When Should You Stop Managing Your Own Money

When Should You Stop Managing Your Own Money

Some time ago an article in Next Avenue, www.nextavenue.org, a trendy new website for seniors, reprinted with permission an article from MarketWatch.com, and addressed a common question with no easy answer – how do you handle your finances as you age?  The article, titled “At What Age Are You Too Old to Manage Your Money?” raises a very sensitive topic.  In a somewhat similar vein, people might ask at what age should you no longer drive or when should you stop performing any number of tasks, the topic implying there is a time when you no longer have the abilities you possessed at a younger age.  In this respect there is both good news and precautionary advice.

According to the article,a new study may have the answer to ages at which many or most Americans might be expected to lose their ability to pay bills, handle debt, maintain positive credit and assess the rate of return of an investment and detect fraud.  The study conducted by the Center for Retirement Research at Boston College, “Cognitive Aging and the Capacity to Manage Money,” differentiates between the ability to pay, say your gas or electric bill and the ability to make sound financial decisions such as investment decisions you might make with a financial advisor.

First, there is good news.  Assuming the individual has prior experience paying their bills and keeping track of their bank accounts, most people not suffering from cognitive impairment can be expected to continue managing their own money into their 70’s and 80’s.  Those who are inexperienced and who, for instance, left this function to their spouses, could be expected to need help to do this.

However, according to the researchers, “financial capacity relies on two key abilities:  1. performing financial tasks, which mostly requires crystallized intelligence or knowledge; and 2. making financial judgments, which requires a mix of knowledge and fluid intelligence like memory, attention and information processing.”

In other words, while you might perform perfectly well paying your electric bill or your mortgage, your decision making ability to make sound financial judgments, like recognizing whether a proposal for a new investment is reasonable or recognizing fraud can diminish earlier.  In fact, and here is one shocking conclusion, the authors stated the ability to process new information, the type of ability needed to make sound financial decisions, can begin to decline as early as in the 30’s.  There are, of course, those among us who might say, tongue in cheek, that many younger people do not begin to develop sound financial judgment until they are in their 20’s or 30’s (and for some people never) so there might be a very narrow window of opportunity.

There are now tests to measure financial capacity and for some elder law attorneys and financial advisors this might be an exciting development.  We often realize there are some people, regardless of age but especially as we age, who handle themselves just fine for day to day living but should not make complicated investment and financial decisions.  Guardianship is too serious a limitation.  But there is a need forsome assistance.  With tests available,this might be one objective way to assess who needs assistance.  Another factor, of course, is finding a reliable and honest person, often a trusted family member who can serve as agent under power of attorney.

Here are some recommended tips suggested (in abbreviated form).

  1. Spend the time to make a spending plan when you retire, which will include where to draw money from, how to invest, whether to downsize or use home equity, and what might be left for the kids.
  2. Involve the <adult children> and any other people <from whom> you seek financial advice when you make the plan.
  3. Once you have a plan, document it and share it with your family and trusted advisers who may help you later on.
  4. After age 75, make sure both members of a couple and a trusted adviser…know about the plan and have access to the account… to monitor for fraud.
  5. Before age 75, agree on a process for transferring responsibility for managing money <in the event of death or disability…> and make sure both <spouses> know how to run the household’s finances…”  www.nextavenue.com.

About the Author Janet Colliton

Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.

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