Your Money’s Worth
by Mind Over Matter V 13:
Money Management Gets Tougher as We Age
At the age of 88, Pattie Lovett-Reid’s mother, Joyce Fraser, wants to know what is happening with her finances.
“She asks for quarterly statements. She still wants an element of control,” said Lovett-Reid, the Chief Business Commentator at CTV News.
But Lovett-Reid’s mother recognized several years ago that it was best to let others oversee the day-to-day management of her financial affairs. It is a difficult decision that many older adults and their families must face – a decision that balances a desire for independence with one’s financial security.
It starts with the acknowledgment that our brains change as we age, bringing increased vulnerability. Dr. Jason Karlawish, Co-director of the Penn Memory Centre at the University of Pennsylvania, discusses the loss of "fluid intelligence," which includes the ability to learn new tasks and manage money. He explains that this makes older adults more susceptible to financial fraud or mismanagement – risks that are magnified for individuals who develop Alzheimer’s disease and other types of dementia.
A 2010 brief published by the Centre for Retirement Research at Boston College entitled “What is the Age of Reason?” noted that declines in fluid intelligence can be partly offset by age-related increases in “crystallized intelligence” (sometimes called experience or knowledge). However, research indicates that after peaking in middle age, the ability to make effective financial decisions declines.
According to David Laibson, a Professor of Economics at Harvard University and co-author of the brief,
“OUR NATION’S WEALTH IS DISPROPORTIONATELY HELD BY OLDER ADULTS, AND THEY ARE EXACTLY THE GROUP, PARTICULARLY AS THEY REACH THEIR 80S AND 90S, THAT ARE MOST VULNERABLE. BUT OUR SYSTEM HAS THE FEWEST PROTECTIONS FOR THOSE PEOPLE.”
Helping people prepare for retirement (and better protect themselves) is a key objective of Sandra Pierce’s work in her role as Vice President and Portfolio Manager with RBC Dominion Securities.
As a senior executive with Canada’s largest bank, Pierce already has an impressive title, but she has branded herself with an unforgettable one: The Bag Lady of Bay Street.
She was inspired by a 1995 article published by The New York Times on Sherry Lansing, who as the head of Paramount Pictures was one of the first women to rise to a position of power in Hollywood. Despite her substantial wealth, accomplishment, and influence, Lansing spoke about a recurring nightmare in which she was standing on the streets of Los Angeles as a “bag lady,” watching her ex-husband drive by in a convertible Rolls Royce.
Lansing went on to disclose that, based on the dream, she began to suffer from what she called the “bag lady syndrome.” Despite being worth tens of millions of dollars, Lansing nevertheless encountered acute anxiety whenever she considered her finances.
She worried, primarily, about whether she had accumulated sufficient assets to maintain the lifestyle to which she had become accustomed.
“It’s an anxiety and it’s a silly label, but it’s one that we all deal with. Men have it too, but in a different context. We worry, will we have enough?” Pierce told Mind Over Matter®.
“WHEN I TALK TO WOMEN’S GROUPS, I ALWAYS GET SO MANY NODDING HEADS. IT GOES TO THE FEAR OF WILL I HAVE ENOUGH MONEY. WE HAVE THIS BAG LADY SYNDROME IN OUR CLOSET.”
Her observations, based on more than three decades as a financial planner, are borne out in a 2018 poll by Leger involving 1000 Canadians aged 60 and older, which found that 50% of women between the ages of 60 and 69 have at least one financial concern, compared to 39% of men in the same age cohort. The most common concerns were “I will run out of money before I die” and “I will not be able to pay for long-term care.”
The best response, advises Pierce, is to build a plan with professional assistance. And the sooner you start, the better. She encourages her clients to initiate the process in their late 40s or early 50s, identifying their sources of retirement income (e.g., RSPs, CPP, or company pension plans) and setting monthly withdrawals. If they plan to travel more in their first ten years of retirement, then they should allocate sufficient funds accordingly, and thereafter adjust as circumstances change.
“By the time you’ve retired, you should be ready for it. You should have worked on the plan so that this is no big deal, although it is a big deal,” said Pierce.
Many older adults are now choosing to work past the traditional retirement age. The 2018 Leger poll found that among those surveyed who were still working, 69% were delaying their retirement, with 35% indicating that they cannot afford to retire and 32% indicating that they love their jobs.
Lovett-Reid suggests that people who choose to keep working should consider deferring the collection of Canada Pension Plan (CPP). She cites the work of Bonnie-Jeanne MacDonald of the National Institute on Ageing at Ryerson University, who has pointed out that holding off on CPP until the age of 70 will qualify you for 150% of the benefits that you would receive at the age of 65.
“There’s a huge value in delaying,” said Lovett-Reid. “It’s fascinating when you see the numbers.”
Whenever your working life winds down, she advises that you carefully calculate your basic living expenses and consider converting part of your Retirement Savings Plan (RSP) or other savings into an annuity, which offers the peace of mind of a predictable monthly income.
“You don’t do it all, but I do think you could make sure that your fixed costs are covered off for life. I’m always planning to live to the age of 100. I’m erring on the side of caution. Maybe 105!”
It is axiomatic that a retired person’s investments should be conservative in order to preserve their value, but Lovett-Reid believes that it is wise to include a small portion of growth elements in your nest egg as well.
“I do think you can err too much on the side of caution, because look at inflation. You don’t want your purchasing power to erode entirely. It’s about balance,” she said.
Lovett-Reid strongly recommends acting early on one of the most sensitive but crucial decisions about financial matters for older people: appointing a power of attorney or “POA” (i.e., the person who will make decisions on your behalf if you can no longer make them yourself).
“The best time to do it is long before you need it.”
APPOINTING A POWER OF ATTORNEY IS PARTICULARLY IMPORTANT GIVEN THE GROWTH IN FRAUD DIRECTED AGAINST SENIORS.
Lovett-Reid’s mother was almost caught by a telephone scam a few years ago. She gave out some banking information to fraudsters, but fortunately realized her mistake and quickly contacted the bank before her account could be drained. It was the catalyst to her appointment of a POA.
Pierce notes that the sophistication of the criminals, coupled with the vulnerability of seniors, makes fraud an ever-present risk. She reminds her clients that a bank will never call, e-mail, or text asking for personal information, and she advises them to consult with a trusted family member, friend, or their POA before agreeing to anything.
She told the story of a client – a single woman with no children – who was befriended by the new superintendent at her building. Pierce and her team were overseeing her accounts and noticed an increasingly suspicious amount of money being withdrawn.
“We asked what was going on and she said he’s so nice, we go for lunch. He was taking advantage of this elderly woman, sadly. We went over and confronted him and threatened to go to his employer if it didn’t stop.”
Having people who you can rely upon is key but choosing them is not always easy. “I’ve seen situations where adult children were not so trustworthy,” said Pierce.
Family disputes over POAs can be bitter, costly, and too frequently end up in court.
She recommends having the uncomfortable conversations with your family members early and making the difficult decisions about who to trust while you are of sound mind. Prudent planning can reduce risks, offer some peace of mind about your retirement finances, and in the process ease the fears of the bag lady syndrome.
EARLY WARNING SIGNS OF IMPAIRED FINANCIAL SKILLS IN OLDER ADULTS
WARNING SIGN 1:
Is the person taking longer to complete everyday financial tasks?
EXAMPLES:
• Slower preparing bills for mailing
• Slower completing cheque and cheque register
WARNING SIGN 2:
Is the person showing reduced visual attention to key details/facts in financial documents?
EXAMPLES:
• Cannot identify a bill that is overdue, which needs prompt attention
• Trouble identifying transactions in complex documents like a bank statement, such as gaps in cheque number sequence
• Difficulty completing payee section of cheque register
WARNING SIGN 3:
Is the person showing declines in everyday arithmetic skills related to his /her finances?
EXAMPLES:
• Calculating a return on a specific investment option
• Difficulty making correct change for a vending machine purchase
WARNING SIGN 4:
Is the person showing decreased understanding of financial concepts?
EXAMPLES:
• Difficulty understanding terms in a bank statement, such as a specific interest rate, minimum balance, and concept of caps in cheque sequence
• Difficulty understanding key investment risk
WARNING SIGN 5:
Is the person having new difficulty identifying risks in an investment opportunity?
EXAMPLES:
• Trouble identifying key risk in an investment scenario
• Overemphasizing investment returns while overlooking risks
* It is important to note that in order to qualify as warning signs of financial decline, the above problems should represent a change from the older person’s prior financial functioning.
Source: The National Endowment for Financial Education, based on research by Dr. Daniel Marson, University of Alabama at Birmington