear, many people with dementia are quite aware they are having troubles. But not all.

All of that said, I sometimes feel that a very tough situation is where the person hasn't got full-blown dementia, but simply ... doesn't understand stuff as well as they used to. So they do dumb things, or do nothing when they should do something. But you wouldn't call them incompetent.

But I urge you to get past "I wonder if that is true."

[carolinaman]

I would most likely call on ... a trustworthy financial adviser from our church.

I think that is a mistake. I'm not trying to say anything bad about religious folks. But I have seen a number of articles where people were taken advantage of by folks attending the same place of worship. I suspect it has to do with letting your guard down when dealing with folks at your place of worship. I would also recommend about not using someone based on being a member of the same country club.

Your observation is correct in many situations. Sadly, I know of people have been taken by people within the church. The person I have in mind has a well established advisory business with several staff and is well regarded in the financial community. Also, I have a couple of financially astute friends who use his services. I am very cynical of financial advisers but this one is more trustworthy than most.

The reality is that when you begin to cognitively decline, you will have to trust someone. Who do you suggest?

[delamer]

There is no doubt that cognitive ability for many elders declines over the years.

That said, the absolute level of ability is to perform a task is important. I don’t walk as quickly as I used to either, but I can still walk.

Also, I like to see the “overconfidence” numbers for ages 25 to 60. Thinking you know more than you do is common at all ages.

[carolinaman]

Cognitive decline is a valid concern as we age but I wonder if this issue is overblown. It certainly is in the best interest of the finance industry to chum the waters about this so they can get more business. The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true.

You said: "The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true."

It absolutely, positively can be true. See for example https://www.google.com/search?client=fi ... ve+decline

And I have personally seen this in action.

It seems unbelievable to me that I could ever decline mentally the way that I've seen some people decline. But, those people didn't see it coming either.

And of the course the person who has declined and cannot believe they have declined are the hardest ones to deal with. To be clear, many people with dementia are quite aware they are having troubles. But not all.

All of that said, I sometimes feel that a very tough situation is where the person hasn't got full-blown dementia, but simply ... doesn't understand stuff as well as they used to. So they do dumb things, or do nothing when they should do something. But you wouldn't call them incompetent.

But I urge you to get past "I wonder if that is true."

Thanks TN_Boy. As you state, many people with cognitive impairment are quite aware of their troubles, but some are not. Which one will I be if I live long enough? Who knows? I have seen friends and family go through this mental decline so I know how difficult it can be. Our Sunday School class has more than 100 members. Minimum age is 70 with quite a few people in their 90s. I am always impressed with how sharp some of our older members are. It is not a given that we will suffer serious mental impairment by a given age although we will slow down.

I think people need some checkpoints and validation in their lives to validate their cognitive soundness. Family and close friends should be the first to raise concerns. I am treasurer and serve on the board of a retirement group with more than 200 members. Any cognitive issues should be evident to the board. I provide an update of our financial situation, including investments, to my wife and children every year. My original plan was to have my daughter step in if necessary. However, she lives 4 hours away, is busy with her own family and although capable, is not excited about that responsibility.

My wife would need help if I can not handle our finances. Our children are both named DPOA in our wills. They should be able to help her or handle day to day finances but would need help with investments and possibly taxes. For investments, my current plan is to establish a relationship with a trustworthy financial adviser. Perhaps an annual review of our simplified investments that my wife and I would attend. This would provide greater assurance that I am not doing wild and crazy things unless it happens quickly. My wife is less trustworthy of financial advisers than I am so she would need to meet in person and gradually develop confidence in the person (so would I) should they have to take over our investments and possibly other financial responsibilities. Whereas there are some phone or video options, it has to be face to face for both of us.

Your thoughts?

[carolinaman]

There is no doubt that cognitive ability for many elders declines over the years.

That said, the absolute level of ability is to perform a task is important. I don’t walk as quickly as I used to either, but I can still walk.

Also, I like to see the “overconfidence” numbers for ages 25 to 60. Thinking you know more than you do is common at all ages.

+1. Well stated!

[LilyFleur]

I would most likely call on ... a trustworthy financial adviser from our church.

I think that is a mistake. I'm not trying to say anything bad about religious folks. But I have seen a number of articles where people were taken advantage of by folks attending the same place of worship. I suspect it has to do with letting your guard down when dealing with folks at your place of worship. I would also recommend about not using someone based on being a member of the same country club.

Your observation is correct in many situations. Sadly, I know of people have been taken by people within the church. The person I have in mind has a well established advisory business with several staff and is well regarded in the financial community. Also, I have a couple of financially astute friends who use his services. I am very cynical of financial advisers but this one is more trustworthy than most.

The reality is that when you begin to cognitively decline, you will have to trust someone. Who do you suggest?

Each situation is different. My cousin, who is 70, has had cognitive testing done as a baseline, and she is fine. Her children, who are in healthcare, suggested this. Her willingness to do the testing bodes well for her and her family.

I've been open with my children about my finances. I have helped them open accounts at Schwab so they will easily be able to manage their own money and assist with my money management as needed. I have been generous with them, and they have also seen both of my parents receive the best of care. I believed my parent's money was for their care, first and foremost. I do try to keep my assets as streamlined as possible, as a complicated mess when a parent dies is not something I wish for my children to have.

[eucalyptus]

There is no doubt that cognitive ability for many elders declines over the years.

That said, the absolute level of ability is to perform a task is important. I don’t walk as quickly as I used to either, but I can still walk.

Also, I like to see the “overconfidence” numbers for ages 25 to 60. Thinking you know more than you do is common at all ages.

Bravo.

One must be extremely "cognitive" of the bias of healthcare workers and financial advisors to assume over 70s are frail in body and mind and need to placed on a gentle glide path to the funeral home. In the past year, I've have spent a lot of time in hospitals, infusion clinics and doctors' offices, and a lot of time dealing with financial advisors to the elderly, and have been stunned to learn the extent to which caring, well-intentioned people hold stereotypes about the elderly they would be harshly condemned for holding towards any other group.

Other lessons: don't go to the wrong hospital. Don't go to the hospital without an advocate. Fail to heed these lessons at your peril.

[garlandwhizzer]

Cognitive decline along with longevity are two good reasons for older investors (hopefully well over 70) to consider a SPIA with some portion of their portfolios. As long as you realize you're losing competence in financial matters and do something about it proactively, you can minimize risk. The problem is that there tends to be overconfidence in some with cognitive impairment about their skill in financial matters which can be dangerous. Unethical brokers and financial advisors can take advantage of this very vulnerable group, as one did of my elderly mother who refused to listen to my warnings and instead put her faith in "that nice young man with a great simile on his face." A financial advisor/manager in theory should be very helpful in this situation but their quality and dedication to the clients' best interests vary a lot. I personally believe that Vanguard, the financial industry giant which I have the most trust in, would be a good place to look for such an advisor. Also, if you have trusted family members or relatives who care more about you than your money, their help and support during this time can be important with things like durable power of attorney to make financial decisions, but this again carries substantial conflict of interest concerns.

Garland Whizzer

[Scooter57]

Tdubs,

We HAD that advisor. Their company was taken over and then they lost their jobs during the financial crisis and were replaced by unhelpful people

I'm in my 70s now and because I saw my parents deteriorate from being highly competent professionals into people making atrociously bad decisions I have been careful to do what I can to protect myself from myself, though my brain seems to be working just fine.

What I saw in my family was that the worse people deteriorated the more they were unaware that they were making extremely bad decisions and the harder they fought against having anyone intervene. The fear of "being put in a home" made them easy prey for anyone who promised to "protect them from those who wanted to put them away."

With my parents, we ran into an additional problem I have not seen discussed. One of my parents was able to appear normal as far as passing standard cognitive tests went, but was virtually blind and completely out of emotional control due to frontal lobe deterioration. Because of the way that the law works the spouse overrides the children as long as the spouse has not been declared unable to manage their affairs. Even with a signed POA I was unable to rescue my parents from a disastrous situation that the blind, emotionally labile person had put them into because that person could answer all the questions in the quick Alzheimer's screening test doctors use. Only when that spouse was incapacitated by a stroke could we move into what had become a horrifying domestic situation. In the meantime, huge amounts of money had been passed to the people supposedly "protecting" this aged couple, (while stealing and getting rid of most of their valuables). Serious health issues had gone completely unattended. A concerned doctor actually sent someone from elder protective services to the house but that person was thrown out by the seemingly intact spouse and could do nothing.

I have since seen a similar situation with a supposedly "intact" but severely alcoholic spouse that led to the other spouse's death.

I have also seen some situations where husbands who have been dutiful mates for many, many decades suddenly up and run off with other women who in some cases are obviously after their money. These men are not demented (technically), but their impulsive behavior is another symptom of the frontal lobe deterioration that affects emotion and impulse rather than cognition, which I believe may be an even scarier kind of deterioration. These men can end up drained of all their money, abandoned by the women who they ran off with, and hated by their kids. Their aging wives can lose their homes and joint savings. And these were good people until something shifted in their impulse control.

We consulted a neurologist recently and were told that the only protection in cases like that is a "living will" drawn up by an attorney that specifies exactly what you would want done should you no longer be competent and carefully defines the criteria you would want applied in declaring you incompetent, and specifies a chain of who should make decisions for you, with several backups. Do NOT appoint only your spouse, as you have no way of knowing how good their cognition will be when yours is gone. I have recently seen not one but TWO cases where people in their 40s and early 50s developed dementia confirmed by via bran scans. It isn't just us old folks who can deteriorate.

I have my finances carefully documented and updated in files my kids know the names of. Most of my investments are in CDs and a few Vanguard funds. My partner knows the rationale for my other investments which are a tiny % of my assets. Left alone for a year or two everything I have invested would be just fine, except that the Vanguard brokered CD interest wouldn't be reinvested and the CDs could mature and roll over to low rate CDs but at my death they could all be closed.

Simplifying as we age is VERY wise. That living will sounds like a very good idea, too.

[delamer]

Tdubs,

We HAD that advisor. Their company was taken over and then they lost their jobs during the financial crisis and were replaced by unhelpful people

I'm in my 70s now and because I saw my parents deteriorate from being highly competent professionals into people making atrociously bad decisions I have been careful to do what I can to protect myself from myself, though my brain seems to be working just fine.

What I saw in my family was that the worse people deteriorated the more they were unaware that they were making extremely bad decisions and the harder they fought against having anyone intervene. The fear of "being put in a home" made them easy prey for anyone who promised to "protect them from those who wanted to put them away."

With my parents, we ran into an additional problem I have not seen discussed. One of my parents was able to appear normal as far as passing standard cognitive tests went, but was virtually blind and completely out of emotional control due to frontal lobe deterioration. Because of the way that the law works the spouse overrides the children as long as the spouse has not been declared unable to manage their affairs. Even with a signed POA I was unable to rescue my parents from a disastrous situation that the blind, emotionally labile person had put them into because that person could answer all the questions in the quick Alzheimer's screening test doctors use. Only when that spouse was incapacitated by a stroke could we move into what had become a horrifying domestic situation. In the meantime, huge amounts of money had been passed to the people supposedly "protecting" this aged couple, (while stealing and getting rid of most of their valuables). Serious health issues had gone completely unattended. A concerned doctor actually sent someone from elder protective services to the house but that person was thrown out by the seemingly intact spouse and could do nothing.

I have since seen a similar situation with a supposedly "intact" but severely alcoholic spouse that led to the other spouse's death.

I have also seen some situations where husbands who have been dutiful mates for many, many decades suddenly up and run off with other women who in some cases are obviously after their money. These men are not demented (technically), but their impulsive behavior is another symptom of the frontal lobe deterioration that affects emotion and impulse rather than cognition, which I believe may be an even scarier kind of deterioration. These men can end up drained of all their money, abandoned by the women who they ran off with, and hated by their kids. Their aging wives can lose their homes and joint savings. And these were good people until something shifted in their impulse control.

We consulted a neurologist recently and were told that the only protection in cases like that is a "living will" drawn up by an attorney that specifies exactly what you would want done should you no longer be competent and carefully defines the criteria you would want applied in declaring you incompetent, and specifies a chain of who should make decisions for you, with several backups. Do NOT appoint only your spouse, as you have no way of knowing how good their cognition will be when yours is gone. I have recently seen not one but TWO cases where people in their 40s and early 50s developed dementia confirmed by via bran scans. It isn't just us old folks who can deteriorate.

I have my finances carefully documented and updated in files my kids know the names of. Most of my investments are in CDs and a few Vanguard funds. My partner knows the rationale for my other investments which are a tiny % of my assets. Left alone for a year or two everything I have invested would be just fine, except that the Vanguard brokered CD interest wouldn't be reinvested and the CDs could mature and roll over to low rate CDs but at my death they could all be closed.

Simplifying as we age is VERY wise. That living will sounds like a very good idea, too.

Very sobering stories.

The saddest situation is when an elder’s cognitive, physical, and/or emotional problems creates unhealthy situations for a spouse. A friend of mine went through this recently. Her father’s wife became a hoarder and their house was unclean & unsafe.

[Random Musings]

And on the physical side of things, Little Feat nicely summarizes how your brain handles that part of your life as you age...

Old Folks Boogie
by: Little Feat

Off our rockers, actin' crazy
With the right medication we won't be lazy
Doin' the old folks boogie
Down on the farm
Wheelchairs, they was locked arm in arm
Paired off pacemakers with matchin' alarms
Gives us jus' one more chance
To spin one more yarn
And you know that you're over the hill
When your mind makes a promise that your body can't fill
Doin' the old folks boogie
And boogie we will
'Cause to us the thought's as good as a thrill...…..

[protagonist]

I'm 67, and despite the fact that I am certain my eyesight and reaction time are worse than they were when I was 25, I am a much better driver.
Some of us learn from experience, and in many cases that more than makes up for our declining faculties.
And I am a hell of a lot more financially savvy investor than I was at age 40. Plus which, it doesn't matter as much as it did when I was 40. I would have to screw up really badly to ruin my retirement, and even if I do, I will still get by on social security.
As I believe David Bowie said, "Aging is an extraordinary process whereby you become the person you always should have been."

The moral of the story: Don't worry. Be happy. https://www.youtube.com/watch?v=d-diB65scQU

[TN_Boy]

Cognitive decline is a valid concern as we age but I wonder if this issue is overblown. It certainly is in the best interest of the finance industry to chum the waters about this so they can get more business. The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true.

You said: "The prevailing wisdom seems to be that the person in cognitive decline will not realize they are declining. I wonder if that is true."

It absolutely, positively can be true. See for example https://www.google.com/search?client=fi ... ve+decline

And I have personally seen this in action.

It seems unbelievable to me that I could ever decline mentally the way that I've seen some people decline. But, those people didn't see it coming either.

And of the course the person who has declined and cannot believe they have declined are the hardest ones to deal with. To be clear, many people with dementia are quite aware they are having troubles. But not all.

All of that said, I sometimes feel that a very tough situation is where the person hasn't got full-blown dementia, but simply ... doesn't understand stuff as well as they used to. So they do dumb things, or do nothing when they should do something. But you wouldn't call them incompetent.

But I urge you to get past "I wonder if that is true."

Thanks TN_Boy. As you state, many people with cognitive impairment are quite aware of their troubles, but some are not. Which one will I be if I live long enough? Who knows? I have seen friends and family go through this mental decline so I know how difficult it can be. Our Sunday School class has more than 100 members. Minimum age is 70 with quite a few people in their 90s. I am always impressed with how sharp some of our older members are. It is not a given that we will suffer serious mental impairment by a given age although we will slow down.

I think people need some checkpoints and validation in their lives to validate their cognitive soundness. Family and close friends should be the first to raise concerns. I am treasurer and serve on the board of a retirement group with more than 200 members. Any cognitive issues should be evident to the board. I provide an update of our financial situation, including investments, to my wife and children every year. My original plan was to have my daughter step in if necessary. However, she lives 4 hours away, is busy with her own family and although capable, is not excited about that responsibility.

My wife would need help if I can not handle our finances. Our children are both named DPOA in our wills. They should be able to help her or handle day to day finances but would need help with investments and possibly taxes. For investments, my current plan is to establish a relationship with a trustworthy financial adviser. Perhaps an annual review of our simplified investments that my wife and I would attend. This would provide greater assurance that I am not doing wild and crazy things unless it happens quickly. My wife is less trustworthy of financial advisers than I am so she would need to meet in person and gradually develop confidence in the person (so would I) should they have to take over our investments and possibly other financial responsibilities. Whereas there are some phone or video options, it has to be face to face for both of us.

Your thoughts?

You seem in good shape to handle a loss of sharpness. The treasurer job is a good "test" but it's possible the other members of the group would be reluctant to say anything unless you really started failing badly.

In your case, I suspect a financial advisor is a good idea. My parents were lucky in that I was comfortable with investments, day to day finances and taxes, so when the time came for me to do more, I believe I was able to do a solid job managing their affairs. Since your children are not comfortable with the investment side of things, you have a bigger gap to fill. Any financial advisor you get would have to be able to work with the kids having POA. (Both have POA simultaneously?).

It can be challenging finding someone whom you trust to do the right thing that also has the necessary expertise.

[TN_Boy]

There is no doubt that cognitive ability for many elders declines over the years.

That said, the absolute level of ability is to perform a task is important. I don’t walk as quickly as I used to either, but I can still walk.

Also, I like to see the “overconfidence” numbers for ages 25 to 60. Thinking you know more than you do is common at all ages.

Bravo.

One must be extremely "cognitive" of the bias of healthcare workers and financial advisors to assume over 70s are frail in body and mind and need to placed on a gentle glide path to the funeral home. In the past year, I've have spent a lot of time in hospitals, infusion clinics and doctors' offices, and a lot of time dealing with financial advisors to the elderly, and have been stunned to learn the extent to which caring, well-intentioned people hold stereotypes about the elderly they would be harshly condemned for holding towards any other group.

Other lessons: don't go to the wrong hospital. Don't go to the hospital without an advocate. Fail to heed these lessons at your peril.

I get that it can be really annoying when doctors act like anybody over 70 is completely incompetent, but I've also seen people in their 70s who .... were incompetent. Doctors, who generally see more unhealthy people than the rest of us, probably see a lot of seniors that are doing poorly both mentally and physically.

I'd rather have a doctor that asked annoying questions (when I get older, I'm a bit aways from 70) rather than one who just assumed I was mentally okay. Assuming that once I answered the annoying questions, I got the proper attitude. I find that for physical issues, if you move like you are active, they don't assume you are frail.

I've not worked as much with financial advisors. A financial advisor trying to work with many (NOT all) of my relatives in their 70s and 80s would be correct in assuming their financial literacy was very weak. Of course, in the cases I'm thinking of that wouldn't necessarily be an age related issue.

My point is, the people posting on this board are pretty much without exception in possession of their mental abilities, and at least somewhat computer savvy. This is not true for many people in their 70s and 80s. So those a few years ahead of me, do what I plan to do. If the doctor acts like you are feeble and stupid, politely correct those misinterpretations, and get on with things. If the doctor still treats you like that, get another doctor.

Another topic above -- always have an advocate at the hospital. Yes. Whether you are 77 or 27.

[stuper1]

Part of my plan is that when I get close to 80 I plan to simplify things considerably by switching to one fund in each account (IRA, Roth IRA, and taxable). So maybe I'll have Wellesley in my IRA, Lifestrategy Moderate Growth in my Roth IRA, and Vanguard Balanced Tax Managed Balanced in taxable. Or something like that. Currently I have several different funds in each account. That way no rebalancing is needed. Just set up RMDs as automatic withdrawals. Should help I think.

[Quaestner]

If you worry about overconfidence (actually if you worry about overconfidence it could be a sign you're not) consider the Jack Bogle portfolio--50% equity and 50% bonds. Since it's tougher to sleep as we get older that split allows you to obsess each and every night about your asset allocation.

+1, That's me! Time for a nap (attempt).

[LilyFleur]

Tdubs,

We HAD that advisor. Their company was taken over and then they lost their jobs during the financial crisis and were replaced by unhelpful people

I'm in my 70s now and because I saw my parents deteriorate from being highly competent professionals into people making atrociously bad decisions I have been careful to do what I can to protect myself from myself, though my brain seems to be working just fine.

What I saw in my family was that the worse people deteriorated the more they were unaware that they were making extremely bad decisions and the harder they fought against having anyone intervene. The fear of "being put in a home" made them easy prey for anyone who promised to "protect them from those who wanted to put them away."

With my parents, we ran into an additional problem I have not seen discussed. One of my parents was able to appear normal as far as passing standard cognitive tests went, but was virtually blind and completely out of emotional control due to frontal lobe deterioration. Because of the way that the law works the spouse overrides the children as long as the spouse has not been declared unable to manage their affairs. Even with a signed POA I was unable to rescue my parents from a disastrous situation that the blind, emotionally labile person had put them into because that person could answer all the questions in the quick Alzheimer's screening test doctors use. Only when that spouse was incapacitated by a stroke could we move into what had become a horrifying domestic situation. In the meantime, huge amounts of money had been passed to the people supposedly "protecting" this aged couple, (while stealing and getting rid of most of their valuables). Serious health issues had gone completely unattended. A concerned doctor actually sent someone from elder protective services to the house but that person was thrown out by the seemingly intact spouse and could do nothing.

I have since seen a similar situation with a supposedly "intact" but severely alcoholic spouse that led to the other spouse's death.

I have also seen some situations where husbands who have been dutiful mates for many, many decades suddenly up and run off with other women who in some cases are obviously after their money. These men are not demented (technically), but their impulsive behavior is another symptom of the frontal lobe deterioration that affects emotion and impulse rather than cognition, which I believe may be an even scarier kind of deterioration. These men can end up drained of all their money, abandoned by the women who they ran off with, and hated by their kids. Their aging wives can lose their homes and joint savings. And these were good people until something shifted in their impulse control.

We consulted a neurologist recently and were told that the only protection in cases like that is a "living will" drawn up by an attorney that specifies exactly what you would want done should you no longer be competent and carefully defines the criteria you would want applied in declaring you incompetent, and specifies a chain of who should make decisions for you, with several backups. Do NOT appoint only your spouse, as you have no way of knowing how good their cognition will be when yours is gone. I have recently seen not one but TWO cases where people in their 40s and early 50s developed dementia confirmed by via bran scans. It isn't just us old folks who can deteriorate.

I have my finances carefully documented and updated in files my kids know the names of. Most of my investments are in CDs and a few Vanguard funds. My partner knows the rationale for my other investments which are a tiny % of my assets. Left alone for a year or two everything I have invested would be just fine, except that the Vanguard brokered CD interest wouldn't be reinvested and the CDs could mature and roll over to low rate CDs but at my death they could all be closed.

Simplifying as we age is VERY wise. That living will sounds like a very good idea, too.

+1
And even someone with severe dementia who is getting scammed by Nigerians can be a master at avoiding the two cognitive evaluations that their trust requires in order for them to be declared incapacitated. People with a great deal of natural intelligence can be very good at hiding dementia. Unfortunately, even after being declared incapacitated, the mentally ill cannot legally be required to take medications which would help them, their family, and their caregivers avoid the living nightmare that mental illness can bring to their senior years. It is incredibly distressing to no longer recognize a parent as themselves any longer and to have to admit that your parent is mentally ill and will never improve, as the conditions of the illness (anosognosia, refusal to take meds, and the illness itself) will continue to worsen. Heartbreaking, and I wouldn't wish it on my worst enemy, much less my own children. It seems like we as a culture ought to be able to do better...

[LilyFleur]

Part of my plan is that when I get close to 80 I plan to simplify things considerably by switching to one fund in each account (IRA, Roth IRA, and taxable). So maybe I'll have Wellesley in my IRA, Lifestrategy Moderate Growth in my Roth IRA, and Vanguard Balanced Tax Managed Balanced in taxable. Or something like that. Currently I have several different funds in each account. That way no rebalancing is needed. Just set up RMDs as automatic withdrawals. Should help I think.

Both my parents had severe dementia and had died by age 80. They both had parents who lived much longer (one parent's parents lived to be 91 and 97). Hope for the best, plan for the worst

[likegarden]

In that study they should separately have tested people with higher education, like me being soon 80 and having an MSME and MBA, and having worked until age 69, last years part time. My wife also has a Masters degree. I feel competent financially.
We get many phone calls everyday, only pick up 1 or 2 calls from people we know. Some of these callers might have read the study discussed here and want to sell us things because our financial literacy has declined they think. Lists of people on Medicare are available to crooks I believe.
One friend is 92, one will be 85 soon, and both are mentally competent, very sharp in discussions. We are all retired engineers.

[TN_Boy]

In that study they should separately have tested people with higher education, like me being soon 80 and having an MSME and MBA, and having worked until age 69, last years part time. My wife also has a Masters degree. I feel competent financially.
We get many phone calls everyday, only pick up 1 or 2 calls from people we know. Some of these callers might have read the study discussed here and want to sell us things because our financial literacy has declined they think. Lists of people on Medicare are available to crooks I believe.
One friend is 92, one will be 85 soon, and both are mentally competent, very sharp in discussions. We are all retired engineers.

I know more than one retired college professor (people who had, like lots of education ...) who succumbed to dementia.

I also know people in their 80s and 90s (some of them did NOT have lots of education incidentally) who showed no signs of dementia till the day they died (though about everybody slows down mentally in their 80s and 90s).

Stuff happens sometimes no matter your education level or lifestyle.. It is true that those two factors affect your likelihood of dementia.

[Rwsawbones]

I understand the dilemma of not being able to judge one’s own competence. Simplifying one’s holdings, use of SPIAs, seeing to it that one’s significant others can help with finances, or at the very least are empowered to view the investment accounts even if not authorized to run the accounts are good first start. A comprehensive estate plan probably involving living revocable trusts with one and significant other as trustees but structured in a way that lends to oversight. Intelligent trustworthy loving offspring should be part of the plan and meet with the estate attorney. When one is no longer able to handle finances with the trusts , the offspring and trust company can take over. If as is often the case one’s significant other just will not take to learning what will become necessary the offspring may have to fill the void earlier than otherwise.

I am a 78.5 old practicing geriatrician. The biggest problems i see is procrastinating in estate planning Death or mental incapacity do come prepared or not

In my own case formal estate plans are in place and I am teaching my wife to deal with finances. Use of one full service finance company such as Fido, Vanguard or Schawb simplifies. One’s family needs to know about all insurances including annuities. Having as many insurance payments and other recurring expenses such as mortgage or rents if any, real estate taxes and utilities taken automatically from a checking account can help simplify.

As far as judging my own competence to continue to practice medicine I do have a problem. I work on this program by course work in my field as do most doctors. I also sit for recertification examinations in either Internal Medicine or geriatrics every 5 years. Doctors originally certified before 1990 do not have to do these exams but are encouraged to do so. When I am no longer in the top 10% I will know it is my time to go. The problem is that in the 1970s and 80s only a relatively small number too these exams but they were very smart so being in the top 10% was a major accomplishment. Now a much larger group do the examinations but as a group do not do as well as in previous decades. The questions are now easier with a lot of excess time to do the exam. Standards for passing appear to be quite liberal. It appears that even with falling capacity ability to score less than the top 10% may be problematic

[trueblueky]

Seems like one could set up a test for themselves that has randomized questions that they take at some regular interval. If/when they start failing the test repeatedly, they should have a clear action plan of what to do, determined in advance.

The test they used is in an appendix to the article, but you'd be primed to answer them right after the first time. And you would know that expressing too much confidence in your abilities would make for a poor score.

Every day is Saturday, so if I get any hint that someone in a white coat is going to run the Montreal protocol on me, I make sure I check the day and date before I get there. Count backward by sevens and draw a clock are easy by comparison.

I don't see me missing the questions in that survey any time soon. Is that overconfidence? Or are the questions too easy?

Added: oh, they got the first answer wrong.

[Tdubs]

And other things like "the strongest age effect occurs for the questions on the deductibility of interest and the use of money market accounts". I don't know about you, but I don't think I will have a mortgage in my old age and probably wouldn't spend much time on answering the question. And I suspect that renters or those who own their home might be the same.

....

The area I think I will suffer in is insurance. Health care in America is mindbogglingly complex. Perhaps that is a strategy employed by insurers to take advantage of us.

I know for my FIL, he can no longer grasp interest rates. He is 90 and was a real estate agent. He ate interest rates morning, noon, and night. But not any more. He pays his bills, never forgets things he wants to do each day, but explaining interest in a simple savings account took dozens of attempts. Any abstract or multi-step intellectual task is a problem.

For health insurance, I have the option of continuing my employer insurance into retirement. Medicare is optional. It might cost more but I'm going to add Medicare anyway. With the two, all deductibles and copays are covered. I hope that will simplify medical insurance matters.

[Tdubs]

Duplicate

[Seasonal]

I've talked to people who are sure they have adequate cognitive ability, but who can't remember things we discussed ten minutes ago. Many deny the seriousness of their problems or claim they will be able to recognize their own decline well past the point they should have recognized the problem.

Standard tests for cognitive ability are not very useful. The mini-mental status exam is common test. I've talked to people who have quite noticeable cognitive issues (including a relative who frequently says "I'm confused and my memory is shot") who easily pass such tests.

My plan is to periodically review my portfolio and withdrawal strategy with Vanguard or another competent adviser.

[Small Savanna]

When I was a kid, and later when my kids were young we used to play a game called 20 questions on long car trips. You've probably played it - any reasonably smart eight year old can do well. It just requires some basic skills in reasoning and memory. My dad was a very smart man, outgoing and articulate almost to the end, and he managed to hide his decline even from close family. When I finally saw that he was having trouble but wasn't sure how bad it was, we went for a ride in the car and I asked him to play the game with me. It was obvious that things were much worse than I had recognized. Unfortunately I don't think there is any substitute for help from close family in a situation like this. I was busy with my own kids and life, he was putting up a false front, and his wife (my stepmother) was keeping his secrets. I was probably two years late in understanding what was going on with my own father.

[Johnnie]

Seems like one could set up a test for themselves that has randomized questions that they take at some regular interval. If/when they start failing the test repeatedly, they should have a clear action plan of what to do, determined in advance.

I recommend and practice regular "Am I nuts?" checks at any age.

Buy a SPIA so they get nothing.

You bad!

[Artsdoctor]

Cognitive decline can take many shapes. There are definitely people who know they are experiencing a decline and, in fact, one of them posted a very moving description of what was happening to him in real time on this forum a couple of years ago.

The biggest mistake anyone can make is to ignore the possibility that it can happen to anyone. At the very least, set up certain safeguards for yourself and remain open to certain signs. If you're finding that money is not being transferred properly, that you're not reconciling your finances properly, that you're bouncing checks, at least take a step back and ask yourself what's going on. (It's a little like walking around your car from time to time; if there are a lot of dents and scrapes, you might want to pause.) But unfortunately, some people will not have that warning so have someone you trust check in from time to time.

I know that a SPIA was mentioned half-way jokingly, but don't be too quick to write that possibility off. Cognitive decline will happen to a very large chunk of the population--definitely Bogleheads like anyone else. Be open to having some contingency plans.

[fourwheelcycle]

My wife and I have hoped to spare our two adult children from the details of our finances and estate plans until they are at least in their early fifties. We want to let them live their lives and focus on their own families, jobs, and finances for as long as possible. If we make it that long we will be in our mid-eighties by then. This article suggests we should begin involving them now, or soon, since we are already in our early seventies.

[afan]

Having someone manage your investments will do little to solve the problem of cognitive decline. Leaving assets in a handful of index funds dies not require much mental acuity. Resisting sales pitches mat take more. But an advisor cannot keep you from buying that over priced annuity or penny stock.
Managing the non investment part of a financial life is where the complexity arises. Having an entity like PAS hold your index funds does nothing to optimize your insurance portfolio, make sure your legitimate bills are paid or your taxes are done correctly.
A service that did these noninvestment chores well and ignored investing altogether would be valuable. If it would do an annual rebalancing check for $100 that would be a small incremental value.
It would be absurd to pay an AUM fee get the rebalancing and not get the noninvestment services.

[TN_Boy]

My wife and I have hoped to spare our two adult children from the details of our finances and estate plans until they are at least in their early fifties. We want to let them live their lives and focus on their own families, jobs, and finances for as long as possible. If we make it that long we will be in our mid-eighties by then. This article suggests we should begin involving them now, or soon, since we are already in our early seventies.

To be honest, waiting until mid-80s is a truly terrible idea. I am really really glad my parents didn't do that. My problems would have been much harder.

And it's hardly any burden at all for your children to be aware of your estate plans and finances. They might even have some suggestions for you (for example, maybe you were planning on leaving each child a 1/2 interest in the family home. They might say "Please don't do that."). Or, they might learn something from your planning that would help them make their plans.

[fourwheelcycle]

My wife and I have hoped to spare our two adult children from the details of our finances and estate plans until they are at least in their early fifties.

To be honest, waiting until mid-80s is a truly terrible idea. I am really really glad my parents didn't do that.

Looking back at our own lives, my wife and I were, fortunately, able to be focused on our family and careers until our early sixties. We were, perhaps selfishly, although not consciously, almost totally focused on our family and careers through our forties. During our fifties, as we began to plan for our own retirement, we asked our parents enough directed questions to satisfy ourselves that they were OK financially and had appropriate documents in place for durable powers of attorney, wills, and advance directives. As it turned out, we did not have to begin assisting our parents with their finances, taxes, and health care until their early nineties, which came during our mid and late sixties.

Our goal has not been to wait until our mid-eighties to involve our children in our finances and estate plans, but rather to wait, if possible, to allow them to focus on their own lives, free of concerns for us, until their early fifties. To be clear, they do know we are OK financially, that we have our home and all of our taxable savings in a revocable trust with them as the sole beneficiaries, that we have DPOAs which will likely impose responsibilities on them someday, and that we have advance directives. However, they have not asked for, and we have not offered, any details about our finances or our estate documents. We realize we need to begin considering how soon to involve them in these details.

[Tdubs]

Having someone manage your investments will do little to solve the problem of cognitive decline. Leaving assets in a handful of index funds dies not require much mental acuity. Resisting sales pitches mat take more. But an advisor cannot keep you from buying that over priced annuity or penny stock.
Managing the non investment part of a financial life is where the complexity arises. Having an entity like PAS hold your index funds does nothing to optimize your insurance portfolio, make sure your legitimate bills are paid or your taxes are done correctly.
A service that did these noninvestment chores well and ignored investing altogether would be valuable. If it would do an annual rebalancing check for $100 that would be a small incremental value.
It would be absurd to pay an AUM fee get the rebalancing and not get the noninvestment services.

Quite true. What an advisor will do is keep me from leaving 70 percent of my life's holdings to rot in a Wells Fargo/BOA account for 20 years. They aren't the whole answer, but they can help.