Money Matters

Part Two of a Two-Part Series on the Best Retirement Decisions You Can Make

Financial savvy peaks in your 50s to 70s, according to a recent study. After that, it’s a fast ride downhill—putting your financial future at risk, says Lewis Mandell, author of What to Do When I Get Stupid. Mandell outlines steps you can take to manage your money and protect yourself while you still have your financial wits about you.

“Self-sabotage is something people don’t think about,” says Mandell, a behavioral economist, professor emeritus of finance and managerial economics and former dean of business at The State University of New York in Buffalo. “Or they think it’s something that could happen to other folks. They’ve observed it, seen it with people they know.”
At 53, you are, were or will be the best you’ll ever be at handling fees and interest rates for managing credit cards and borrowing money, according to the study done by researchers from the Federal Reserve, New York University and Harvard University. At age 70, financial savvy for investing peaks.

After age 60, the prevalence of dementia in the population doubles every five years—rising to 30 percent of the population after age 85, the study says. Further, from ages 80 to 89, the prevalence of cognitive impairment without dementia is nearly 30 percent.

What does that mean for your finances? Older adults may pay more in interest and fees, according to the study. You may forget to deposit a check, Mandell says. You may leave $50,000 sitting in an account earning no interest because you forgot to invest it. Or you may miss out on a settlement because you forgot to fill out forms regarding a class action suit.

Other less benign dangers include making risky investments and losing that nest egg you worked hard to accumulate, Mandell says.

Mandell explains that you’re also at a greater risk of being misled by family, friends and financial advisors who may have their own best interest in mind—not yours.

Worse, coupled with the decline is an increased confidence that you can beat the market, Mandell says. What to do? Mandell’s strongest recommendation is to figure out your core living expenses (housing, food, utilities and medical) in retirement and buy an annuity to cover those expenses for the rest of your life.

“What people regard as the disadvantage of single payment annuities, I regard as one of the biggest advantages—the inability to cash it in,” Mandell says. “That’s money you can never be cheated out of.”

Don’t buy just any annuity, Mandell cautions. Like most economists, he recommends an immediate (or deferred) single payment annuity from a highly-rated insurance company that will pay the greatest monthly amount per dollar invested. In contrast, variable annuities tend to have less certain returns and generally have higher fees and selling costs associated with them, he says.

Great advice, but not many people take it. “Fewer than 1 percent of people have an annuity,” Mandell says.

One reason for this may be that annuities offer little to no return for financial planners, he says.

“If I’m a financial planner getting 1.5 percent of assets under management and the client takes $2 million of $4 million and puts it into an annuity, my income is cut in half,” Mandell says.

But you don’t need a financial planner to set up an immediate annuity, says Mandell, who emphasizes that he is not in the annuities business. He visited the website and was pleasantly surprised to see that the process wasn’t as complicated nor was the cost as high as he feared.

Annuities also offer insurance against outliving your income, Mandell says. “The greatest risk is living too long,” he says. “We all know people who live to be 100.”

The title for the book came friend’s question. “My friend said, ‘What happens when I get stupid?’” Mandell recalls. “I realized that maybe we should consider putting our finances on automatic so we can’t screw up on our own financial situation for ourselves and our loved ones.”

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