Attention Do-It-Yourselfers: Kiplinger Warns that Retirement Planning and Money Management Get Harder as We Grow Older
Many articles on retirement and financial planning that we encounter here at AgingOptions have the same theme: money management is inherently complicated, so professional financial guidance is essential. Sometimes those articles get it right. For example, we almost always recommend that people planning for retirement prepare a financial dashboard, something that requires objective help from a well-trained adviser. We find that most financial plans are woefully inadequate because they’re not comprehensive enough.
Yes, You Can Handle Your Own Money Management – but Not Indefinitely
However, this article published late last year on the Kiplinger website takes what we think is a helpful and sobering approach to the question of do-it-yourself financial planning. Sure, says writer and New England-based Certified Financial Planner Michael Panico, you can probably handle many money management duties yourself. However, you are getting older, and your skills are almost certain to deteriorate. The problem is, you might not realize how much you’ve lost your edge until problems start to arise, and those problems can cost you.
“Financial planning isn’t rocket science,” the Kiplinger article begins. “Given enough spare time and discipline, anyone can learn the basic tenets of retirement planning: diversify, mind your taxes, prepare for unexpected events, draft proper legal protections, etcetera. I promise it’s all out there online.” But clearly Panico feels that hiring a qualified financial planner is an important step. “There’s great value in the knowledge and experience that a planner acquires over time,” he says. “But there are plenty of do-it-yourselfers, too.”
Many people who do their own planning, Panico suggests, “take pride in handling all these burdens directly.” Nevertheless, he warns, “There’s something they need to understand: Even if you’ve got the time and discipline to do your own planning, you’re still engaged in a losing battle with Father Time. That is, on a long enough time horizon, you’ll probably have no choice but to get outside help. The problem is that by the time you get to this point, it may be too late to realize it.”
One Example of Gradual Decline: How’s Your Driving These Days?
Panico acknowledges that talking about “losing our edge” as we grow older is hard. “No doubt it’s uncomfortable to ponder the many physical and cognitive declines that come with age,” he writes in Kiplinger. “But there’s no denying that we become increasingly dependent as we grow older. As it relates to your money, ignore this risk at your own peril.” As a parallel, Panico talks about that most American of adult privileges, driving a car.
“Sooner or later someone may have to take away your car keys,” he writes. “And with good reason: the Insurance Institute for Highway Safety found that people over the age of 70 are more likely to crash their car than any other age group other than drivers 25 and younger.”
For that reason, our laws are sensible: they restrict the impaired person’s access to the road, for their own safety and for everyone else’s. “But cognitive problems are trickier to spot,” says Panico, “and less impactful to society, so there are fewer safeguards in place. You’re on your own. And that’s where the trouble starts.”
The basic problem, he asserts, is that the average financial do-it-yourselfer is putting all their confidence in a set of skills that are destined to deteriorate – and they might not even realize it.
Aging and Retirement Planning: Gradual Declines Are Tough to Spot
The Kiplinger article describes two types of intelligence: “crystallized intelligence” which is defined as “the sum of your life’s experiences and knowledge”; and “fluid intelligence,” which represents “our ability to think through problems logically in novel environments.” Seniors tend to have the edge in crystallized intelligence, but it’s in the area of fluid intelligence where time is our enemy.
Fluid intelligence, Panico writes, “may diminish by as much as 1% for each year after age 60.” It’s true that many of us will remain mentally sharp as we grow older, but nevertheless our minds will inevitably decline, to the point where our fluid intelligence – for example, the ability to make the right decisions in a complex financial environment – simply isn’t what it used to be. “
The insidious thing is that these declines are gradual,” the article says. “Even if your skills diminish by a percent or two a year, it’s no big deal.” But over time, “all those little declines added up.”
This trend is a particular problem for retirees. “Year by year,” says Kiplinger, “you’re losing the ability to adeptly manage right about the time when your nest egg is at its pinnacle.”
Aging and Retirement Planning: Being Proud and Stubborn Can Cost You
Panico says that retirees who insist on being their own financial planner minimize the danger of deteriorating abilities. “You’re probably thinking that you’ll be wise enough to pass the torch when that time comes,” he writes. “Not likely.” He quotes this 2015 New York Times article that one of the first signs of cognitive decline is financial impairment. Yet, “seniors already within the grasp of cognitive decline tend to overestimate their abilities as compared to observations made by their family or health professionals.”
It’s easy to see why. “We get stubborn. Handling our affairs is a mark of pride.” So, it’s reckless to assume that we’ll suddenly realize one day that we need financial help when we’ve insisted on doing it ourselves all our adult lives.
People Need Financial Guidance at Any Age, Not Just When Retirement Looms
“People should be getting financial information at any age,” Panico recommends. Nonetheless, there are some common reasons that do-it-yourselfers use to justify their refusal to enlist outside help, such as:
- “A financial adviser is too expensive.”
- “I can do this on my own.”
- “Managing my money is fun. It’s a hobby that gives me something to do.”
“These statements may be true,” he concludes. “But while you may be avoiding many common financial mistakes in the short-term, you may instead be on track to make them all in your 80s or 90s. Don’t leave this to chance.”
His advice: Create a written financial plan. Share your goals and objectives with those closest to you. By working with a professional planner, you’ll “be certain that someone other than yourself has got your back for the entirety of your retirement journey. Your success may depend on it.”
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(originally reported at www.kiplinger.com)