The New York Times had an important article back in April, entitled “As Cognition Slips, Financial Skills Are Often the First to Go.” It deals primarily with folks 80 and up, who are no longer making sound financial decisions.
It struck a chord with us. In the late 1970s, a family member in his 80s decided to take a flyer on Sears and Roebuck shares, for no other reason than that he had always liked the company. Share prices plunged shortly afterward, and he fretted over his purchase until the end of his life. Of course, he had no business dabbling in the market at his age, when he should have been preserving assets for his wife, in case she survived him, or for some emergency need.
We once knew a widow, call her Sally, who used all of her late husband’s insurance benefits to purchase a complicated financial instrument called a “flexible premium deferred annuity contract.” She was attracted by the idea of a lifetime income stream — although an independent financial adviser would likely have recommended a simple single payment immediate annuity for this purpose. Sally never told anyone about her purchase, until it was done. Then, she sort of bragged about it.
Unfortunately, Sally had never faced the seriousness of her COPD, even though she was already having difficulty with some of the activities of daily living. In fact, her life expectancy was quite limited.
It wasn’t long before she fell and had to go into assisted living — only to discover that she couldn’t touch the funds in her annuity for the first year without paying a substantial penalty. She was barely able to eke out that year until, finally, she could take 10 percent of her funds without penalty. This was a great relief to her, but shortly after, she passed away. The lifetime income stream promise turned out to be irrelevant.
Sally’s financial anxieties at the end of life would have been far less if she had simply kept her money in a checking account.
A financial adviser interviewed for the Times article suggested that seniors assemble a “protective tribe” to help them make financial decisions. This is a particularly good idea as we approach the age of 80. A tribe of trusted friends and family could well keep us from making financial mistakes – and from the anxiety that follows such mistakes.